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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 5, 1998
SECURITY FIRST CORP.
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(Exact name of Registrant as specified in its charter)
Delaware 0 - 21212 34-1724675
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification
incorporation) No.)
1413 Golden Gate Boulevard, Mayfield Heights, Ohio 44124-1800
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 449-3700
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N/A
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(Former name or former address, if changed since last report)
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Item 5. Other Events
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On April 5, 1998, Security First Corp. ("Security First"), a Delaware
corporation, and FirstMerit Corporation ("FirstMerit"), an Ohio corporation,
entered into an Agreement of Affiliation and Plan of Merger ("Agreement"),
pursuant to which Security First will merge with and into FirstMerit through a
tax-free, stock-for-stock exchange, with FirstMerit as the surviving
corporation ("Merger"). Under the terms of the Agreement, upon consummation
of the Merger all shares of Security First common stock issued and outstanding
immediately prior to the Effective Time (as defined in the Agreement) of the
Merger shall be converted into the right to receive 0.8855 of a share of
FirstMerit common stock. Based on the closing price of FirstMerit's common
stock on April 3, 1998 of $33.06 per share, the value of the transaction on
such date was approximately $256 million. On April 6, 1998, Security First
and FirstMerit issued a joint press release announcing the Merger, a copy of
which is included as Exhibit 99 hereto and incorporated by reference herein.
The Merger, which would be accounted for as a pooling of interests, is
expected to close by the end of the third quarter of 1998. The Agreement has
been approved by the boards of directors of both companies. Consummation of
the Merger is subject to certain customary conditions, including, among
others, the adoption of the Agreement by the Security First shareholders and
receipt of regulatory approvals. Security First has also granted FirstMerit
an option to acquire up to 19.9 percent of Security First common stock, as
further described below.
The preceding description of the Agreement is qualified in its entirety
by reference to the copy of the Agreement included as Exhibit 2.1 hereto, and
which is incorporated by reference herein.
Security First and FirstMerit also entered into a Stock Purchase Option
dated as of April 5, 1998 (the "Security First Stock Option"). Under the
Security First Stock Option, FirstMerit was granted an irrevocable option to
purchase, under certain circumstances, up to 19.9 percent of Security First
common stock at $22.25 per share. The number of shares and the purchase price
are subject to adjustment as described in the Security First Stock Option.
Under certain circumstances, Security First may be required to repurchase the
Security First Stock Option or the shares acquired pursuant to the exercise
thereof. The Security First Stock Option was granted by Security First as a
condition of and inducement to FirstMerit entering into the Agreement.
The preceding description of the Security First Stock Option is qualified
in its entirety by reference to the copy of the Security First Stock Option
included as Exhibit 2.2 hereto, and which is incorporated by reference herein.
Item 7. Financial Statements and Exhibits
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(c) Exhibits.
The Exhibits listed on the accompanying Exhibit Index are filed as part
of this Report and are incorporated herein by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SECURITY FIRST CORP.
Date: April 7, 1998 By: /s/ Austin J. Mulhern
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Austin J. Mulhern
President, Chief Operating
Officer and Director
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EXHIBIT INDEX
Exhibit
Number Description
2.1 Agreement of Affiliation and Plan of Merger dated as of April
5, 1998 by and between FirstMerit Corporation and Security
First Corp.
2.2 Stock Purchase Option dated as of April 5, 1998 by and between
FirstMerit Corporation and Security First Corp.
99 Joint Press Release dated April 6, 1998 of Security First Corp.
and First Merit Corporation
<PAGE>
Exhibit 2.1
AGREEMENT OF AFFILIATION
AND PLAN OF MERGER
THIS AGREEMENT OF AFFILIATION AND PLAN OF MERGER, dated as of April 5,
1998 (this "Agreement"), is made by and between FirstMerit Corporation, an
Ohio corporation ("FirstMerit"), and Security First Corp., a Delaware
corporation ("Security First").
WHEREAS, the respective Boards of Directors of FirstMerit and Security
First have each determined that it is in the best interests of their
respective shareholders for Security First to merge with and into FirstMerit
upon the terms and subject to the conditions set forth herein;
WHEREAS, the respective Boards of Directors of FirstMerit and Security
First have each approved the merger of Security First with and into
FirstMerit, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of FirstMerit intends, contemporaneously
with the merger of Security First with and into FirstMerit, to merge the
wholly owned subsidiaries of Security First (not including the non-banking
subsidiaries), with and into FirstMerit Bank, N.A., a wholly owned subsidiary
of FirstMerit;
WHEREAS, the Board of Directors of FirstMerit will appoint to the
FirstMerit Board of Directors at the Effective Time, an individual to be
recommended by Security First (subject to the approval of the FirstMerit Board
of Directors);
WHEREAS, as an inducement for FirstMerit to enter into this Agreement,
Security First will provide FirstMerit with an option to purchase up to 19.9
percent of the capital stock of Security First, but only if certain events
occur, pursuant to the terms and conditions of the Security First Stock
Purchase Option (as hereinafter defined);
WHEREAS, for Federal income tax purposes, it is intended that the merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the merger shall be
accounted for as a "pooling of interests;"
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the parties hereto hereby agree as
follows:
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1. THE MERGER
1.1. Merger.
1.1.1. Merger. At the Effective Time (as hereinafter defined),
Security First will be merged with and into FirstMerit (the "Merger") in
accordance with the provisions of Section 1701.78 of the Ohio General
Corporation Law ("OGCL"). FirstMerit shall be the surviving corporation in
the Merger and shall continue after the Merger to be incorporated under the
laws of the State of Ohio (the "Surviving Corporation"). The Merger shall
have the effects specified in the OGCL. The name of the Surviving Corporation
shall be "FirstMerit Corporation."
1.1.2. Effective Time. As soon as practicable following the
Closing (as hereinafter defined), FirstMerit and Security First (the
"Constituent Corporations") shall cause a certificate of merger complying with
the requirements of Section 1701.81 of the OGCL (the "Certificate of Merger")
to be filed with the Secretary of State of the State of Ohio. The form of
Certificate of Merger is attached hereto as Exhibit 1.1.2, which has attached
to it the Amended and Restated Articles of Incorporation of the Surviving
Corporation. The Merger will become effective at the time and date which the
Certificate of Merger is filed with the Secretary of State of the State of
Ohio (the "Effective Time").
1.1.3. Consummation of Merger. The closing of the Merger (the
"Closing") will take place at 10:00 a.m. (local time) at the principal
executive offices of FirstMerit as promptly as practicable after the date on
which all of the conditions set forth in Article 6 are satisfied or duly
waived, or at such other time and place and on such other date as FirstMerit
and Security First may agree.
1.1.4. Articles of Incorporation and Regulations. The Amended and
Restated Articles of Incorporation and Code of Regulations of FirstMerit,
attached hereto as Exhibit 1.1.4, in effect immediately prior to the Effective
Time will be the Amended and Restated Articles of Incorporation and
Regulations of the Surviving Corporation after the Effective Time, until duly
amended in accordance with their respective terms and the OGCL.
1.1.5. Directors and Officers. The directors and officers of
FirstMerit immediately prior to the Effective Time will be the directors and
officers, respectively, of the Surviving Corporation, until their successors
have been duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the terms of the Surviving
Corporation's Amended and Restated Articles of Incorporation and Code of
Regulations and the OGCL. Immediately following Closing, the Board of
Directors of FirstMerit will appoint to the FirstMerit Board of Directors, an
individual to be recommended by Security First, but subject to the approval
of the FirstMerit Board of Directors, such individual to serve in the class
whose terms expire in 2001.
1.1.6. Service of Process. B.&McD., Inc., whose address is 106
S. Main Street, Akron, Summit County, Ohio 44308, is the statutory agent upon
whom any process, notice or demand against FirstMerit, or the Surviving
Corporation may be served.
2. CONVERSION OF SHARES
2.1. Conversion of Shares. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or shareholder, each share of the
common stock, $.01 par value per share, of Security First (the "Security First
Common Stock"), issued and outstanding immediately prior to the Effective Time
(excluding shares held by Security First or any of the Security First
Subsidiaries (as defined below) or by FirstMerit or any of the FirstMerit
Subsidiaries (as defined below), in each case other than in a fiduciary
capacity or as a result of debts previously contracted ("Treasury Shares")),
shall cease to be outstanding and shall be converted into and become the right
to receive .8855 (subject to adjustment pursuant to Section 2.5) (the
"Exchange Ratio") shares of common stock, no par value, of FirstMerit
("FirstMerit Common Stock").
2.2. Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of FirstMerit Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, FirstMerit shall pay to each holder of Security First Common
Stock who would otherwise be entitled to a fractional share of FirstMerit
Common Stock (after taking into account all Security First Certificates
delivered by such holder) an amount in cash (without interest) determined by
multiplying such fraction by the average of the last sale prices of FirstMerit
Common Stock, as reported by The Nasdaq Stock Market National Market System
("Nasdaq/NMS") reporting system (as reported in The Wall Street Journal or,
if not reported therein, in another authoritative source), for the five
Nasdaq/NMS trading days immediately preceding the Effective Date.
2.3. Exchange Procedures.
2.3.1. At or prior to the Effective Time, FirstMerit shall
deposit, or shall cause to be deposited, with the Exchange Agent, for the
benefit of the holders of Security First Certificates, for exchange in
accordance with this Article 2, certificates representing the shares of
FirstMerit Common Stock ("New Certificates") and an estimated amount of cash
(such cash and New Certificates, together with any dividends or distributions
with respect thereto (without any interest thereon), being hereinafter
referred to as the "Exchange Fund") to be paid pursuant to this Article 2 in
exchange for outstanding shares of Security First Common Stock.
2.3.2. As promptly as practicable after the Effective Date,
FirstMerit shall send or cause to be sent to each former holder of record of
shares (other than Treasury Shares) of Security First Stock immediately prior
to the Effective Time transmittal materials for use in exchanging such
shareholder's Security First Certificates for the consideration set forth in
this Article 2. FirstMerit shall cause the New Certificates into which shares
of a shareholder's Security First Common Stock are converted on the Effective
Date and/or any check in respect of the fractional share interests or
dividends or distributions which such person shall be entitled to receive to
be delivered to such shareholder upon delivery to the Exchange Agent of
Security First Certificates representing such shares of Security First Common
Stock (or indemnity reasonably satisfactory to FirstMerit and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by
such shareholder. No interest will be paid on any such cash to be paid
pursuant to this Article 2 upon such delivery.
2.3.3. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to any former holder of Security First
Common Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
2.3.4. No dividends or other distributions with respect to
FirstMerit Common Stock with a record date occurring after the Effective Time
shall be paid to the holder of any unsurrendered Security First Certificate
representing shares of Security First Common Stock converted in the Merger
into shares of such FirstMerit Common Stock until the holder thereof shall
surrender such Security First Certificate in accordance with this Article 2.
After the surrender of a Security First Certificate in accordance with this
Article 2, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of FirstMerit Common
Stock represented by such Security First Certificate.
2.3.5. Any portion of the Exchange Fund that remains unclaimed by
the shareholders of Security First for twelve months after the Effective Time
shall be paid to FirstMerit by the Exchange Agent. Any shareholders of
Security First who have not theretofore complied with this Article 2 shall
thereafter look only to FirstMerit for payment of the shares of FirstMerit
Common Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on the FirstMerit Common Stock deliverable in respect of each
share of Security First Common Stock such shareholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
2.4. Reserved.
2.5. Anti-Dilution Provisions. In the event FirstMerit changes (or
establishes a record date for changing) the number of shares of FirstMerit
Common Stock issued and outstanding prior to the Effective Date as a result of
a stock split, stock dividend, recapitalization or similar transaction with
respect to the outstanding FirstMerit Common Stock and the record date
therefor shall be prior to the Effective Date, or exchanges FirstMerit Common
Stock for a different number or kind of shares or securities or is involved in
any transaction resulting in any of the foregoing, the Exchange Ratio shall be
proportionately adjusted.
2.6. Treasury Shares. Each of the shares of Security First Stock held
as Treasury Shares immediately prior to the Effective Time shall be canceled
and retired at the Effective Time and no consideration shall be issued in
exchange therefor.
2.7 Stock Options. The Security First Disclosure Letter (as
hereinafter defined) sets forth a list of each stock option outstanding on the
date of this Agreement (collectively, the "Security First Stock Options"), to
purchase Common Stock heretofore granted pursuant to the Security First 1987
Stock Option and Incentive Plan, 1996 Stock Option and Incentive Plan and the
First Kent Financial Corporation 1994 Stock Option Plan (the "Security First
Option Plans"). The Security First Disclosure Letter also sets forth with
respect to each Security First Stock Option the option exercise price, the
number of shares subject to the option, the dates of grant, vesting,
exercisability and expiration of the option and that the option is either an
incentive or a nonqualified stock option. Without the written consent of
FirstMerit, no additional stock options shall, after the date of this
Agreement, be granted under the Security First Option Plans. All rights under
Security First Stock Options shall be treated as provided in this Section.
Each Security First Stock Option outstanding immediately prior to the
Effective Time shall be assumed at the Effective Time by the Surviving
Corporation and continue to be an issued and outstanding option of the
Surviving Corporation in accordance with the terms of the respective Security
First Option Plans, except that: (a) the Surviving Corporation and its
Compensation Committee shall be substituted for Security First and the
committee of Security First's Board of Directors administering such Security
First Option Plans, (b) from and after the Effective Time, each such Security
First Stock Option may be exercised only for FirstMerit Common Stock
notwithstanding any contrary provision of the Security First Option Plans or
stock option agreements executed in connection therewith, (c) each such
Security First Stock Option shall at the Effective Time become an option to
purchase a number of shares of FirstMerit Common Stock equal to the product
arrived at by multiplying the Exchange Ratio by the number of shares of Common
Stock subject to such option immediately prior to the Effective Time, and (d)
the exercise price per share of FirstMerit Common Stock at which each such
Security First Stock Option is exercisable shall be the amount (rounded up to
the next whole cent) arrived at by dividing the exercise price per share of
Common Stock at which such Security First Stock Option is exercisable
immediately prior to the Effective Time by the Exchange Ratio; provided,
however, that, notwithstanding the foregoing, the Surviving Corporation shall
not issue or pay for any fractional share otherwise issuable upon any exercise
of a Security First Stock Option, as assumed and adjusted as aforesaid.
In addition, notwithstanding clauses (c) and (d) of the immediately
preceding sentence, each Security First Stock Option which is an incentive
stock option shall be adjusted as required by Section 424 of the Code, and the
regulations promulgated thereunder, so as not to constitute a modification,
extension or renewal of the option, within the meaning of Section 424 of the
Code. The Board of Directors of the Surviving Corporation shall take such
action as may be required under the Security First Option Plans to effectuate
the foregoing. Immediately after Closing, FirstMerit shall reserve for
issuance (and, if not previously registered pursuant to the Securities Act,
register) the number of shares of FirstMerit Common Stock necessary to satisfy
FirstMerit's obligations under this Section. Prior to the Closing, and
thereafter as may be appropriate, FirstMerit shall take such actions as are
necessary to effect the provisions of this Section, and to preserve for the
holders of Security First Stock Options the benefits to be provided pursuant
to this Section.
2.8. Security First Convertible Debentures. The Security First
Disclosure Letter sets forth the terms of the Security First Debentures.
Without the written consent of FirstMerit, no additional Security First
Debentures shall, after the date of this Agreement, be issued. All rights
under Security First Debentures shall be treated as provided in this Section.
As soon as practicable after the date of this Agreement, Security First shall
call and redeem, pursuant to the terms of the Security First Debentures, all
of the outstanding Security First Debentures.
3. REPRESENTATIONS AND WARRANTIES OF FIRSTMERIT
FirstMerit hereby represents and warrants to Security First that:
3.1. Corporate Organization. FirstMerit is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Ohio and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which its ownership or lease of
property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect (as hereinafter
defined) on FirstMerit. FirstMerit is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHCA").
FirstMerit has the requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as it is now
being conducted.
3.2. Authority. FirstMerit has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
approval of the applicable Regulatory Authorities (as defined hereinafter), to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and approved by the Board of Directors of
FirstMerit, including provisions for the resolution of certain issues by
management, and no other corporate proceedings on the part of FirstMerit are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, FirstMerit, enforceable against
FirstMerit in accordance with its terms, except as enforceability hereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceedings may be brought.
3.3. Capitalization. The authorized capital stock of FirstMerit
consists of 80,000,000 shares of FirstMerit Common Stock and 7,000,000 shares
of preferred stock. As of December 31, 1997, (i) 68,127,314 shares of
FirstMerit Common Stock (including 6,159,750 treasury shares) were validly
issued and outstanding, fully paid and nonassessable and not issued in
violation of any preemptive right of any shareholder of FirstMerit, and (ii)
no shares of preferred stock were issued and outstanding. Since December 31,
1997 and through the date of this Agreement, FirstMerit has not issued any
additional shares of FirstMerit Common Stock or preferred stock other than
pursuant to the exercise of employee stock purchase rights or stock options
under FirstMerit Option Plans (as hereinafter defined) outstanding on December
31, 1997. Except as contemplated by this Agreement, the FirstMerit Rights
Plan (as hereinafter defined) or in the FirstMerit Disclosure Letter (which is
a letter attached hereto as Exhibit 3.3, dated the date of this Agreement,
from FirstMerit to Security First, such letter being identified by Security
First executing a copy thereof), as of the date of this Agreement, there are
no shares of capital stock of FirstMerit authorized, issued or outstanding and
there are no outstanding subscriptions, options, warrants, scrip, rights,
calls, convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of FirstMerit obligating, or which may obligate,
FirstMerit to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of FirstMerit or obligating, or which
may obligate, FirstMerit to grant, extend or enter into any subscription,
option, warrant, scrip, right, call, convertible security or other similar
agreement, arrangement or commitment. Except as set forth in the FirstMerit
Disclosure Letter, there are no voting trusts or other similar agreements,
arrangements or commitments to which FirstMerit or any FirstMerit Subsidiary
(as hereinafter defined) is a party with respect to the voting of the capital
stock of FirstMerit. All of the shares of FirstMerit Common Stock issuable in
exchange for the Security First Common Stock at the Effective Time in
accordance with this Agreement will be, when so issued, duly authorized,
validly issued, fully paid and nonassessable and will not be subject to
preemptive rights. FirstMerit has reserved for issuance the number of shares
of FirstMerit Common Stock necessary to satisfy FirstMerit's obligations under
Section 2.1.
3.4. Subsidiaries. The FirstMerit Disclosure Letter sets forth, as of
the date of this Agreement, the name and state of incorporation of each
banking, and each other significant subsidiary of FirstMerit (collectively,
the "FirstMerit Subsidiaries"). Except as set forth in the FirstMerit
Disclosure Letter, each of the FirstMerit Subsidiaries is a bank, or a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation or organization and is
duly qualified to do business as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the nature of the business
conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a
Material Adverse Effect on FirstMerit. Each of the FirstMerit Subsidiaries
has the requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its businesses as they are now being
conducted.
Except as set forth in the FirstMerit Disclosure Letter, as of the date
of this Agreement, all outstanding shares of capital stock of each FirstMerit
Subsidiary are owned by FirstMerit or another FirstMerit Subsidiary and are
validly issued, fully paid and nonassessable, have not been issued in
violation of any preemptive right and are owned free and clear of all liens,
claims, charges, options, encumbrances or agreements with respect thereto.
Except as set forth in the FirstMerit Disclosure Letter, as of the date of
this Agreement, neither FirstMerit nor any FirstMerit Subsidiary owns
beneficially more than 5% of any class of equity securities or any similar
interests of any corporation, bank, business, trust, association or similar
organization. There are, as of the date of this Agreement, no outstanding
subscriptions, options, warrants, scrip, rights, calls, convertible securities
or any other similar agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock or other securities of any
FirstMerit Subsidiary obligating, or which may obligate, any FirstMerit
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating, or which may
obligate, any FirstMerit Subsidiary to grant, extend or enter into any
subscription, option, warrant, scrip, right, call, convertible security or
other similar agreement, arrangement or commitment.
3.5. Information in Disclosure Documents, Registration Statement, Etc.
(a) None of the information with respect to FirstMerit or any
FirstMerit Subsidiary provided by FirstMerit for inclusion in the registration
statement to be filed with the Securities and Exchange Commission (the
"Commission") by FirstMerit on Form S-4 (or any other appropriate form) under
the Securities Act of 1933, as amended (the "Securities Act") for the purpose
of registering the shares of FirstMerit Common Stock to be issued in the
Merger (the "Registration Statement") will, at the time it becomes effective
and at the time of the Security First Meeting (as hereinafter defined),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. None of the information with respect to FirstMerit or any
FirstMerit Subsidiary provided by FirstMerit for inclusion in any
prospectus/proxy statement or information statement or notice of FirstMerit
and Security First, or any amendments or supplements thereto, required to be
mailed to Security First's shareholders in connection with the Merger (the
"Proxy" or "Proxy Statement") will, at the time of the mailing of the Proxy
Statement, and at the time of the Security First Meeting, contain any
statement which, at the time it is made and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or which omits to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Security First Meeting which has become false or misleading.
The Registration Statement will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. The Proxy Statement will comply as to form in all
material respects with the provisions of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder.
(b) All documents that FirstMerit is responsible for filing with any
Governmental Entity (as hereafter defined) will comply as to form in all
material respects with applicable law. None of the information with respect
to FirstMerit or any FirstMerit Subsidiary provided by FirstMerit for
inclusion in any document to be filed with any regulatory authority in
connection with the transactions contemplated hereby will contain any
statement of a material fact which is untrue as of the time that such
statement is made.
3.6. Consents and Approvals; No Violation. Except as set forth in the
FirstMerit Disclosure Letter, neither the execution and delivery of this
Agreement by FirstMerit, nor the consummation by FirstMerit of the
transactions contemplated hereby, nor compliance by FirstMerit with any of the
provisions hereof will (a) conflict with or result in any breach of any
provision of its Amended and Restated Articles of Incorporation or Code of
Regulations, (b) violate, conflict with, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration of, or result in the
creation of any lien, security interest, charge or other encumbrance upon any
of the properties or assets of FirstMerit or any of the FirstMerit
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which FirstMerit or any FirstMerit Subsidiary is a
party or to which they or any of their respective properties or assets may be
subject, except for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens or other encumbrances,
which, individually or in the aggregate, will not have a Material Adverse
Effect on FirstMerit, (c) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to FirstMerit or
any FirstMerit Subsidiary or any of their respective properties or assets,
except for such violations which, individually or in the aggregate, will not
have a Material Adverse Effect on FirstMerit, or (d) require any consent,
approval, authorization or permit of or from, or filing with or notification
to, any court, governmental authority or other regulatory or administrative
agency or commission, domestic or foreign ("Governmental Entity"), except (i)
pursuant to the Exchange Act and the Securities Act, (ii) filing the
certificate of merger pursuant to the OGCL and the DGCL, (iii) filings
required under the securities or blue sky laws of the various states, (iv)
filings with, and approval by, the Board of Governors of the Federal Reserve
System (the "FRB"), (v) filings with, and approval by, the Office of Thrift
Supervision ("OTS"), (vi) filings with, and approval by, the Office of the
Comptroller of the Currency (the "OCC"), (vii) filings and approvals pursuant
to any applicable state takeover laws ("State Takeover Approvals"), (viii)
consents, approvals, authorizations, permits, filings or notifications in
connection with compliance with applicable provisions of federal and state
securities laws relating to the regulation of broker-dealers, investment
advisors, or stock transfer agents, or (ix) consents, approvals,
authorizations, permits, filings or notifications which have either been
obtained or made prior to the Closing or which, if not obtained or made, will
neither, individually or in the aggregate, have a Material Adverse Effect on
FirstMerit nor restrict FirstMerit's legal authority to execute and deliver
this Agreement and consummate the transactions contemplated hereby.
3.7. Reports and Financial Statements. Since December 31, 1997,
FirstMerit has filed all reports, registrations and statements, together with
any required amendments thereto, that it was required to file with the
Commission, including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K
and proxy statements (collectively, the "FirstMerit Reports"). FirstMerit has
previously made available or furnished, or, with respect to the FirstMerit
Reports filed after the date of this Agreement, will promptly furnish,
Security First with true and complete copies of each of the FirstMerit
Reports. As of their respective dates (but taking into account any amendments
filed prior to the date of this Agreement), the FirstMerit Reports complied,
or, with respect to FirstMerit Reports filed after the date of this Agreement,
will comply, in all material respects with all the rules and regulations
promulgated by the Commission and did not contain, or, with respect to
FirstMerit Reports filed after the date of this Agreement, will not contain,
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of FirstMerit included in the FirstMerit Reports (the "FirstMerit
Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis (except as may be
indicated therein or in the notes thereto) and fairly present the consolidated
financial position of FirstMerit and the FirstMerit Subsidiaries as at the
dates thereof and the consolidated results of operations and cash flows for
the periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments, any other adjustments
described therein and the absence of footnotes.
3.8. Taxes. Except as set forth in the FirstMerit Disclosure Letter,
FirstMerit and each FirstMerit Subsidiary have prepared in good faith and duly
and timely filed, all federal, state, local and foreign income, franchise,
sales, real and personal property and other tax returns and reports required
to be filed by them on or before the date of this Agreement, except where the
failure to file would not have a Material Adverse Effect on FirstMerit.
Except as set forth in the FirstMerit Disclosure Letter, FirstMerit and each
FirstMerit Subsidiary have paid, or have adequately reserved or have made
adequate accruals (in accordance with generally accepted accounting
principles) with respect to, all taxes, interest and penalties shown to be
owing on all such returns or reports. There are no liens for federal, state,
local or foreign taxes upon the assets of FirstMerit or of any FirstMerit
Subsidiary, except for statutory liens for taxes and assessments not yet
delinquent or the validity of which is being contested in good faith by
appropriate proceedings. As of the date of this Agreement, except as set
forth in the FirstMerit Disclosure Letter, neither FirstMerit nor any of the
FirstMerit Subsidiaries is a party to any action or proceeding, nor is any
such action or proceeding threatened, by any Governmental Entity for the
assessment or collection of taxes which are material in amount, and no
deficiency notices or reports have been received by FirstMerit or any of the
FirstMerit Subsidiaries in respect of any material deficiencies for any tax,
assessment or government charges.
3.9. Employee Plans. All employee bonus, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase, employee
stock ownership, stock appreciation rights, savings, consulting, severance,
collective bargaining, group insurance, fringe benefit and other employee
benefit, incentive and welfare plans, policies, contracts and arrangements and
all trust agreements related thereto, now in effect and relating to any
present or former directors, officers or employees of FirstMerit or FirstMerit
Subsidiaries, whether or not described in Section 3(3) of Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), are identified in the
FirstMerit Disclosure Letter ("FirstMerit Employee Plans"). All of the
FirstMerit employee plans have been maintained, operated and administered in
substantial compliance with their terms, and FirstMerit, all of the FirstMerit
Subsidiaries and all of the FirstMerit Employee Plans currently comply, and
have at all relevant times complied, in all material respects with ERISA, the
Code, and any other applicable laws. FirstMerit has previously delivered or
made available to Security First copies of all FirstMerit Employee Plans, in
each case as in effect on the date of this Agreement.
3.10. Material Contracts. Except as set forth in the FirstMerit
Disclosure Letter or disclosed in the FirstMerit Reports, neither FirstMerit
nor any FirstMerit Subsidiary is, as of the date of this Agreement, a party
to, or is bound by, (a) any material lease not made in the ordinary course of
business of FirstMerit, (b) any agreement, arrangement, or commitment not made
in the ordinary course of business which materially restricts the conduct of
any line of business of FirstMerit, (c) any material agreement, indenture or
other instrument not specifically disclosed in the FirstMerit Financial
Statements relating to the borrowing of money by FirstMerit or the guarantee
by FirstMerit of any such obligation (other than trade payables and
instruments relating to transactions entered into in the ordinary course of
business), (d)any agreement, arrangement or commitment with or to a labor
union, or (e) any other contract or agreement or amendment thereto that would
be required to be filed as an exhibit to a Form 10-K filed by FirstMerit with
the Commission as of the date of this Agreement (the "FirstMerit Contracts").
Neither FirstMerit nor any FirstMerit Subsidiary is in default under any
FirstMerit Contract, which default is reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on FirstMerit, and
there has not occurred any event that with the lapse of time or the giving of
notice or both would constitute such a default.
3.11. Absence of Certain Changes or Events. Except as set forth in the
FirstMerit Disclosure Letter or disclosed in FirstMerit Reports filed by
FirstMerit with the Commission prior to the date of this Agreement, since
December 31, 1997 to the date of this Agreement, there has not been any change
in the financial condition, results of operations or business of FirstMerit
and the FirstMerit Subsidiaries that either individually or in the aggregate
has had a Material Adverse Effect on FirstMerit.
3.12. Litigation. Except as disclosed in the FirstMerit Disclosure
Letter or in FirstMerit Reports filed by FirstMerit with the Commission prior
to the date of this Agreement, there is no litigation, action, arbitration or
proceeding pending, or, to the best knowledge of FirstMerit, threatened
against or affecting FirstMerit or any FirstMerit Subsidiary which, either
individually or in the aggregate, is having, or insofar as reasonably can be
foreseen, will have, a Material Adverse Effect on FirstMerit, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator, outstanding against FirstMerit or any FirstMerit Subsidiary
having, or which, insofar as reasonably can be foreseen, in the future would
have, any such effect.
3.13. Compliance with Laws and Orders. Except as disclosed in the
FirstMerit Disclosure Letter or in FirstMerit Reports filed by FirstMerit with
the Commission prior to the date of this Agreement, the businesses of
FirstMerit and the FirstMerit Subsidiaries are not being conducted, and have
not been conducted since December 31, 1997, in violation of any law,
ordinance, regulation, judgment, order, decree, license or permit of any
Governmental Entity, except for possible violations which individually or in
the aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Material Adverse Effect on FirstMerit. Except as set
forth in the FirstMerit Disclosure Letter, no investigation or review by any
Governmental Entity with respect to FirstMerit or any of the FirstMerit
Subsidiaries outside the ordinary course of business and not generally
applicable to entities engaged in the same business is pending or, to the
knowledge of FirstMerit, threatened, and no Governmental Entity has indicated
an intention to conduct the same in each case other than those the outcome of
which will not have a Material Adverse Effect on FirstMerit.
3.14. Agreements with Bank Regulators. As of the date of this
Agreement, except as set forth in the FirstMerit Disclosure Letter, neither
FirstMerit nor any FirstMerit Subsidiary is a party to any written agreement
or memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any Governmental
Entity outside the ordinary course of business and not generally applicable to
entities engaged in the same business, including, without limitation, cease
and desist or other orders of any bank regulatory authority, which restricts
materially the conduct of its business, or in any manner relates to its
capital adequacy, its credit policies or its management, nor has FirstMerit
been advised by any Governmental Entity that it is contemplating issuing,
requiring or requesting (or is considering the appropriateness of issuing,
requiring or requesting) any such order, directive, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
undertaking. Except as set forth in the FirstMerit Disclosure Letter, there
are no material violations or violations with respect to which refunds or
restitutions which are material in amount to FirstMerit and the FirstMerit
Subsidiaries taken as a whole may be required, cited in any compliance report
to FirstMerit or any FirstMerit Subsidiary as a result of an examination by
any bank regulatory authority.
3.15. FirstMerit Ownership of Stock. Except as disclosed in the
FirstMerit Disclosure Letter, and except pursuant to Stock Purchase Option
dated April 5, 1998 (the "Security First Stock Purchase Option"), a copy of
which is attached hereto as Exhibit 3.15, neither FirstMerit nor, to the best
of its knowledge, any of its affiliates or associates beneficially owns,
directly or indirectly, or are parties to any agreement, arrangement or
commitment for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of Security First Common Stock (other than shares of
Security First Common Stock held in a fiduciary, trust, custodial or agency
capacity by a bank or trust subsidiary of FirstMerit) which in the aggregate,
represent 1% or more of the outstanding shares of Security First Common Stock.
3.16. Fees. Except for the fees paid and payable to Morgan Stanley &
Co. Incorporated, neither FirstMerit nor any FirstMerit Subsidiary has paid
or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement.
3.17. FirstMerit Action. The Board of Directors of FirstMerit (at a
meeting duly called and held) has by the requisite vote (i) determined that
the Merger is advisable and in the best interests of FirstMerit and its
shareholders, (ii) authorized and approved this Agreement and the Stock
Purchase Option, and the transactions contemplated hereby and thereby,
including the Merger, and (iii) authorized and approved the Merger in
accordance with applicable takeover laws (if any) with the result that they
will not apply to the consummation of the Merger and acquisition of shares of
FirstMerit Common Stock by the holders of Security First Common Stock pursuant
to this Agreement.
3.18. Rights Agreement. No person will become an "Acquiring Person" and
no "Shares Acquisition Date" or "Distribution Date" will occur under the
Shareholder Rights Agreement, as amended and restated, dated July 18, 1996,
between FirstMerit and FirstMerit Bank, N.A., as rights agent (the "FirstMerit
Rights Plan"), and no holder of rights issued under the FirstMerit Rights Plan
shall have any rights under the FirstMerit Rights Plan as a result of the
approval, execution or delivery of this Agreement or the consummation of the
Merger. No amendments have been made prior to the date of this Agreement to
the FirstMerit Rights Plan except as specifically referred to in this Section.
3.19. Environmental Matters. Except as set forth in the FirstMerit
Disclosure Letter, to the best of FirstMerit's knowledge: (i) neither
FirstMerit nor any of the FirstMerit Subsidiaries has been or is in violation
of or liable under any Environmental Law (as hereinafter defined), except for
any such violations or liabilities which would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on
FirstMerit; and (ii) none of the Loan Portfolio Properties and Other
Properties Owned (as hereinafter defined) by FirstMerit or any of the
FirstMerit Subsidiaries has been since such properties have been owned,
operated or managed by FirstMerit or any of the FirstMerit Subsidiaries is in
violation of under any Environmental Law, except for any such violations
which, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on FirstMerit. Except as set forth in the
FirstMerit Disclosure Letter, there are no actions, suits, demands, notices,
claims, investigations or proceedings pending, or to the best of FirstMerit's
knowledge threatened, relating to the liability of the Loan Portfolio
Properties and Other Properties Owned by FirstMerit or the FirstMerit
Subsidiaries under any Environmental Law, including, without limitation, any
notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or
violations of Environmental Law.
3.20. Accounting Matters. Neither FirstMerit nor, to the best of its
knowledge, any of its affiliates, has taken or agreed to take any action that
would prevent FirstMerit from accounting for the business combination to be
effected by the Merger as a "pooling of interests."
4. REPRESENTATIONS AND WARRANTIES OF SECURITY FIRST
Security First hereby represents and warrants to FirstMerit that:
4.1. Corporate Organization. Security First is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which its ownership or lease of
property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect on Security First.
Security First is registered as a savings and loan holding company with the
OTS. Security First has the requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Security First has delivered to FirstMerit as
attachments to the Security First Disclosure Letter true and complete copies
of its Certificate of Incorporation and its Bylaws (the "Corporate Governance
Documents") as currently in effect.
4.2. Authority. Security First has the requisite corporate power and
authority to execute and deliver this Agreement and, except for any required
approval of Security First's shareholders and the approval of the applicable
Regulatory Authorities, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by the
Board of Directors of Security First and no other corporate proceedings on the
part of Security First are necessary to authorize this Agreement or to
consummate the transactions so contemplated, except for approval by the
shareholders of Security First as provided in Section 6.1(a). This Agreement
has been duly executed and delivered by, and constitutes a valid and binding
obligation of, Security First, enforceable against Security First in
accordance with its terms, except as enforceability hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of the court before which
any proceedings may be brought, and except as enforceability hereof may be
limited by laws relating to the safety and soundness of insured depository
institutions as set forth in 12 U.S.C. Section 1818(b) or to the appointment of
a conservator or receiver by the Federal Deposit Insurance Corporation.
4.3. Capitalization. The authorized capital stock of Security First
consists of 20,000,000 shares of Security First Common Stock and 1,000,000
shares of serial preferred, par value $.01 per share. As of the date of this
Agreement, (i) 7,555,044 shares of Security First Common Stock were validly
issued and outstanding, fully paid and nonassessable and not issued in
violation of any preemptive right of any Security First shareholder and no
shares of serial preferred were issued. As of the date of this Agreement,
there were 88,324 treasury shares and outstanding Security First Stock Options
to purchase 374,892 shares of Security First Common Stock, and there were
outstanding Security First 6.25% Convertible Subordinated Debentures
("Security First Debentures") to covert into 878,048 shares of Security First
Common Stock, all of which are currently redeemable by Security First at 100%
of the original principal amount. Except as contemplated by this Agreement,
the Security First Stock Purchase Option or in the Security First Disclosure
Letter (which is a letter attached hereto as Exhibit 4.3, dated the date of
this Agreement, from Security First to FirstMerit, such letter being
identified by FirstMerit executing a copy thereof), there are no shares of
capital stock of Security First authorized, issued or outstanding and there
are no outstanding subscriptions, options, warrants, scrip, rights, calls,
convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of Security First obligating, or which may obligate,
Security First to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of Security First or obligating, or
which may obligate, Security First to grant, extend or enter into any
subscription, option, warrant, scrip, right, call, convertible security or
other similar agreement, arrangement or commitment. Except as set forth in
the Security First Disclosure Letter, there are no voting trusts or other
similar agreements, arrangements, or commitments to which Security First or
any Security First Subsidiary (as hereinafter defined) is a party with respect
to the voting of the capital stock of Security First.
4.4. Subsidiaries. The Security First Disclosure Letter sets forth,
as of the date of this Agreement, the name and state of incorporation of each
subsidiary of Security First (collectively, the "Security First Subsidiaries")
and the authorized capital stock of each Security First Subsidiary. Except as
set forth in the Security First Disclosure Letter, each of the Security First
Subsidiaries is a bank, savings association or a corporation, duly organized,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation or organization and is duly qualified to do
business as a foreign corporation in each jurisdiction in which its ownership
or lease of property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect on Security First.
Each of the Security First Subsidiaries has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its businesses as they are now being conducted. Security First has delivered
to FirstMerit as attachments to the Security First Disclosure Letter true and
complete copies of the Security First Subsidiaries' articles of incorporation
and code of regulations (charter or bylaws), each as currently in effect.
Except as set forth in the Security First Disclosure Letter, as of the
date of this Agreement, all outstanding shares of capital stock of each
Security First Subsidiary are owned by Security First or another Security
First Subsidiary and are validly issued, fully paid and nonassessable, have
not been issued in violation of any preemptive right and are owned free and
clear of all liens, claims, charges, options, encumbrances or agreements with
respect thereto. Except as set forth in the Security First Disclosure Letter,
as of the date of this Agreement, neither Security First nor any Security
First Subsidiary owns beneficially more than 5% of any class of equity
securities or any similar interests of any corporation, bank, business, trust,
association or similar organization. There are, as of the date of this
Agreement, no outstanding subscriptions, options, warrants, scrip, rights,
calls, convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of any Security First Subsidiary obligating, or which may
obligate, any Security First Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or
obligating, or which may obligate, any Security First Subsidiary to grant,
extend or enter into any subscription, option, warrant, scrip, right, call,
convertible security or other similar agreement, arrangement or commitment.
4.5. Information in Disclosure Documents, Registration Statement, Etc.
(a) None of the information with respect to Security First or any
Security First Subsidiary provided by Security First for inclusion in the
Registration Statement will, at the time it becomes effective and at the time
of the Security First Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. None of the information with respect to
Security First or any Security First Subsidiary provided in writing by
Security First for inclusion in the Proxy Statement will, at the time of the
mailing of the Proxy Statement, and at the time of the Security First Meeting,
contain any statement which, at the time it is made and in light of the
circumstances under which it is made, is false or misleading with respect to
any material fact, or which omits to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Security First Meeting which has become
false or misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act, and the rules and
regulations promulgated thereunder.
(b) All documents that Security First is responsible for filing with
any Governmental Entity will comply as to form in all material respects with
applicable law. None of the information with respect to Security First or any
Security First Subsidiary provided by Security First for inclusion in any
document to be filed with any Governmental Entity in connection with the
transactions contemplated hereby will contain any statement of a material fact
which is untrue as of the time that such statement is made.
4.6. Consent and Approvals; No Violation. Except as set forth in the
Security First Disclosure Letter, neither the execution and delivery of this
Agreement by Security First, nor the consummation by Security First of the
transactions contemplated hereby, nor compliance by Security First with any of
the provisions hereof, will (a) conflict with or result in any breach of any
provision of its Corporate Governance Documents, (b) violate, conflict with,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of any lien, security interest,
charge or other encumbrance upon any of the properties or assets of Security
First or any of the Security First Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Security First or any Security First Subsidiary is a party or to which they or
any of their respective properties or assets may be subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances, that are set forth in the Security
First Disclosure Letter or which, individually or in the aggregate, will not
have a Material Adverse Effect on Security First, (c) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Security First or any Security First Subsidiary or any of their
respective properties or assets, except for such violations which,
individually or in the aggregate, will not have a Material Adverse Effect on
Security First, or (d) require any consent, approval, authorization or permit
of or from, or filing with or notification to, any Governmental Entity, except
(i) pursuant to the Exchange Act and the Securities Act, (ii) filing
certificates of merger pursuant to the OGCL and the DGCL, (iii)filings
required under the securities or blue sky laws of the various states, (iv)
filings with, and approval by, the FRB, (v) filings with, and approval by,
the OTS, (vi) filings with, and approval by the OCC, (vii) filings and
approvals pursuant to any applicable State Takeover Approvals, or (viii)
consents, approvals, authorizations, permits, filings or notifications which
have either been obtained or made prior to the Closing or which, if not
obtained or made, will neither, individually or in the aggregate, have a
Material Adverse Effect on Security First nor restrict Security First's legal
authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby.
4.7. Reports and Financial Statements. Since March 31, 1997, Security
First has filed all reports, registrations and statements, together with any
required amendments thereto, that it was required to file with the Commission,
including, but not limited to Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements (collectively, the "Security First Reports"). Security First has
previously made available or furnished, or, with respect to Security First
Reports filed after the date of this Agreement, will promptly furnish,
FirstMerit with true and complete copies of each of the Security First
Reports. As of their respective dates (but taking into account any amendments
filed prior to the date of this Agreement), and except as stated in the
Security First Disclosure Letter, the Security First Reports complied, or,
with respect to Security First Reports filed after the date of this Agreement,
will comply, in all material respects with all the rules and regulations
promulgated by the Commission, and did not contain, or, with respect to
Security First Reports filed after the date of this Agreement, will not
contain, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim financial statements of Security First included in the Security First
Reports (the "Security First Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of Security First and
the Security First Subsidiaries as at the dates thereof and the consolidated
results of operations and cash flows for the periods then ended subject, in
the case of the unaudited interim financial statements, to normal year-end
audit adjustments, any other adjustments described therein and the absence of
footnotes.
4.8. Taxes. Except as set forth in the Security First Disclosure
Letter, Security First and each Security First Subsidiary have prepared in
good faith and duly and timely filed, or caused to be duly and timely filed,
all federal, state, local and foreign income, franchise, sales, real and
personal property and other tax returns and reports required to be filed by
them on or before the date of this Agreement, except where the failure to file
would not have a Material Adverse Effect on Security First. Except as set
forth in the Security First Disclosure Letter, Security First and each
Security First Subsidiary have paid, or have adequately reserved or have made
adequate accruals (in accordance with generally accepted accounting
principles) with respect to, all taxes, interest and penalties shown to be
owing on all such returns and reports. The Security First Disclosure Letter
sets forth, as of the date of this Agreement, the following information with
respect to Security First and each Security First Subsidiary: (i) the most
recent tax year through which the Internal Revenue Service ("IRS") has
completed its examination of such corporation, (ii) whether there is an
examination pending by the IRS with respect to such corporation and, if so,
the tax years involved, (iii) whether such corporation has executed or filed
with the IRS any agreement which is still in effect extending the period for
assessment and collection of any federal tax and, if so, the tax years covered
by such agreement and the expiration date of such extension, and (iv) whether
there are any existing material disputes as to state, local or foreign taxes.
Except as set forth in the Security First Disclosure Letter, there are no
liens for federal, state, local or foreign taxes upon the assets of Security
First or of any Security First Subsidiary, except for statutory liens for
taxes and assessments not yet delinquent or the validity of which is being
contested in good faith by appropriate proceedings. Except as set forth in
the Security First Disclosure Letter, neither Security First nor any of the
Security First Subsidiaries is a party to any action or proceeding, nor is any
such action or proceeding threatened, by any Governmental Entity for the
assessment or collection of taxes which are material in amount, and no
deficiency notices or reports have been received by Security First or any of
the Security First Subsidiaries in respect of any material deficiencies for
any tax, assessment, or government charges. After the date of this Agreement,
Security First will promptly notify FirstMerit of (i) the commencement or
threat of any such action or proceeding involving an amount of taxes material
to Security First and its subsidiaries taken as a whole, and (ii) the receipt
by Security First or the Security First Subsidiaries of any such deficiency
notices or reports in respect of any material deficiencies.
4.9. Employee Plans, Employees. All employee bonus, deferred
compensation, pension, retirement, profit sharing, stock option, stock
purchase, employee stock ownership, stock appreciation rights, savings,
consulting, severance, collective bargaining, group insurance, fringe benefit
and other employee benefit, incentive and welfare plans, policies, contracts
and arrangements and all trust agreements related thereto, now in effect and
relating to any present or former directors, officers or employees of Security
First or the Security First Subsidiaries, whether or not described in Section
3(3) of ERISA ("Security First Employee Plans"), are identified in the
Security First Disclosure Letter. Security First has previously delivered or
made available to FirstMerit copies of all Security First Employee Plans, in
each case as in effect on the date of this Agreement.
All of Security First Employee Plans have been maintained, operated and
administered in substantial compliance with their terms, and Security First,
all of the Security First Subsidiaries and all of the Security First Employee
Plans currently comply, and have at all relevant times complied, in all
material respects with ERISA, the Code, and any other applicable laws. With
respect to each Security First Employee Plan which is a pension plan (as
defined in Section 3(2) of ERISA): (a) except as set forth in the Security
First Disclosure Letter each pension plan as amended (and any trust relating
thereto) intended to be a qualified plan under Section 401(a) of the Code
either has been determined by the IRS to be so qualified or is the subject of
a pending application for such determination that was timely filed, (b) except
as set forth in the Security First Disclosure Letter, would be fully funded
(calculated using the interest rate and other actuarial assumptions mandated
by the Pension Benefit Guaranty Corporation ("PBGC")) if terminated at the
Effective Time and there is no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, and
no waiver of the minimum funding standards of such sections has been requested
from the IRS, (c) no reportable event described in Section 4043 of ERISA has
occurred, (d) no defined benefit plan has been terminated, nor has the PBGC
instituted proceedings to terminate a defined benefit plan or to appoint a
trustee or administrator of a defined benefit plan, and no circumstances exist
that constitute grounds under Section 4042 of ERISA entitling the PBGC to
institute any such proceedings, and (e) no pension plan is a "multi-employer
plan" within the meaning of Section 3(37) of ERISA.
Except as set forth in the Security First Disclosure Letter, no Security
First Employee Plan provides benefits, including, without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees beyond their retirement or other termination of service (other than
(i) temporary coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Security First or any Security First Subsidiary,
or (iv) benefits the full cost of which are borne by the current or former
employee (or his or her beneficiary)).
Except as set forth in the Security First Disclosure Letter, all
employees of Security First and the Security First Subsidiaries are "at will"
and there are no employment, consulting or like agreements, written or oral,
expressed or implied.
4.10. Material Contracts. Except as set forth in the Security First
Disclosure Letter or disclosed in the Security First Reports, neither Security
First nor any Security First Subsidiary is, as of the date of this Agreement,
a party to, or is bound by, (a)any material lease not made in the ordinary
course of business of Security First, (b) any agreement, arrangement, or
commitment not made in the ordinary course of business which materially
restricts the conduct of any line of business of Security First, (c) any
benefit agreements providing for aggregate payments to any person in any
calendar year in excess of $100,000, (d) any material agreement, indenture or
other instrument not specifically disclosed in the Security First Financial
Statements relating to the borrowing of money by Security First or the
guarantee by Security First of any such obligation (other than trade payables
and instruments relating to transactions entered into in the ordinary course
of business), (e) any agreement, arrangement or commitment with or to a labor
union or (f) any other contract or agreement or amendment thereto that would
be required to be filed as an exhibit to a Form 10-K filed by Security First
with the Commission (the agreements and other documents referred to in clauses
(a) through (e) of this sentence, collectively, the "Security First
Contracts"). Except as stated in the Security First Disclosure Letter,
neither Security First nor any Security First Subsidiary is in default under
any Security First Contract, which default is reasonably likely to have,
either individually or in the aggregate, a Material Adverse Effect on Security
First, and there has not occurred any event that with the lapse of time or the
giving of notice or both would constitute such a default.
4.11. Absence of Certain Changes or Events. Except as set forth in the
Security First Disclosure Letter or disclosed in Security First Reports filed
by Security First with the Commission prior to the date of this Agreement,
since March 31, 1997 to the date of this Agreement, there has not been any
change in the financial condition, results of operations or business of
Security First and the Security First Subsidiaries that either individually or
in the aggregate has had a Material Adverse Effect on Security First.
4.12. Litigation. Except as disclosed in the Security First Disclosure
Letter or in Security First Reports filed by the Security First with the
Commission prior to the date of this Agreement, there is no litigation,
action, arbitration or proceeding pending, or, to the best knowledge of
Security First, threatened against or affecting Security First or any Security
First Subsidiary which, either individually or in the aggregate, is having, or
insofar as reasonably can be foreseen will have, a Material Adverse Effect on
Security First, nor is there any judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator, outstanding against Security First
or any Security First Subsidiary having, or which, insofar as reasonably can
be foreseen, in the future would have, any such effect.
4.13. Compliance with Laws and Orders. Except as disclosed in the
Security First Disclosure Letter or in Security First Reports filed by
Security First with the Commission prior to the date of this Agreement, the
businesses of Security First and the Security First Subsidiaries are not being
conducted, and have not been conducted since March 31, 1997, in violation of
any law, ordinance, regulation, judgment, order, decree, license or permit of
any Governmental Entity (including, without limitation, zoning ordinances,
building codes, and environmental, civil rights, and occupational health and
safety laws and regulations and, in the case of Security First Subsidiaries
that are savings and loans or thrifts, all statutes, rules and regulations
pertaining to the conduct of such business), except for possible violations
which individually or in the aggregate do not, and, insofar as reasonably can
be foreseen, in the future will not, have a Material Adverse Effect on
Security First. Except as set forth in the Security First Disclosure Letter,
no investigation or review by any Governmental Entity with respect to Security
First or any of the Security First Subsidiaries outside the ordinary course of
business and not generally applicable to entities engaged in the same business
is pending or, to the knowledge of Security First, threatened, nor has any
Governmental Entity indicated an intention to conduct the same in each case
other than those the outcome of which will not have a Material Adverse Effect
on Security First.
4.14. Agreements with Regulators. As of the date of this Agreement,
except as disclosed in the Security First Disclosure Letter, neither Security
First nor any Security First Subsidiary is a party to any written agreement or
memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, any Governmental
Entity outside the ordinary course of business and not generally applicable to
entities engaged in the same business, including, without limitation, cease
and desist orders of any regulatory authority, which restricts materially the
conduct of its business, or in any manner relates to its capital adequacy, its
credit policies or its management, nor has Security First been advised by any
Governmental Entity that it is contemplating issuing, requiring, or requesting
(or is considering the appropriateness of issuing, requiring or requesting)
any such order, directive, agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter or similar undertaking.
Except as set forth in Security First Disclosure Letter, there are no (i)
material violations, or (ii) violations with respect to which refunds or
restitutions which are material in amount to Security First and the Security
First Subsidiaries taken as a whole may be required, cited in any compliance
report to Security First or any Security First Subsidiary as a result of an
examination by any regulatory authority.
4.15. Security First Ownership of Stock. Except as disclosed in the
Security First Disclosure Letter, as of the date of this Agreement, neither
Security First nor, to the best of its knowledge, any of its affiliates or
associates (i) beneficially owns directly or indirectly, or (ii) are parties
to any agreement, arrangement or commitment for the purpose of acquiring,
holding, voting or disposing of, in each case, shares of FirstMerit Common
Stock (other than shares of FirstMerit Common Stock held in a fiduciary,
trust, custodial or agency capacity by a subsidiary of Security First) which
in the aggregate, represent 5% or more of the outstanding shares of FirstMerit
Common Stock.
4.16. Fees. Except for fees paid and payable to Charles Webb & Company
("Charles Webb"), neither Security First nor any Security First Subsidiary has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement.
4.17. Security First Action. The Board of Directors of Security First
(at a meeting duly called and held) has by the requisite vote (i) determined
that the Merger is advisable and in the best interests of Security First and
its shareholders, (ii) authorized and approved this Agreement, the Security
First Stock Purchase Option and the transactions contemplated hereby and
thereby, including the Merger, (iii) directed that the Merger Agreement be
submitted for consideration by Security First's shareholders entitled to vote
thereon at the Security First Meeting, and (iv) authorized and approved the
Security First Stock Purchase Option and the Merger Agreement in accordance
with applicable takeover laws (if any) with the result that they will not
apply to the consummation of the Merger and the acquisition by FirstMerit of
shares of Security First Common Stock pursuant to the Merger, the Security
First Stock Purchase Option or any of the transactions contemplated by this
Agreement or the Security First Stock Purchase Option. Charles Webb, Security
First's financial advisor, has provided the Board of Directors of Security
First with its opinion that, as of the date of such duly called meeting of the
Board, the Merger Consideration is fair, from a financial point of view, to
the shareholders of Security First.
4.18. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Security First Common Stock entitled to
vote thereon is the only vote of the holders of any class or series of
Security First capital stock necessary to approve this Agreement and the
transactions contemplated hereby, unless FirstMerit has exercised its rights
to acquire the Security First Common Stock under the Security First Stock
Purchase Option.
4.19. Conduct of Security First to Date. Except as disclosed in the
Security First Disclosure Letter and in the Security First Reports filed with
the Commission prior to the date of this Agreement, from and after March 31,
1997, to the date of this Agreement: (a) Security First and the Security
First Subsidiaries have carried on their respective businesses in the ordinary
and usual course consistent with their current practices, (b) Security First
has not issued or sold any of its capital stock (except shares of Security
First Common Stock issued upon exercise of Security First Stock Options or
under the Security First Debentures), or any corporate debt securities which
would be classified as long-term debt on the balance sheets of Security First,
(c) Security First has not granted any option for the purchase of its capital
stock (other than pursuant to the Security First Stock Purchase Option),
effected any stock split, or otherwise changed its authorized capitalization,
(d) Security First has not declared, set aside, or paid any dividend or other
distribution in respect of its capital stock, or, directly or indirectly,
redeemed or otherwise acquired any of its capital stock, except regular
quarterly cash dividends (based upon historic precedent), (e) Security First
has neither incurred nor prepaid any corporate debt securities or instruments
which are or would be classified as long-term debt on the balance sheet of
Security First, (f) neither Security First nor any Security First Subsidiary
has sold, assigned, transferred, or otherwise disposed of to a third party (i)
equity securities in or issued by any Security First Subsidiary, (ii) branch
offices of any Security First Subsidiary, (iii) assets constituting any other
line of business, or (iv) any of its other material properties or assets other
than for a fair consideration in the ordinary course of business, (g) neither
Security First nor any Security First Subsidiary has purchased or otherwise
acquired from a third party equity securities in or issued by such third party
other than in the ordinary course of business, branch offices of such third
party, assets constituting any other line of business, or any other material
properties or assets outside the ordinary course of its business, (h) neither
Security First nor any Security First Subsidiary has: increased the rate of
compensation of, or paid any bonus to, any of its directors, officers, or
other employees, except under existing plans and policies, entered into any
new, or amended or supplemented any existing, or secured, collateralized, or
funded any, employment, management, consulting, deferred compensation,
severance, or other similar contract, entered into, terminated, or
substantially modified any Security First Employee Plan in respect of any of
its present or former directors, officers, or other employees, or agreed to do
any of the foregoing, (i) neither Security First nor any Security First
Subsidiary, has entered into any material transaction, contract, lease,
agreement or commitment requiring the approval of the Board of Directors of
Security First or any Security First Subsidiary, or amended, modified or
terminated any contract, lease or other agreement to which it is a party in a
manner requiring the approval of the Board of Directors of Security First or
any Security First Subsidiary, and (j) no Security First Subsidiary has
entered into any material transaction, contract, lease, agreement or
commitment outside the ordinary course of business requiring the approval of
the Board of Directors of such Subsidiary or amended, modified or terminated
outside the ordinary course of business any material contract, lease or other
agreement to which it is a party in a manner requiring the approval of the
Board of Directors of such Subsidiary.
4.20. Environmental Matters. For purposes of this Agreement, the
following terms shall have the indicated meanings:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any
Governmental Entity relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, ground water, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource), and/or
(ii) the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances. The term Environmental Law includes, without limitation; the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution Control
Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control
Act, as amended, 125 U.S.C. Section 9601, et seq.; the Emergency Planning
and Community Right to Know Act, 42 U.S.C. Section 11001, et seq.; the Safe
Drinking Water Act, 42 U.S.C. Section 300f, et seq.; all comparable state and
local laws; and any common law (including without limitation common law that may
impose strict liability) that may impose liability or obligations for injuries
or damages due to, or threatened as a result of, the presence of or exposure
to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a component.
Hazardous Substances include, without limitation, petroleum or any derivative
or by-product thereof, asbestos, radioactive material, and polychlorinated
biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, operated or managed (including those held in trust) by
Security First, as the case may be, or any of their subsidiaries.
Except as set forth in Security First Disclosure Letter, to the best of
Security First's knowledge: (i) neither Security First nor any of the Security
First Subsidiaries has been or is in violation of or liable under any
Environmental Law, except for any such violations or liabilities which would
not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on Security First; and (ii) none of the Loan Portfolio
Properties and Other Properties Owned by Security First or any of the Security
First Subsidiaries has been since such properties have been owned, operated or
managed by Security First or any of the Security First Subsidiaries, is in
violation of any Environmental Law, except for any such violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Security First. Except as set forth in Security
First Disclosure Letter, there are no actions, suits, demands, notices,
claims, investigations or proceedings pending, or to the best of Security
First's knowledge threatened, relating to the liability of the Loan Portfolio
Properties and Other Properties Owned by Security First or the Security First
Subsidiaries under any Environmental Law, including, without limitation, any
notices, demand letters or requests for information from any federal, state or
local environmental agency relating to any such liabilities under or
violations of Environmental Law.
4.21. Accounting Matters. Neither Security First nor, to the best of
its knowledge, any of its affiliates, has taken or agreed to take any action
that would prevent FirstMerit from accounting for the business combination to
be effected by the Merger as a "pooling of interests."
5. COVENANTS
5.1. Acquisition Proposals and Negotiations. Each of Security First
and the Security First Subsidiaries shall not, directly or indirectly, and
shall instruct and otherwise use its diligent efforts to cause their
respective officers, directors, employees, agents and advisors not to,
directly or indirectly, solicit or initiate any proposals or offers from any
person, or discuss or negotiate with any such person, relating to any
acquisition or purchase of all or a material amount of the assets of, or any
equity securities of, or any merger, consolidation or business combination
with, Security First or any of the Security First Subsidiaries (such
transactions are referred to herein as "Acquisition Transactions"), provided,
however, that nothing contained in this Section shall prohibit:
(i) Security First or any Security First Subsidiary, as the case may
be, from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited proposal of
an Acquisition Transaction if and to the extent that,
(a) the Board of Directors of Security First, after
consultation with and based upon the opinion of Silver, Freedman & Taff,
L.L.P. determines in good faith that such action is required for the directors
of Security First to fulfill their fiduciary duties and obligations to the
Security First shareholders and other constituencies under Delaware law,
taking into consideration the sale process engaged in connection with the
transactions contemplated hereby, and
(b) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Security First
provides immediate written notice to FirstMerit at least two business days
prior to furnishing information to, or entering into discussions or
negotiations with, such a person or entity, or
(ii) the Board of Directors of Security First from failing to make,
withdrawing or modifying its recommendation referred to in Section 5.14
following receipt of a proposal for an Acquisition Transaction if the Board of
Directors of Security First, after consultation with and based upon the
opinion of Silver, Freedman & Taff, L.L.P. determines in good faith that such
action is required for the directors of Security First to fulfill their
fiduciary duties and obligations to the Security First shareholders and other
constituencies under Delaware law, taking into consideration the sale process
engaged in connection with the transactions contemplated hereby.
In the event Security First or any officer, director or representative
thereof receives any contact, either oral or written, from a third party or
its representative regarding an Acquisition Transaction or any matter directly
or indirectly related thereto after the date of this Agreement, Security First
shall immediately notify FirstMerit of such contact, and provide such
information requested by FirstMerit, including but not limited to the name of
the party or parties, and all details related thereto. Security First shall
have a continuing obligation to provide information to FirstMerit regarding
any additional or continuing contacts. Any writings received by Security
First or any officer, director or representative thereof, shall be immediately
provided to FirstMerit, regardless of such writing being marked confidential
or otherwise.
5.2. Interim Operations of Security First. During the period from the
date of this Agreement to the Effective Time, except as specifically
contemplated by this Agreement, as required by law, as set forth in Security
First Disclosure Letter, or as otherwise approved in writing by FirstMerit
(which shall not be unreasonably withheld):
5.2.1. Conduct of Business. Security First shall, and shall cause
each of the Security First Subsidiaries to, conduct their respective
businesses only in, and not take any action except in the ordinary course of
business substantially consistent with current practices (which practices
include any workout arrangements for troubled loans and real estate
development assets). Security First shall use all diligent efforts to (i)
maintain and preserve intact the business organization of Security First and
each of the Security First Subsidiaries, keep available the services of its
and their present officers and employees, and keep the branch operations fully
staffed with competent employees, (ii) preserve the goodwill of those having
business relationships with Security First or the Security First Subsidiaries,
(iii) maintain and keep its properties in as good repair and condition as at
present, except for depreciation due to ordinary wear and tear, (iv) attempt
to resolve such loans which FirstMerit has identified in writing to Security
First as "troubled," in a workout arrangement which conditions and terms shall
be satisfactory to Security First and FirstMerit, (v) keep in full force and
effect insurance and bonds comparable in amount and scope of coverage to that
now maintained by it, provided however, in the event that any such insurance
(including, without limitation, directors' and officers' liability insurance)
is canceled or not renewable at its expiration at current or standard rates,
Security First shall consult with FirstMerit in order to determine whether to
exercise its right to extend the discovery period and in evaluating available
alternatives to replace the current insurance, (vi) perform in all material
respects all obligations required to be performed by each of Security First
and each of the Security First Subsidiaries under all material contracts,
leases and documents relating to or affecting its assets, properties, and
business, and (vii) comply with and perform in all material respects all
obligations and duties imposed upon it by all federal, state, municipal, and
local laws, and all rules, regulations and orders imposed by federal, state,
municipal or local governmental agencies.
5.2.2. Negative Covenants. Security First shall not and shall not
permit any of the Security First Subsidiaries to make any change or amendment
to, or to repeal, their respective articles of incorporation or codes of
regulations (or comparable governing instruments). Neither Security First nor
any Security First Subsidiary shall after the date of this Agreement enter
into any loan or credit commitment (including standby letters of credit) to,
or invest (as a venture capital or similar investment) or agree to invest (as
a venture capital or similar investment) in, any person or entity if such
loan, commitment or investment, would exceed $500,000 as a residential loan or
investment, or $1,000,000 as a commercial loan, without first consulting with
FirstMerit; provided, however, that nothing in this paragraph shall prohibit
Security First or any Security First Subsidiary from honoring any contractual
obligation in existence on the date of this Agreement. Neither Security First
nor any Security First Subsidiary shall after the date of this Agreement enter
into any participatory agreements, loans, commitments or investments involving
collateral outside of Ohio, without first consulting with FirstMerit, except
that the following are excluded from this restriction: (i) Small Business
Association loans, (ii) agency rated asset backed securities, and (iii)
government obligations of the United States of America, or a state or
municipality within the United States of America.
Neither Security First nor any Security First Subsidiary shall sell,
assign, transfer or otherwise dispose of to a third party, (i) branch offices
of any Security First Subsidiary, or (ii) any of its material properties or
assets. Neither Security First nor any Security First Subsidiary shall
purchase or otherwise acquire from a third party, branch offices of such third
party, assets constituting any other line of business, or any other material
properties or assets outside the ordinary course of its business. Neither
Security First nor any Security First Subsidiary shall enter into any
transaction, contract, lease, agreement or commitment (or any amendment to any
transaction, contract, lease, agreement or commitment) outside of the ordinary
course of business which is material to Security First and the Security First
Subsidiaries taken as a whole.
5.2.3. Capital Stock. Security First shall not, and shall not
permit any of the Security First Subsidiaries to, issue or sell any shares of
capital stock or any other securities of any of them (other than pursuant to
Security First Stock Options outstanding on the date of this Agreement and
under the Security First Debentures, or the exercise by FirstMerit of its
rights under the Security First Stock Purchase Option) or issue any securities
convertible into or exchangeable for, or options, warrants to purchase, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or enter into any contract, commitment or arrangement with
respect to the issuance of, any shares of capital stock or any other
securities of any of them or enter into any arrangement, contract or
commitment with respect to the purchase or voting of shares of their capital
stock, or adjust, split, combine or reclassify any of their capital stock or
other securities or make any other changes in their capital structures.
Neither Security First nor any Security First Subsidiary shall acquire
beneficial ownership of any class of equity securities or any similar
interests of any corporation, bank, business, trust, association or similar
organization.
5.2.4. Dividends. Security First shall not and shall not permit any
of the Security First Subsidiaries to declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash, stock or property)
with respect to, or purchase or redeem, any shares of the capital stock of any
of them other than (a) Security First's regular quarterly cash dividends in
the amount (subject to the next paragraph) of $.08 per share, including an
increase based upon historical practice to $.09 per share in May 1998 (to the
extent legally permitted), and (b) dividends paid (to the extent legally
permitted) by any Security First Subsidiary to another Security First
Subsidiary or Security First with respect to such Security First Subsidiary's
capital stock. From the date of this Agreement to the earlier of the
Effective Time or the termination of this Agreement, Security First shall not,
without the prior written consent of FirstMerit, make any changes in its
practice of setting dividend record or dividend payment dates.
The parties agree to consult with respect to the last quarterly
dividend of Security First payable prior to the Effective Time with the object
of assuring that the shareholders of Security First receive an equitable
dividend distribution, taking into consideration the record and payment dates
of the last Security First dividend distribution and the first FirstMerit
dividend distribution following the Merger. It is the intent of the parties
that in the event that the Effective Date will occur shortly after the record
date for the FirstMerit dividend, that the last Security First dividend to be
paid prior to such time, will be grossed-up on an equitable basis so that the
Security First shareholders receive the economic benefit of such dividend.
5.2.5. Employee Plans, Compensation and Bonuses. Except as is
necessary to comply with the Code or as contemplated in this Agreement, or as
expressly set forth in the Security First Disclosure Letter regarding salary
increases, incentive pay or bonuses for periods after the date of this
Agreement, Security First shall not, and shall not permit any of the Security
First Subsidiaries to: adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other employee benefit agreements, trusts, plans,
funds or other arrangements for the benefit or welfare of any present or
former director, officer or employee of Security First or any Security First
Subsidiary; increase the compensation or fringe benefits of any present or
former director, officer or employee, including the Senior Officers (as
hereinafter defined); pay any bonus, compensation or benefit not required by
any existing plan or arrangement (including, without limitation, the granting
of stock options or stock rights); take any action or grant any benefit not
required under the terms of any existing agreements, trusts, plans, funds or
other such arrangements; or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Pursuant to the terms of certain split-dollar life insurance
policies, the Security First officers will be entitled to purchase the split-
dollar life insurance policies held by Security First on their lives. The
names of the officers, amount and terms of the policies, and the cash
surrender/purchase price are listed on the schedule attached to the Security
First Disclosure Letter.
5.2.6. Conforming Accounting and Reserve Policies; Restructuring
Expenses.
(a) Notwithstanding that Security First believes that it has
established all reserves and taken all provisions for possible loan losses
required by generally accepted accounting principles and applicable laws,
rules and regulations, Security First recognizes that FirstMerit has adopted
different loan, accrual and reserve policies (including loan classifications
and levels of reserves for possible loan losses), subject to applicable laws,
regulations, and the requirements of Governmental Entities and generally
accepted accounting principles. From and after the date of this Agreement to
the Effective Time, Security First and FirstMerit shall consult and cooperate
with each other with respect to conforming, as specified in a notice from
FirstMerit to Security First, based upon such consultation, Security First's
loan, accrual and reserve policies to those policies of FirstMerit.
(b) In addition, from and after the date of this Agreement to the
Effective Time, Security First and FirstMerit shall consult and cooperate with
each other with respect to determining, as specified in a notice from
FirstMerit to Security First, based upon such consultation, appropriate
accruals, reserves and charges to establish and take in respect of excess
facilities and equipment capacity, restructuring costs, severance costs,
litigation matters, write-off or write-down of various assets and other
appropriate accounting adjustments taking into account the Surviving
Corporation's business plan following the Merger.
(c) Security First and FirstMerit shall consult and cooperate with
each other with respect to determining, as specified in a notice from
FirstMerit to Security First, based upon such consultation, the amount and the
timing for recognizing for financial accounting purposes the expenses of the
Merger and the restructuring charges related to or to be incurred in
connection with the Merger.
(d) At the request of FirstMerit, and in an amount and on a basis
satisfactory to Security First, Security First shall promptly establish and
take such reserves and accruals as FirstMerit shall request to conform, on a
mutually satisfactory basis, Security First's loan, accrual and reserve
policies to FirstMerit's policies, shall establish and take such accruals,
reserves and charges in order to implement such policies in respect of excess
facilities and equipment capacity, severance costs, litigation matters,
write-off or write-down of various assets and other appropriate accounting
adjustments, and to recognize for financial accounting purposes such expenses
of the Merger and restructuring charges related to or to be incurred in
connection with the Merger; provided, however, that it is the objective of
FirstMerit and Security First that such reserves, accruals and charges be
taken on or before the Effective Time, but in no event later than immediately
prior to the Closing; and provided, further, that Security First shall not be
obligated to take any such action pursuant to this Section 5.2.6 unless and
until (i) FirstMerit specifies its request in a writing delivered to Security
First, (ii) all conditions to the obligations of Security First and FirstMerit
to consummate the Merger set forth in Sections 6.1 through 6.3 have been
waived or satisfied by the appropriate party, and (iii) such reserves,
accruals and charges conform with generally accepted accounting principles,
applicable laws, regulations, and the requirements of Governmental Entities.
5.2.7. Stock Option Cash Election. Security First shall not
approve or allow any holder of a Security First Stock Option to elect or
receive a cash payment in lieu of the right to receive or exercise a Security
First Stock Option.
5.3. Interim Operations of FirstMerit. During the period from the date
of this Agreement to the Effective Time, except as specifically contemplated
by this Agreement, as required by law, or as otherwise approved in writing by
Security First (which shall not be unreasonably withheld) FirstMerit shall,
and shall cause each of the FirstMerit Subsidiaries to, conduct their
respective businesses in such a manner so as not to materially interfere with
the ability to consummate the Merger, delay the Effective Time or have a
Material Adverse Effect upon the transactions contemplated by the Agreement.
5.4. Employment Matters.
(a) As of the Effective Time, FirstMerit agrees to enter into
employment and related agreements with Messrs. Charles F. Valentine, Austin J.
Mulhern and Jeffrey A. Calabrese substantially in the form and upon the terms
indicated on Exhibits 5.4(a)-1 through (a)-3 hereto, provided such persons
have not terminated their employment with Security First at or prior to the
Effective Time ("Employment Agreements" or "Employment Agreement"), and
conditioned upon the agreement of each to the cancellation of their current
employment and related agreements with Security First.
(b) As of the Effective Time, Security First will pay the financial
obligations of Security First and the Security First Subsidiaries, as
applicable, with regard to the employment and severance agreements with Louis
J. Sorboro and Mary H. Crotty, and FirstMerit will assume and pay, to the
extent such obligations can be assumed or benefits thereunder provided as a
matter of law, but conditional upon receipt of a release of FirstMerit
regarding matters related to employment and termination of employment. The
total due them at the Effective Date is $415,000 and $254,000 respectively.
FirstMerit acknowledges that the consummation of the Merger will constitute a
change in status for these officers entitling each of them to terminate
employment for involuntary termination under their employment arrangements.
The parties listed herein will not be provided any separation benefits.
(c) FirstMerit agrees to pay as separation monies to employees of
Security First and the Security First Subsidiaries, other than the persons
with Employment Agreements or covered in Section 5.4(a) or (b), in
consideration for a standard release of FirstMerit regarding matters related
to employment and termination of employment, who either at Closing do not
become employees of FirstMerit or its Subsidiaries or to persons who become
employees of FirstMerit or its Subsidiaries but whose employment is terminated
during the 365-day period after the Effective Time (except if such termination
is for cause). The separation monies will be calculated as indicated on
Exhibit 5.4(b). Such employees will also be entitled to any other benefits,
if any, required by law.
FirstMerit is not required to hire any employees of Security First or the
Security First Subsidiaries, but may if it so desires. All persons employed
(except for the persons with written employment contracts) by FirstMerit and
its Subsidiaries as of the Effective Time will remain "at will" employees,
meaning that their employment can be terminated for any or no reason.
Notwithstanding anything contained herein to the contrary, no third party
shall have a right to enforce the provisions of Sections 5.4(a), (b) or (c) or
assert any claim hereunder.
(d) Following the Effective Time, the employee benefit programs to be
available and applicable to the persons who were employees of Security First
and the Security First Subsidiaries, and who become employees of FirstMerit
and/or its subsidiaries, are as follows:
(i) Defined Benefit Retirement and Pension Plans. At the Effective
Time (i) each Security First employee shall be credited with their past
service for eligibility and vesting purposes (but not for benefit accrual
purposes) as of the Effective Date of the Merger, and (ii) each Security First
employee who satisfies the age and service eligibility requirements of the
FirstMerit defined benefit plan (including the past service credit referred to
in (i) above) shall be eligible to participate in the FirstMerit defined
benefit plan and accrue benefits thereunder on and after the date of the
Merger in accordance with the provisions thereof.
(ii) Savings Plans. Security First has a qualified, tax-exempt
profit sharing plan with a cash-or-deferred feature qualifying under Section
401(k) of the Code ("Security First 401K Plan"). With respect to the Security
First 401K Plan, and consistent with past practices, the participant salary
deferral contributions under Section 401(k) of the Code and employer matching
contributions under Section 401(m) of the Code may continue through the
Effective Date. FirstMerit maintains the FirstMerit Corporation and
Subsidiaries Employees' Salary Savings Retirement Plan ("FirstMerit 401K
Plan"). At the Effective Time, FirstMerit will credit the Security First
employees who become employees of FirstMerit or any of its current
Subsidiaries, for purposes of the FirstMerit 401K Plan, with all service with
Security First or any of the Security First Subsidiaries for purposes of
determining their eligibility to participate in such plan and the vested
portion of their respective accrued benefits under such plan.
(iii) Health Care Plans. At such time on or after the Effective
Time as FirstMerit shall deem appropriate, FirstMerit and its Subsidiaries
will provide Security First and Security First Subsidiaries employees hired by
FirstMerit with such coverage under the FirstMerit health care plan as they
then provide their employees, with all service with Security First or any of
the Security First Subsidiaries credited for purposes of determining such
employee's eligibility to participate in such plan and without any "prior
existing condition" exclusion. The Security First health care plans will be
continued until the employees so hired can participate in the FirstMerit
health care plans.
No benefits currently provided Security First or the Security First
Subsidiaries employees, which exceed those provided by FirstMerit and its
subsidiaries, will be grandfathered or provided, except if required by law.
Other than otherwise expressly stated herein, FirstMerit shall not assume any
other health care benefit plans or benefits. FirstMerit, where such right
currently exists, retains the existing rights to amend or terminate any such
plan which have been reserved by the plan sponsor in the plan document or
otherwise.
(viii) First Kent Financial Corporation Options and Restricted
Stock. Security First assumed certain obligations related to stock options
and restricted stock that had been issued by First Kent Financial Corporation
("First Kent") when First Kent was merged with and into Security First.
Security First has represented that some of these options and the restricted
stock will vest over the next two years if the holders thereof have a position
with the Surviving Corporation as an employee, director or advisory director.
FirstMerit agrees to establish a non-compensated local advisory board and to
appoint each holder of an unvested option or restricted stock to such advisory
board for the purpose of allowing them to vest and exercise their options and
restricted stock. FirstMerit agrees to allow or to take such action necessary
at the request of a holder, to effectuate a change in an option from an
incentive to a non-qualified option, if such is necessary to keep such option
from being forfeited.
5.5. Access, Information and Confidentiality. Upon reasonable notice,
Security First and each of the Security First Subsidiaries shall afford to
FirstMerit and its representatives (including, without limitation, directors,
officers and employees of FirstMerit, its counsel, accountants, environmental
consultants and other professionals retained by FirstMerit) full access during
normal business hours throughout the period prior to the Effective Time to the
books, contracts, records (including, without limitation, tax returns and work
papers of independent auditors), customer information, properties, personnel
and such other information and documents of Security First and each of the
Security First Subsidiaries. FirstMerit shall have a right with the prior
notice to Security First to have environmental assessments conducted on any
properties owned, managed or controlled by Security First and the Security
First Subsidiaries. Security First shall not be required to provide access to
any such item or information if the providing of such access (i) would be
reasonably likely to result in the loss or impairment of any privilege with
respect to such information, or (ii) would be precluded by any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity.
All information furnished by one party to another party in connection
with this Agreement and the transactions contemplated hereby which is regarded
by such furnishing party as confidential will be kept confidential by such
other party and its representatives (including, without limitation, directors,
officers and employees, its counsel, accountants and other professionals
retained by such party) and will be used only in connection with this
Agreement and the transactions contemplated hereby, and not in such party's
business or by its directors, officers and employees, its counsel, accountants
and other professionals retained by such party if the Merger is not
consummated. Nothing contained in this Section shall restrict or prohibit
Security First or FirstMerit from disclosing information in any document filed
with the Commission, FRB, OTS, OCC and other Governmental Entities and bodies
nor shall it in any way restrict FirstMerit's right to exercise the Security
First Stock Purchase Option, and so long as this Agreement has not been
terminated pursuant to Article 7 hereof, FirstMerit may, notwithstanding this
confidentiality provision, disclose such information as it deems necessary or
advisable in connection with explaining or providing background information to
security analysts and others concerning the transactions contemplated by this
Agreement, except that any such information dealing with the areas of
individual employees, their future employment, reserves established for
specific loans, matters related to litigation and Security First's business
strategies, may only be disclosed with the prior approval of Security First,
which approval shall not be unreasonably withheld. It is the parties' intent
to provide such analysts with accurate information regarding the transaction
in a light favorable to completion of the transactions contemplated by this
Agreement.
5.6. Certain Filings; Consents and Arrangements. FirstMerit and
Security First shall (a) promptly file all reports and applications required
to be filed with the Commission, the FRB and such other Governmental Entities
(the "Regulatory Authorities") as may have jurisdiction for such approvals as
may be required to be obtained from such Governmental Entities in order to
carry out the transactions contemplated by this Agreement as soon as
practicable between the date of this Agreement and the Effective Time and each
FirstMerit Subsidiary or Security First Subsidiary that is a bank or savings
association shall also file all reports required to be filed with the FRB, the
OTS and the OCC with respect to the Merger and the other transactions
contemplated by this Agreement, (b) cooperate with one another (i) in promptly
determining whether any other filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any
other federal, state or foreign law or regulation, and (ii) in promptly making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, approvals, permits or
authorizations, and (c) deliver to the other party to this Agreement copies of
all such applications and reports promptly after they are filed. In no event,
however, shall either party hereto be liable for any untrue statement of a
material fact or omission to state a material fact in any filing made with any
Governmental Entity pursuant to this Section made in reliance upon, and in
conformity with, written information concerning the other party hereto
furnished by such other party specifically for use in such filing. Each party
hereto shall advise the other party hereto promptly of the occurrence of any
event which makes untrue any statement of a material fact contained in any
such filing or any amendment or supplement thereto or that requires the making
of a change in any such filing or any amendment or supplement thereto in order
to make any material statement therein not misleading.
5.7. Takeover Statutes and Provisions. Security First shall use its
diligent efforts to (i) exempt Security First, this Agreement, the Security
First Stock Purchase Option and the Merger from the requirements of any state
takeover law (including without limitation, statutes relating to business
combinations, control share acquisitions and merger moratoriums) and from any
provisions under its Corporate Governance Documents, as applicable, by action
of Security First's Board of Directors or otherwise, and (ii) assist in any
challenge by FirstMerit to the applicability to the Merger of any state
takeover law.
5.8. Indemnification and Insurance. Except as may be limited by
applicable law, for a period of six years after the Effective Time, FirstMerit
hereby agrees to honor the terms of the indemnification provisions of Article
Tenth and the limitations of liability of Article Eleventh of of Security
First's Certificate of Incorporation, including advancement of expenses
(subject to applicable requirements for delivery of an undertaking), copies of
which are attached hereto as Exhibit 5.8, which are provided to Security
First's and its subsidiaries' directors, officers and employees, for matters
occurring prior to the Effective Time. Moreover, indemnification of
directors, officers and employees of Security First and Security First
Subsidiaries following the Effective Time will be provided to the same extent
it is provided to other persons working in similar capacities for FirstMerit
following the Closing.
For a period of up to three years following the Effective Time,
FirstMerit will maintain in effect the current insurance policies maintained
by Security First (or substitute policies with substantially the same coverage
and terms) covering directors' and officers' liability with respect to claims
which arise from factors or events which occurred before the Effective Time,
except that FirstMerit's obligation under this paragraph for the second and
subsequent years following the Effective Time will be based upon its ability
to obtain such insurance at a commercially reasonable cost. Security First
shall notify FirstMerit prior to purchasing or continuing any insurance to
cover the matters contained herein, provided, however, it is the intent of
FirstMerit that tail coverage will be purchased if such is available. To the
extent insurance is available under any of the provisions in this Section to
cover such claims and costs, such insurance shall be the primary source of
funding these obligations.
5.9. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its diligent efforts to
take promptly, or cause to be taken, all actions necessary, proper or
advisable under applicable laws to consummate the transactions contemplated by
this Agreement. In addition, without limitation, each party shall from time
to time execute such certificates as to factual matters necessary, proper or
advisable in order to receive the opinions contemplated by Article 6 of this
Agreement.
If, at any time after the Effective Time, the Surviving Corporation
considers or is advised that any further deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record its right, title or interest in and to any of the
rights, properties or assets of Security First acquired or to be acquired by
the Surviving Corporation, Security First and its officers and directors shall
be deemed to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, bills of sale, assignments and
assurances and to take and do all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title
and interest in and to such rights, properties or assets in the Surviving
Corporation.
5.10. Compliance with Antitrust Laws. Each of FirstMerit and Security
First shall use its diligent efforts to resolve such objections, if any, which
may be asserted with respect to the Merger by the FRB, the Department of
Justice, or any other Governmental Entity (including, without limitation,
objections under any antitrust laws and any applicable laws or regulations).
In the event a suit is threatened or instituted challenging the Merger as
violative of the antitrust laws, each of FirstMerit and Security First shall
use its diligent efforts to avoid the filing of, resist or resolve such suit.
FirstMerit and Security First shall use their diligent efforts to take such
action as may be required: (a) by the FRB, the Department of Justice, or any
other Governmental Entity in order to resolve such objections as any of them
may have to the Merger, or (b) by any federal or state court of the United
States, in any suit brought by a private party or Governmental Entity
challenging the Merger as violative of any antitrust laws, in order to avoid
the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order which has the effect of preventing the
consummation of the Merger.
5.11. Publicity. The initial press release announcing this Agreement
shall be a joint press release in a form mutually agreed upon by the parties
and thereafter, except as required by law, Security First and FirstMerit shall
consult with each other and provide a written copy to each other prior to
issuing any press releases, or otherwise making public statements, with
respect to the transactions contemplated hereby and in making any filings with
any Governmental Entity.
5.12. Registration Statement, Proxy Statement and Comfort Letters.
(a) FirstMerit will, as soon as practicable, prepare and file with
the Commission the Registration Statement, and any required amendments
thereto, will use all reasonable efforts to have the Registration Statement
declared effective by the Commission as promptly as practicable and will
maintain the effectiveness of such Registration Statement. FirstMerit will
also take any action required to be taken under any applicable state blue sky
or securities laws in connection with the issuance of the FirstMerit Common
Stock pursuant to the Merger. Security First shall promptly furnish
FirstMerit all information concerning Security First, the Security First
Subsidiaries, and the holders of its capital stock and shall promptly take any
action as FirstMerit may reasonably request in connection with any such
action.
FirstMerit, with the direct assistance of Security First, will as soon as
practicable prepare and file the Proxy Statement with the Commission, and
take such other action so that Security First may promptly after the
effectiveness of the Registration Statement mail the Proxy Statement to
Security First's shareholders. FirstMerit and Security First shall cooperate
and consult with each other in the preparation of the Proxy Statement and
Security First shall promptly furnish FirstMerit all information concerning
Security First, the Security First Subsidiaries, and the holders of its
capital stock, and shall promptly take any action as FirstMerit may reasonably
request in connection with any such action.
(b) Each of FirstMerit and Security First will cause its respective
independent auditors to issue a letter addressed to both FirstMerit and
Security First, within three business days prior to the effectiveness of the
Registration Statement and also as of Closing, stating among other things, the
following: (i) such accountants are independent public accountants within the
meaning of the Securities Act and the rules and regulations promulgated
thereunder; (ii) in the opinion of such accountants, the financial statements
included in the Registration Statement and reported on therein by such
accountants comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Rules and Regulations
promulgated thereunder; (iii) on the basis of specified limited procedures
(which procedures do not constitute an examination in accordance with
generally accepted auditing standards), including a reading of the latest
available unaudited financial statements, inquiries of officials responsible
for financial and accounting matters, nothing came to their attention which
caused them to believe that, during the period subsequent to March 31, 1997
for Security First and December 31, 1997 for FirstMerit, to a specified date
not more than three business days prior to the effective date of the
Registration Statement and to a specified date not more than three business
days prior to Closing, there was any change in the shares of its capital stock
or long-term debt, if any, (other than changes due to payments in accordance
with the terms of such debt, or in the event of any such change in long-term
debt, the amount thereof) or any decrease (increase) in the total or per share
amount of its net income (net loss) as compared with the corresponding period
in the preceding year, except in all instances for changes or decreases
(increases) which the Registration Statement discloses have occurred or may
occur; (iv) such accountants have read the other data included in the
Registration Statement with respect to the financial condition and operations
of their respective clients and they find such data to be correctly computed
and in agreement with their respective books and records of FirstMerit and
Security First.
(c) FirstMerit shall be responsible for all expenses incident to the
obtaining of the requisite regulatory approvals from Governmental Entities.
Without limiting the generality of the foregoing, the expenses to be assumed
by FirstMerit shall include (i) all expenses for its own legal counsel and
other expenses incurred by FirstMerit incident to the preparation and filing
of applications on its behalf and on behalf of Security First and other
requests for regulatory consents and approvals with the appropriate regulatory
agencies as contemplated by this Agreement; (ii) all expenses for its own
legal counsel and all other expenses incurred in connection with the
registration of the FirstMerit Common Stock under the federal and state
securities laws and (iii) all printing and mailing expenses of the parties.
The expenses to be assumed by FirstMerit shall not include any legal,
accounting or other expenses incurred by Security First in connection with its
own corporate proceedings or incident to the transactions contemplated by this
Agreement.
5.13. Affiliates Compliance with the Securities Act.
(a) Within 30 days after the date of this Agreement, each of Security
First and FirstMerit shall identify to the other party all persons whom it
reasonably believes are its "affiliates" as that term is used in paragraphs
(c) and (d) of Rule 145 under the Securities Act and/or Accounting Series,
Releases 130 and 135, as amended, of the Commission (the "Affiliates").
Thereafter and until the Effective Time, each of Security First and FirstMerit
shall identify to the other party each additional person whom it reasonably
believes to have thereafter become its Affiliate.
(b) Each of Security First and FirstMerit shall use its diligent
efforts to cause each person who is identified as an Affiliate pursuant to
clause (a) above to deliver to FirstMerit not later than the date on which the
Merger is approved, a written agreement, substantially in the form of Exhibit
5.13(b)-1 (in the case of Affiliates of Security First) and Exhibit 5.13(b)-2
(in the case of Affiliates of FirstMerit).
Because the Merger is intended to qualify for pooling of interests
accounting treatment, the shares of FirstMerit Common Stock received by such
Affiliates in the Merger shall not be transferable until such time as
financial results covering at least 30 days of post-Merger operations have
been published, and the certificates representing such shares will bear an
appropriate restrictive legend.
5.14. Security First Shareholder Meeting. Security First shall take
all action necessary, in accordance with applicable law and its Corporate
Governance Documents to convene a special or regular meeting of the holders
of Common Stock (the "Security First Meeting") as promptly as practicable
after the effectiveness of the Registration Statement for the purpose of
considering and taking action upon this Agreement and the transactions
contemplated herein. Subject to the fiduciary obligations and duties of the
Board of Directors of Security First under Delaware law and to the provisions
of Section 5.1 of this Agreement, the Board of Directors of Security First
shall recommend that the holders of the Common Stock vote in favor of and
approve the Merger and adopt this Agreement at the Security First Meeting.
5.15. Pooling and Tax-Free Reorganization Treatment. Neither FirstMerit
nor Security First shall intentionally take or cause to be taken nor fail to
take any action, whether before or after the Effective Time, which would
disqualify the Merger as a "pooling of interests" for accounting purposes or
as a "reorganization" within the meaning of Section 368(a) of the Code, other
than FirstMerit's exercise of its rights under the Security First Stock
Purchase Option.
5.16. Mergers of Subsidiaries. The Board of Directors of FirstMerit
intends, contemporaneously with the merger of Security First with and into
FirstMerit, to merge the Security First Subsidiaries (not including the non-
banking subsidiaries) with and into FirstMerit Bank, N.A., a wholly owned
subsidiary of FirstMerit.
Security First shall cause such of the Security First Subsidiaries as
FirstMerit may request to enter into definitive merger or consolidation
agreements with FirstMerit Bank, N.A., providing for the merger or
consolidation of the Security First Subsidiaries with or into FirstMerit Bank,
N.A.; provided, however, that, in all cases, the obligation of Security First
to cause such merger or consolidation shall be subject to the condition that
the Merger be simultaneously consummated; and provided further,
notwithstanding anything to the contrary in this Agreement, (i) the
representations and warranties of Security First in this Agreement shall not
be deemed to be untrue or breached, (ii) Security First shall not be deemed to
have failed to perform any covenant or obligation contained in this Agreement,
and (iii) no condition to FirstMerit's obligation to effect the Merger shall
be deemed not to have been satisfied by or as a result of any merger or
consolidation consummated pursuant to this Section. Security First shall
cause the Security First Subsidiaries to fully cooperate with FirstMerit in
consummating these mergers or consolidations, including cooperating in the
filing of any necessary regulatory applications.
5.17. Current Information. During the period from the date of this
Agreement to the Effective Time, each of Security First and FirstMerit will
promptly notify the other of (i) any material change in the normal course of
its business, (ii) any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or receipt of
any memorandum of understanding or cease and desist order from a regulatory
authority, or (iii) the institution or the threat of material litigation
involving such party and will keep the other party fully informed of such
events. During such period, FirstMerit and Security First shall promptly
provide the other with monthly unaudited financial statements as soon as they
are available and each shall promptly provide the other with a copy of all
Reports filed by it after the date of this Agreement through the Effective
Time. Each of FirstMerit and Security First agrees to keep the foregoing
information strictly confidential, except as required by law.
5.18. Integration of Operations. Subject to applicable laws,
regulations and the requirements of Governmental Entities, during the period
from the date of this Agreement to the Effective Time, the parties will
consult and cooperate fully with each other to do all things advisable to
prepare for and facilitate the integration of Security First and the
applicable Security First Subsidiaries operations into and with FirstMerit's
operations as rapidly and effectively as possible as of the Effective Time,
including, without limitation, preparation for the integration of such branch
operations, if any (including, without limitation, the preparation for the
necessary installation of all of FirstMerit's or its subsidiaries hardware and
software systems), management information systems, financial and accounting
operations, employee compensation and benefit matters and similar matters, and
employee training, as requested by FirstMerit; provided that all such
integration prior to the Effective Time shall be subject to the concurrence of
Security First.
5.19. NASD Listing. FirstMerit will file an additional listing
application with the National Association of Securities Dealers, Inc. (the
"NASD") for the FirstMerit Common Stock to be issued in the Merger at the time
prescribed by applicable rules and regulations. In addition, FirstMerit will
use its best efforts to maintain its listing on the Nasdaq/NMS.
6. CONDITIONS
6.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) The Merger and this Agreement shall have been approved and
adopted by the requisite vote of the holders of Security First's Common Stock.
(b) All authorizations, consents, orders or approvals, lack of any
injunctive actions by the Department of Justice or any state anti-trust
agency, of the FRB, OTS, OCC and any other Governmental Entity (collectively,
"Consents") which are necessary for the consummation of the Merger (other than
immaterial Consents, the failure to obtain which would not involve criminal
liability, any material civil penalties or fines, or would not have or
reasonably be expected to have a Material Adverse Effect on the combined
businesses, financial condition, or results of operations of FirstMerit,
Security First, the FirstMerit Subsidiaries and the Security First
Subsidiaries taken as a whole), shall have been obtained or shall have
occurred and shall be in full force and effect, and all applicable waiting
periods shall have expired, at the Effective Time. A material Consent shall
not be deemed to have been obtained if the Consent shall include any
conditions or requirements which, in the reasonable opinion of the Board of
Directors of FirstMerit, would have a Material Adverse Effect on the
anticipated economic and business benefits to FirstMerit of the transactions
contemplated by this Agreement, taken as a whole.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall not be subject
to a stop order suspending the effectiveness of the Registration Statement.
(d) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court or agency in the
United States which enjoins or prohibits the consummation of the Merger shall
have been issued and remain in effect.
(e) FirstMerit shall have obtained an opinion of its counsel,
reasonably satisfactory in form and substance to FirstMerit and dated as of
Closing, to the effect that the Merger will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
(f) FirstMerit shall have received a letter, dated the date of the
Closing, from Coopers & Lybrand to the effect that, for financial reporting
purposes, the Merger qualifies for pooling-of-interests accounting treatment
under generally accepted accounting principles, if consummated in accordance
with this Agreement.
6.2. Conditions to Obligation of Security First to Effect the Merger.
The obligation of Security First to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) FirstMerit shall have performed in all material respects all of
its obligations contained in this Agreement required to be performed at or
prior to the Closing.
(b) The representations and warranties of FirstMerit contained in
this Agreement shall be true and correct both: (i) on the date of this
Agreement, and (ii) as of the Effective Time as if made at and as of such
time, (x) except, both on the date of this Agreement and at the Effective
Time, as expressly contemplated or permitted by this Agreement, (y) except, as
of the Effective Time, for representations and warranties relating to a time
or times other than the Effective Time, and (z) except, both on the date of
this Agreement and at the Effective Time, to the extent that the
untruthfulness or inaccuracy of the representations or warranties of
FirstMerit, individually or in the aggregate, shall not have a Material
Adverse Effect on FirstMerit.
(c) FirstMerit shall have furnished Security First a Certificate
dated the date of the Closing, signed on behalf of FirstMerit by the Chief
Executive Officer or President, and the Chief Financial Officer of FirstMerit,
that to the best of their knowledge and belief, the conditions set forth in
Sections 6.2(a), (b) and (e) have been satisfied.
(d) Security First shall have received the opinion of legal counsel
for FirstMerit, dated as of Closing, substantially to the effect set forth in
Exhibit 6.2(d) hereto, and such certificates from the appropriate persons
and/or authorities regarding FirstMerit's board resolutions, form of corporate
governance documents and good standing.
(e) Since the date of this Agreement, there shall have not been any
change in the financial condition, results of operations or business of
FirstMerit and the Subsidiaries of FirstMerit that would have a Material
Adverse Effect on FirstMerit.
6.3. Conditions to Obligation of FirstMerit to Effect the Merger.
The obligation of FirstMerit to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the additional following
conditions:
(a) Security First shall have performed in all material respects all
of its obligations contained in this Agreement required to be performed at or
prior to the Closing.
(b) The representations and warranties of Security First contained in
this Agreement shall be true and correct both: (i) on the date of this
Agreement, and (ii) as of the Effective Time as if made on and as of such
time, (x) except, both on the date of this Agreement and at the Effective
Time, as expressly contemplated or permitted by this Agreement, (y) except, as
of the Effective Time, for representations and warranties relating to a time
or times other than the Effective Time, and (z) except, both on the date of
this Agreement and at the Effective Time, to the extent that the
untruthfulness or inaccuracy of the representations or warranties of Security
First, individually or in the aggregate, shall not have a Material Adverse
Effect on Security First.
(c) Since the date of this Agreement there shall not have been any
change in the financial condition, results of operations or business of
Security First and the subsidiaries of Security First that either individually
or in the aggregate would have a Material Adverse Effect on Security First,
other than change as a result of action taken under Section 5.2.6 and the
second paragraph of Section 5.4(a), and the responses thereto by Security
First and the impact thereof on the operating performance of Security First.
(d) Security First shall have furnished FirstMerit a certificate
dated the date of the Closing signed on behalf of Security First by the Chief
Executive Officer or President, and Chief Financial Officer of Security First,
that to the best of their knowledge and belief, the conditions set forth in
Sections 6.3(a), (b) and (c) have been satisfied. In addition, Security First
shall have furnished FirstMerit certificates, one dated the effective date of
the Registration Statement and Proxy, and one as of the Closing, signed on
behalf of Security First by the Chief Executive Officer or President, and
Chief Financial Officer of Security First, that to the best of their knowledge
and belief, that Security First participated in the preparation of the
Registration Statement and the Proxy Statement, including review and
discussion of the contents thereof, and nothing came to the attention of
Security First that caused it to believe that the Registration Statement or
the Proxy Statement at the time such documents became effective, and as of the
date of Closing, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading.
(e) FirstMerit shall have received the opinion of legal counsel for
Security First dated as of Closing, substantially to the effect set forth in
Exhibit 6.3(e) hereto, and such certificates from the appropriate persons
and/or authorities regarding Security First's and its subsidiaries' board
resolutions, forms of corporate governance documents and good standing.
7. MISCELLANEOUS
7.1. Termination. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of this Agreement by the shareholders
of Security First:
(a) by mutual agreement of the parties by the vote of a majority of
the Board of Directors of each of FirstMerit and Security First;
(b) by the vote of a majority of the Board of Directors of either
FirstMerit or Security First if the Merger shall not have been consummated on
or before December 31, 1998, unless the failure to consummate by such date is
related to the action or inaction of the Governmental Entities and such action
or inaction is not directly related to either FirstMerit's or Security First's
breach of their respective obligations under Sections 5.6 or 5.12(a), then on
or before March 31, 1999. (provided that the terminating party is not in
material breach of any representation, warranty, covenant or other agreement
contained herein);
(c) by the vote of a majority of the Board of Directors of Security
First if any of the conditions specified in Sections 6.1 and 6.2 have not been
met or waived by Security First at such time as such condition can no longer
be satisfied;
(d) by the vote of a majority of the Board of Directors of FirstMerit
if any of the conditions specified in Sections 6.1 and 6.3 have not been met
or waived by FirstMerit at such time as such condition can no longer be
satisfied;
(e) by the vote of a majority of the Board of Directors of either
FirstMerit or Security First if any regulatory agency has denied approval of
the Merger and such denial has become final and non-appealable (regardless of
whether Security First is deemed to be a "party" to an application with
respect to the Merger); and
(f) by the vote of a majority of the Board of Directors of either
FirstMerit or Security First in the event of a material breach by the other
party of any representation, warranty, covenant or agreement, which breach is
not cured, or cannot be cured, within 30 days after written notice thereof is
given to the party committing such breach.
7.2. Non-Survival of Representations, Warranties; Effect of Termination.
The representations and warranties or covenants in this Agreement will
terminate at the Effective Time or the earlier termination of this Agreement
pursuant to Section 7.1, as the case may be: provided however, that if the
Merger is consummated, Sections 1.1.5, 2.1 through 2.8, 5.4, 5.5, 5.8, 5.9,
5.10, 5.12(c), 5.13, 5.15, 5.16, 5.19 and 7.2 will survive the Effective Time
to the extent contemplated by such Sections; provided, further in the event of
the termination of this Agreement, this Agreement shall become void and of no
effect except that the first sentence in the second paragraph of Section 5.5,
and all of Sections 5.12(c) and 7.11, will in all events survive any
termination of this Agreement.
7.3. Waiver. Either party hereto may, by written notice to the other
party hereto, (a) extend the time for the performance of any of the
obligations or other actions of such other party under this Agreement, (b)
waive any inaccuracies in the representations or warranties of such other
party contained in this Agreement or in any document delivered pursuant to
this Agreement, (c) waive compliance with any of the conditions or covenants
of such other party contained in this Agreement, or (d) waive or modify
performance of any of the obligations of such other party under this
Agreement. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of either party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any of the representations,
warranties, covenants, conditions, or agreements contained in this Agreement.
The waiver by either party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
7.4. Amendment. This Agreement may be amended or supplemented by the
parties hereto, by action taken by or on behalf of their respective Boards of
Directors, at any time before or after approval of this Agreement by the
shareholders of Security First, provided however, that any such amendment or
supplement to this Agreement made subsequent to the adoption of this Agreement
by the shareholders of Security First shall not (a) alter the amount or change
the form of the consideration contemplated by this Agreement, (b) alter or
change any term of the Amended and Restated Articles of Incorporation of the
Surviving Corporation to be affected by the Merger, or (c) alter or change the
qualification of the Merger as a tax-free reorganization under the provisions
of Section 368 of the Code.
7.5. Entire Agreement. This Agreement and the Security First Stock
Purchase Option, and the agreements referenced and contemplated therein and
thereby, contain the entire agreement among FirstMerit and Security First with
respect to the Merger and the other transactions contemplated hereby and
thereby, and supersede all prior agreements among the parties with respect to
such matters.
7.6. Applicable Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of law thereof.
7.7. Certain Definitions.
(a) For purposes of this Agreement, the term:
(i) "affiliate" and "associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof;
(ii) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(iii) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(iv) "Material Adverse Effect" on Security First or FirstMerit means a
material adverse effect (other than as a result of changes (x) in banking laws
or regulations of general applicablilty or interpretations thereof by court or
governmental entities, and (y) in generally accepted accounting principles) on
the respective condition (financial and otherwise), results of operations, or
business of Security First and its Subsidiaries, or FirstMerit and its
Subsidiaries, as the case may be, taken as a whole, or on the ability of
Security First or FirstMerit, as the case may be, to consummate the
transactions contemplated hereby.
The effect of any action taken by Security First at the written request
of FirstMerit pursuant to Section 5.2.6 shall not be taken into consideration
in determining whether any Material Adverse Effect has occurred.
7.8. Notices. All notices and other communications hereunder will be in
writing and will be deemed to have been duly given or delivered, if delivered
personally or delivered by a recognized commercial courier, to each of the
parties at the following addresses:
<PAGE>
To Security First: To FirstMerit:
Charles F. Valentine, Chairman of the John R. Cochran, Chairman and
Board and Chief Executive Officer Chief Executive Officer
Security First Corp. FirstMerit Corporation
1413 Golden Gate Boulevard III Cascade Plaza, 7th Floor
Mayfield Heights, Ohio 44124 Akron, Ohio 44308
With a copy to: With copies to:
James S. Fleischer, P.C. Terry E. Patton, Senior Vice
President and Secretary
Silver, Freedman & Taff, L.L.P. FirstMerit Corporation
1100 New York Ave., N.W. III Cascade Plaza, 7th Floor
Suite 700 Akron, Ohio 44308
Washington, D.C. 20005
Kevin C. O'Neil
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section 7.8.
7.9. Counterparts; Exhibits. This Agreement may be executed in any
number of counterparts, each of which will be deemed to be an original but all
of which together will constitute but one agreement. Any exhibits or
schedules referenced herein and attached hereto shall be incorporated by
reference herein as if fully written out in this Agreement.
7.10. Parties in Interest. This Agreement is not intended to nor will
it confer upon any other person any rights or remedies, except as expressly
stated herein.
7.11. Expenses. Except as otherwise set forth in this Agreement, each
party shall be responsible for the costs and expenses incurred by it in
connection with the transactions contemplated by this Agreement. If this
Agreement is terminated by Security First or FirstMerit pursuant to 7.1(f)
because of the material breach by the other party of any representation,
warranty, covenant, undertaking or restriction contained in this Agreement, if
the terminating party is not in material breach of any representation,
warranty, covenant, undertaking or restriction contained in this Agreement,
then the breaching party shall pay all costs and expenses of the terminating
party, including but not limited to printing, mailing and related fees, as
well as fees for financial advisors, accountants and legal counsel; provided,
however, that if this Agreement is terminated under circumstances other than
those described in this Section 7.11, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby will
be paid by the party incurring such costs and expenses.
7.12. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, that it is impossible to measure in money the damages that
would result to a party by reason of the failure of any of the parties to
perform any of the obligations of this Agreement and that money damages would
be an inadequate remedy in this instance. It is accordingly agreed that the
parties hereto will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, it is agreed and that if any party
should institute an action or proceeding seeking specific enforcement of this
Agreement, the party against which such action or proceeding is brought hereby
waives the claim or defense that the party instituting such action or
proceeding has an adequate remedy at law and hereby agrees not to assert in
any such action or proceeding the claim or defense that such a remedy at law
exists and shall waive or not assert any requirement to post bond in
connection with seeking specific performance. Notwithstanding anything to the
contrary herein, and in addition to any rights set forth in Section 7.11, a
party may seek monetary damages against a breaching party for any willful
breach of this Agreement.
7.13. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced and does not adversely
affect the substance of these transactions in a material way, the parties
hereto will negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this Agreement are
consummated to the extent possible.
[Signature Pages Next]
<PAGE>
IN WITNESS WHEREOF, Security First and FirstMerit have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
FirstMerit Corporation
Attest:
/s/ Terry E. Patton By: /s/ John R. Cochran
- ------------------------------ -----------------------------
Terry E. Patton, Secretary John R. Cochran, Chairman and
Chief Executive Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, John R.
Cochran, Chairman and Chief Executive Officer, and Terry E. Patton, Senior
Vice President and Secretary of FirstMerit Corporation, an Ohio corporation,
and they duly executed the Agreement of Affiliation and Plan of Merger before
me and acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day of
April, 1998.
/s/ Kevin C. O'Neil
---------------------------------
Kevin C. O'Neil, Notary Public
<PAGE>
Security First Corp.
Attest:
/s/ Jeffrey J. Calabrese By: /s/ Charles F. Valentine
- ------------------------------ -----------------------------
Jeffrey J. Calabrese, Secretary Charles F. Valentine, Chairman of
the Board and Chief Executive
Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, Charles
F. Valentine, Chairman of the Board and Chief Executive Officer and Jeffrey
J. Calabrese, Secretary of Security First Corp., a Delaware corporation, and
they duly executed the Agreement of Affiliation and Plan of Merger before me
and acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day of
April, 1998.
/s/
--------------------------
Notary Public
<PAGE>
Exhibits to
Agreement of Affiliation and Plan of Merger
FirstMerit Corporation
and
Security First Corp.
Exhibit 1.1.2 Form of Certificate of Merger
Exhibit 1.1.4 Articles and Code of Regulations of FirstMerit
Exhibit 3.3 FirstMerit Disclosure Letter
Exhibit 3.15 Security First Stock Purchase Option
Exhibit 4.3 Security First Disclosure Letter
Exhibit 5.4(a) Employment Agreements
5.4(a)-1 C. Valentine
5.4(a)-2 A. Mulhern
5.4(a)-3 J. Calabrese
SERP Membership Agreements
5.4(a)-4 C. Valentine
5.4(a)-5 A. Mulhern
Exhibit 5.4(b) FirstMerit Severance Policy
Exhibit 5.8 Indemnification Provisions
Exhibit 5.13(b)-1 Form of Affiliates Agreement for FirstMerit
Exhibit 5.13(b)-2 Form of Affiliates Agreement for Security First
Exhibit 6.2(d) Form of Brouse & McDowell's Legal Opinion
Exhibit 6.3(e) Form of Silver Freedman & Taff, L.L.P. Legal Opinion
<PAGE>
Exhibit 2.2
STOCK PURCHASE OPTION
THIS STOCK PURCHASE OPTION, dated as of April 5, 1998 (the "Agreement"),
is by and between Security First Corp., a Delaware corporation ("Security
First"), and FirstMerit Corporation, an Ohio corporation ("FirstMerit").
WHEREAS, Security First and FirstMerit propose to enter into an Agreement
of Affiliation and Plan of Merger, dated as of April 5, 1998 (the "Merger
Agreement"), providing for the merger of Security First with and into
FirstMerit (the "Merger"); and
WHEREAS, as a condition and inducement to FirstMerit to enter into the
Merger Agreement, FirstMerit has requested that Security First agree, and
Security First has agreed, to grant the option contained in the Agreement to
FirstMerit;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, and covenants set forth in this Agreement and in
the Merger Agreement, Security First and FirstMerit agree as follows:
1. Certain Definitions. In addition to the terms otherwise defined in
this Agreement, the following terms shall have the meanings set forth below:
(a) "Affiliate" and "Associate" shall have the meanings given to them
in Rule 12b-2 under the Exchange Act.
(b) "Beneficial ownership" and "beneficially own" shall have the
meanings given to them in Rule 13d-3 under the Exchange Act.
(c) "BHC Act" shall mean the Bank Holding Company Act of 1956, as
amended.
(d) "Capital Stock" shall mean all classes of equity shares of
Security First, including the Common Stock and any other classes of common or
preferred shares.
(e) "Common Stock" shall mean the shares of common stock, without
par value, of Security First.
(f) "Effective Time" shall have the meaning given to it in the Merger
Agreement.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(h) "Federal Reserve" shall mean the Board of Governors of the
Federal Reserve System.
(i) "Group" shall have the same meaning as the term "group" in
Section 13(d)(3) of the Exchange Act.
(j) "Option Shares" shall mean shares of Common Stock that are
subject to the Option.
(k) "Person" shall have the meaning given to it in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(m) "Significant Subsidiary" shall have the meaning given to it in
Rule 1.02 of Regulation S-X of the Securities and Exchange Commission.
2. Grant of Option. Subject to the terms and conditions set forth in
this Agreement, Security First hereby grants to FirstMerit an unconditional,
irrevocable option (the "Option") to purchase from time-to-time from Security
First up to 19.9% of its Capital Stock (without giving effect to any shares
subject to or issued pursuant to this Agreement), in shares of Common Stock
(subject to adjustment hereafter pursuant to Section 7), free and clear of all
liens, claims, charges, and encumbrances of any kind, at a purchase price per
share (the "Purchase Price") equal to $22.25 per share.
3. Exercise of Option.
(a) Following the occurrence of a Purchase Event, FirstMerit may
exercise the Option, in whole or in part, at any time and from time to time
prior to the expiration of the right to exercise the Option (as provided in
Section 3(c)); except that (i) FirstMerit may not exercise the Option if, at
the time of exercise, it is in material breach of any term, condition,
covenant, representation or warranty of or contained within the Merger
Agreement, and (ii) any purchase of Option Shares upon exercise of the Option
shall be subject to compliance with applicable law, including the BHC Act and
the regulations of the Federal Reserve promulgated thereunder.
(b) As used herein, a "Purchase Event" means any of the following
events that occur after the date of this Agreement:
(i) Security First or any subsidiary of Security First, any of their
officers, directors, or authorized representatives or agents, without the
prior written consent of FirstMerit, shall have authorized, recommended, or
proposed, shall have publicly announced an intention to authorize, recommend,
or propose, or shall have entered into an agreement to effect (a) a merger,
consolidation or other business combination involving Security First or any of
its Significant Subsidiaries with or into any person (other than a merger,
consolidation, joint venture, or other business combination with or into
FirstMerit or any subsidiary of FirstMerit, or a merger or consolidation of
any subsidiary of Security First with or into Security First or any other
subsidiary of Security First), (b) a sale, lease, or other disposition of
assets or earning power of Security First or any of its subsidiaries, in one
or more transactions, representing 20% or more of the consolidated assets or
earning power of Security First and its subsidiaries to any person (other than
FirstMerit or any subsidiary of FirstMerit), or (c) an issuance, sale, or
other disposition (whether by means of a merger, consolidation, share
exchange, or other transaction) of securities representing 20% or more of the
voting power of Security First or any of its Significant Subsidiaries to any
person (other than FirstMerit or any subsidiary of FirstMerit) (any of the
foregoing being an "Acquisition Transaction;" except that, if FirstMerit has
given its prior written consent to any such transaction (which consent may be
unreasonably withheld for any or no reason), the transaction as to which
FirstMerit has given its prior written consent shall not be an "Acquisition
Transaction");
(ii) any person (other than FirstMerit or any subsidiary of
FirstMerit) shall have commenced (as such term is defined in Rule 14d-2 under
the Exchange Act), or shall have filed a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to acquire
shares of Capital Stock such that, upon consummation of the offer, such person
would beneficially own 25% or more of the capital stock then outstanding;
(iii) any person (other than FirstMerit or any subsidiary of
FirstMerit, any subsidiary of Security First in a fiduciary capacity in the
ordinary course of such subsidiary's business, any employee benefit plan or
employee stock ownership plan of Security First or any subsidiary of Security
First, or any person organized, appointed, or established by Security First or
any subsidiary of Security First for or pursuant to the terms of any such
plan), alone or together with such person's Affiliates, shall have acquired
beneficial ownership of 20% or more of the Capital Stock then outstanding, or
any group (other than a group of which FirstMerit or any subsidiary of
FirstMerit, any subsidiary of Security First in a fiduciary capacity in the
ordinary course of such subsidiary's business, any employee benefit plan or
employee stock ownership plan of Security First or any subsidiary of Security
First, or any person organized, appointed, or established by Security First or
any subsidiary of Security First for or pursuant to the terms of any such plan
is a member) shall have been formed, as reasonably determined in good faith by
the Board of Directors of FirstMerit, that beneficially owns 20% or more of
the Capital Stock (if any) then outstanding; or
(iv) the holders of Common Stock shall not have approved the Merger
Agreement at the meeting of such stockholders (or any adjournment or
postponement thereof) held for the purpose of voting on the Merger Agreement,
such meeting shall not have been held or shall have been canceled (and not
rescheduled) prior to termination of the Merger Agreement, or Security First's
Board of Directors shall have withdrawn or modified in a manner adverse to
FirstMerit the recommendation of Security First's Board of Directors that
Security First's stockholders vote in favor of and approve the Merger and
adopt the Merger Agreement, in each case after any person (other than
FirstMerit or any subsidiary of FirstMerit) shall, after the date of this
Agreement, have (a) publicly announced a bona fide proposal, or publicly
disclosed a bona fide intention to make a bona fide proposal, to engage in an
Acquisition Transaction (or Security First shall have publicly disclosed
receipt of such a proposal) or (b) filed an application or given a notice,
whether in draft or final form, under the BHC Act or the Change in Bank
Control Act of 1978 for approval to engage in an Acquisition Transaction.
(c) Except as provided in the last sentence of this Section 3(c) and
in Section 8(c), the right to exercise the Option shall terminate upon the
earliest to occur of (i) the Effective Time, (ii) 12 months after the first
occurrence of a Purchase Event, and (iii) termination of the Merger Agreement
in accordance with its terms prior to the occurrence of a Purchase Event. The
rights set forth in Sections 9 and 11 shall not terminate when the right to
exercise the Option terminates, but shall extend to such time as is provided
in Sections 9 or 11, respectively. Notwithstanding the termination of the
right to exercise the Option, FirstMerit shall be entitled to purchase those
Option Shares with respect to which it has exercised the Option prior to
termination of the right to exercise the Option.
(d) In the event FirstMerit wishes to exercise the Option, it shall
send to Security First a written notice (the date on which the notice is sent
being herein referred to as the "Notice Date") specifying (i) the number of
Option Shares that it intends to purchase pursuant to such exercise and (ii) a
place and date not earlier than seven business days nor later than 15 business
days from the Notice Date for the closing of such purchase (the "Closing
Date"). Notwithstanding the foregoing, if the closing of such purchase cannot
be consummated by reason of any applicable judgment, decree, order, law, or
regulation, the Closing Date shall be extended and occur not earlier than
three business days nor later than 15 business days after such restriction on
consummation has expired or been terminated. If prior notification to or
approval by the Federal Reserve or any other regulatory authority is required
in connection with such purchase and sale, FirstMerit shall promptly file and
expeditiously process the notice or application for approval (and Security
First shall cooperate with FirstMerit in the filing and processing thereof),
and the Closing Date shall be extended and occur not earlier than three
business days nor later than 15 business days after the date on which (x) any
required notification period has expired or been terminated or (y) such
approval has been obtained, as the case may be, and, in either event, any
requisite waiting period has expired.
(e) Notwithstanding Section 3(d), in no event shall any Closing Date
be more than 18 months after the Notice Date, and, if the Closing Date has not
occurred within 18 months after the related Notice Date due to the failure to
obtain any required approval by the Federal Reserve or any other regulatory
authority, the exercise of the Option on the Notice Date shall be deemed to
have been rescinded. In the event (i) FirstMerit receives official notice that
an approval of the Federal Reserve or any other regulatory authority required
for the purchase and sale of the Option Shares will not be issued or granted
or (ii) a Closing Date has not occurred within 18 months after the related
Notice Date due to the failure to obtain any such required approval,
FirstMerit shall be entitled to exercise the Option in connection with the
resale of the Option Shares pursuant to a registration statement as provided
in Section 10.
4. Payment and Delivery of Certificates.
(a) On each Closing Date, FirstMerit shall pay to Security First in
immediately available funds, by wire transfer to a bank account designated by
Security First, an amount equal to the Purchase Price multiplied by the number
of Option Shares to be purchased on the Closing Date.
(b) On each Closing Date, simultaneous with the delivery of
immediately available funds as provided in Section 4(a), Security First shall
deliver to FirstMerit a certificate or certificates representing the Option
Shares being purchased, and FirstMerit shall deliver to issuer a letter in
which FirstMerit agrees not to sell or otherwise dispose of such Option Shares
in violation of applicable law or the provisions of this Agreement.
(c) Certificates for the Option Shares shall be endorsed with a
restrictive legend substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF THE STOCK PURCHASE OPTION DATED
AS OF APRIL 5, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY SECURITY FIRST OF
A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the reference in the foregoing legend to
restrictions arising under the Securities Act shall be removed, by delivery of
a substitute certificate or certificates without such reference, if FirstMerit
delivers to Security First a copy of an opinion of counsel in form and
substance reasonably satisfactory to Security First, to the effect that an
exemption is available for the transaction under the Securities Act.
5. Representations and Warranties of Security First. Security First
hereby represents and warrants to FirstMerit as follows:
(a) Due Authorization. Security First has all requisite corporate
power and authority to enter into this Agreement and, subject to obtaining the
approvals, if any, contemplated by this Agreement or required by law, to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Security First. This Agreement has been duly executed
and delivered by Security First and constitutes a valid and binding obligation
of Security First, enforceable against Security First in accordance with its
terms.
(b) Authorized Stock. Security First has heretofore taken, and until
termination of the right to exercise the option shall hereafter take, all
corporate and other action necessary to authorize and reserve, and, subject to
obtaining the governmental and other approvals and consents contemplated by
this Agreement and as may be required by law, to permit it to issue, all of
the Option Shares, including any additional shares of Common Stock, that may
be issued pursuant to Section 7. The Option Shares, including any such
additional shares of Common Stock, upon issuance pursuant hereto, shall be
duly and validly issued, fully paid, and nonassessable, and shall be delivered
free and clear of all liens, claims, charges, and encumbrances of any kind,
including any preemptive rights of any stockholder of Security First.
Security First will not, by charter amendment or otherwise, avoid or
seek to avoid the observance or performance of any of its obligations or
representations in this Agreement.
(c) No Conflicts. Except as disclosed pursuant to the Merger
Agreement, the execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in a violation of or default under, (i) any provision of the
corporate governance documents of Security First or any subsidiary of Security
First or (ii), subject to obtaining the approvals, if any, contemplated by
this Agreement or required by law, any loan or credit agreement, note,
mortgage, indenture, lease, or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule, or regulation applicable to Security First or any subsidiary
of Security First or their respective properties or assets, which conflict,
violation, or default would have a material adverse effect on Security First.
6. Representations and Warranties of FirstMerit. FirstMerit hereby
represents and warrants to Security First that:
(a) Due Authorization. FirstMerit has all requisite corporate power
and authority to enter into this Agreement and, subject to obtaining the
approvals referred to in this Agreement, to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of FirstMerit. This
Agreement has been duly executed and delivered by FirstMerit and constitutes a
valid and binding obligation of FirstMerit, enforceable against FirstMerit in
accordance with its terms.
(b) No Conflicts. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in a violation of or default under, (i) any provision
of the Articles of Incorporation or Code of Regulations of FirstMerit or any
subsidiary of FirstMerit or (ii), subject to obtaining the approvals referred
to in this Agreement or required by law, any loan or credit agreement, note,
mortgage, indenture, lease, or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule, or regulation applicable to FirstMerit or any subsidiary of
FirstMerit or their respective properties or assets, which conflict,
violation, or default would have a material adverse effect on FirstMerit.
(c) Purchase Not for Distribution. Any Option Shares acquired by
FirstMerit upon exercise of the Option will not be taken with a view to the
public distribution thereof and will not be transferred or otherwise disposed
of except in a transaction registered or exempt from registration under the
Securities Act.
7. Adjustment Upon Changes in Capitalization, Etc.
(a) In the event of any change in the Common Stock by reason of a
stock dividend, split-up, recapitalization, combination, exchange of shares,
or similar transaction, the type and number of shares or securities subject to
the option, and the Purchase Price therefor, shall be adjusted appropriately,
and proper provision shall be made in the agreements governing any such
transaction, so that FirstMerit shall receive upon exercise of the Option the
number and class of shares, other securities or property that FirstMerit would
have received in respect of the Option Shares if the Option had been exercised
and the Option Shares had been issued to FirstMerit immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that Security First enters into an agreement (i) to
consolidate with or merge into any person (other than FirstMerit or any
subsidiary of FirstMerit), and Security First shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) pursuant to which
any person (other than FirstMerit or any subsidiary of FirstMerit) shall merge
into Security First, and Security First shall be the continuing or surviving
corporation, but outstanding shares of Common Stock shall be changed into or
exchanged for stock, other securities, property, or cash, or (iii) to sell,
lease, or otherwise transfer assets of Security First or any of its
subsidiaries, in one or more transactions, representing more than 50% of the
consolidated assets or earning power of Security First and its subsidiaries to
any person (other than FirstMerit or any subsidiary of FirstMerit), then, and
in each such case, the agreement governing such transaction shall make proper
provisions so that upon the consummation of any such transaction and upon the
terms and conditions set forth herein, FirstMerit may, in its discretion,
convert the Option into the right to receive, at the election of FirstMerit,
either from the Acquiring Corporation or from any person that controls the
Acquiring Corporation, or Security First in the case of a merger described in
clause (ii), the number and class of shares, other securities or property that
FirstMerit would have received in respect of the Option Shares if the Option
had been exercised and the Option Shares had been issued to FirstMerit
immediately prior to the consummation of such transaction, the distribution of
the proceeds thereof to Security First's stockholders, or the record date
therefor, as applicable.
(c) For purposes of this Agreement, "Acquiring Corporation" means (i)
the continuing or surviving corporation in a merger or consolidation involving
Security First in which Security First is not the continuing or surviving
corporation, (ii) Security First in a merger in which Security First is the
continuing or surviving corporation in a transaction described in Section
7(b)(ii), and (iii) the transferee of more than 50% of the consolidated assets
or earning power of Security First and its subsidiaries. The provisions of
Sections 7 through 12 shall apply with appropriate adjustments to any
securities for which the Option becomes exercisable pursuant to this
Section 7.
8. Repurchase of Option at Request of FirstMerit.
(a) At the request of FirstMerit at any time during the period
beginning upon the first occurrence of a Repurchase Event and ending 12 months
thereafter, Security First shall repurchase from FirstMerit the Option (unless
the Option shall have expired or been terminated) and all shares of Common
Stock, purchased by FirstMerit upon exercise of the Option that are
beneficially owned by FirstMerit at the Request Date. The date on which
FirstMerit requests that Security First repurchase the Option or Option Shares
under this Section 8 is referred to as the "Request Date". Such repurchase
shall be at an aggregate price (the "Put Consideration") equal to the sum of:
(x) the aggregate Purchase Price paid by FirstMerit for all shares of
Common Stock, if any, purchased upon exercise of the Option that are
beneficially owned by FirstMerit on the Request Date;
(y) the excess, if any, of the Applicable Price (as defined below)
over the Purchase Price paid by FirstMerit for each share of Common Stock with
respect to which the Option has been exercised that are beneficially owned by
FirstMerit on the Request Date, multiplied by the number of such shares; and
(z) the excess, if any, of the Applicable Price over the Purchase
Price (adjusted pursuant to Section 7), multiplied by the number of Option
Shares with respect to which the Option has not been exercised; provided that,
in the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, the Closing Date shall be
suspended and the Option shall be treated, for purposes of this clause (z), as
if it had not been exercised.
(b) If FirstMerit exercises its rights under this Section 7, Security
First shall, within 10 business days after the Request Date, pay the Put
Consideration to FirstMerit in immediately available funds, by wire transfer
to a bank account designated by FirstMerit; FirstMerit shall, against receipt
of the payment therefor, surrender to Security First the Option and the
certificates evidencing the shares of Common Stock, if any, purchased upon
exercise of the Option that are beneficially owned by FirstMerit on the
Request Date; and FirstMerit shall warrant that it has sole record and
beneficial ownership of such shares, free and clear of all liens, claims,
charges, and encumbrances of any kind.
Notwithstanding the foregoing, if Security First is prohibited from
repurchasing the Option or any or all Option Shares or from paying all or any
portion of the Put Consideration by reason of any applicable judgment, decree,
order, law, or regulation, Security First shall immediately repurchase or pay
that portion of the Option and Option Shares or Put Consideration that it is
not prohibited from repurchasing or paying, shall from time to time thereafter
immediately repurchase or pay such further portion of the Put Consideration
that it is not then prohibited from repurchasing or paying, and, in all cases,
shall pay the balance of the Option and Option Shares or Put Consideration
within 10 business days after such prohibition has expired or been terminated.
Upon receipt of a partial payment of the Put Consideration, FirstMerit shall
surrender a portion of the Option and/or Option Shares, as selected by
FirstMerit, corresponding (as closely as practicable) to the portion of the
Put Consideration received by FirstMerit.
If prior notification to or approval by the Federal Reserve or any other
regulatory authority is required in connection with the payment of all or any
portion of the Put Consideration, Security First shall pay from time to time
that portion of the Put Consideration that it is not prohibited from paying
and shall promptly file and expeditiously process the required notice or
application for approval (and FirstMerit shall cooperate with Security First
in the filing of any such notice or application and the obtaining of any such
approval), and Security First shall pay the Put Consideration within 10
business days after the date on which, as the case may be, (i) any required
notification period has expired or been terminated or (ii) such approval has
been obtained.
(c) If the Federal Reserve or any other regulatory authority
disapproves of the repurchase by Security First of all or any part of the
Option or Option Shares pursuant to this Section 8, Security First shall
promptly give notice of such disapproval to FirstMerit, and FirstMerit shall
have the right to exercise the Option as to the number of Option Shares for
which the Option was exercisable at the Request Date less the number of shares
as to which payment has been made. If the Option shall have terminated prior
to the date of such notice or shall be scheduled to terminate at any time
before the expiration of a period ending on the thirtieth business day after
the date of such notice, FirstMerit shall nevertheless have the right so to
exercise the Option or exercise its right under Section 11 until the
expiration of such period of 30 business days. Notwithstanding anything
herein to the contrary, Security First shall not be obligated to repurchase
the Option or any Option Shares on more than one occasion.
(d) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share to be paid by any person (other
than FirstMerit or one of its subsidiaries) for shares of Common Stock or the
highest consideration per share to be received by holders of Common Stock, in
each case pursuant to an agreement for a merger, consolidation, joint venture,
or other business combination with Security First entered into after the date
hereof and on or prior to the Request Date, (ii) the highest closing sales
price per share of Common Stock reported on The Nasdaq Stock Market National
Market System of the National Association of Securities Dealers Automated
Quotation System ("Nasdaq") (or, if transactions in Common Stock are not
reported on Nasdaq, the highest bid price quoted on the principal trading
market on which the Common Stock is traded as reported by a recognized source)
during the 60 business days preceding the Request Date, and (iii) in the event
of the sale by Security First or its subsidiaries, in one or more
transactions, of assets or earning power aggregating more than 50% of the
consolidated assets or earning power of Security First and its subsidiaries to
any person (other than FirstMerit or any subsidiary of FirstMerit), the sum of
the price paid for such assets or earning power and the current value of the
remaining assets of Security First and its subsidiaries divided by the number
of shares of Common Stock outstanding at the time of the sale. The value of
any consideration other than cash that is offered, paid, or received pursuant
to clauses (i) or (iii) of this Section 8(d), and the value of the remaining
assets of Security First and its subsidiaries referred to in clause (iii),
shall be determined in good faith by an independent nationally recognized
investment banking firm mutually acceptable to FirstMerit and Security First,
which determination shall be conclusive for all purposes of this Agreement.
(e) As used herein, a "Repurchase Event" means the consummation of an
Acquisition Transaction, provided, that, the percentage for purposes of
Section 3(b)(i)(b) shall be 50% and the percentages for purposes of Section
3(b)(i)(c) shall be 40%.
(f) Notwithstanding anything in this Agreement to the contrary, the
Put Consideration payable to FirstMerit, determined in accordance with
Subsection (a) of this Section, shall be adjusted so that in no event will the
aggregate Put Consideration payable to FirstMerit pursuant to the terms of
this Section 8 exceed the aggregate Purchase Price paid by FirstMerit pursuant
to the Option, plus $7,500,000.
9. Repurchase of Option at Request of Security First.
(a) Except to the extent that FirstMerit shall have previously
exercised its rights under Section 8, at the request of Security First during
the six-month period commencing 12 months following the first occurrence of a
Repurchase Event, Security First may repurchase from FirstMerit, and
FirstMerit shall sell to Security First, all (but not less than all) of the
shares of Common Stock purchased by FirstMerit upon exercise of the Option
that are beneficially owned by FirstMerit on the Call Date at a price (the
"Call Consideration") equal to the greater of (x) 110% of the Current Market
Price and (y) the sum of (a) the Purchase Price paid by FirstMerit for such
shares plus (b) FirstMerit's pretax per share carrying cost, multiplied in
either case by the number of shares being repurchased. The date on which
Security First requests that FirstMerit sell the Option Shares under this
Section 9 is referred to as the "Call Date."
Notwithstanding the foregoing, FirstMerit may, within 30 days
following Security First's notice of its intention to purchase shares pursuant
to this Section 9, deliver an Offeror's Notice pursuant to Section 11, in
which case the provisions of Section 11 and not those of this Section 9 shall
control. Notwithstanding any contrary provision of this Section 9, Security
First's rights under this Section 9 shall be suspended (with any such rights
being extended accordingly) during any period in which the exercise of such
rights would subject FirstMerit to liability pursuant to Section 16(b) of the
Exchange Act.
(b) If Security First exercises its rights under this Section 9 and
FirstMerit does not deliver an Offeror's Notice or sell shares of Common Stock
to a third party pursuant to the Offeror's Notice, Security First shall,
within 10 business days after the thirtieth day following Security First's
notice of its intention to purchase shares pursuant to this Section 9 or, if
applicable, within 10 business days after abandonment of the transaction
covered by the Offeror's Notice, pay the Call Consideration in immediately
available funds, by wire transfer to a bank account designated by FirstMerit;
FirstMerit shall surrender to Security First the certificates evidencing the
shares of Common Stock purchased upon exercise of the option that are
beneficially owned by FirstMerit on the Call Date; and FirstMerit shall
warrant that it has sole record and beneficial ownership of such shares, free
and clear of all liens, claims, charges, and encumbrances of any kind.
(c) As used herein, (i) "Current Market Price" means the average
closing sales price per share of Common Stock reported on Nasdaq (or if the
Common Stock is not reported on Nasdaq, the highest bid price quoted on the
principal trading market on which such shares are traded as reported by a
recognized source) for the 10 business days preceding the Call Date, and (ii)
"FirstMerit's pretax per share carrying cost" shall be the amount equal to the
interest on the aggregate Purchase Price paid for the shares of Common Stock
being repurchased pursuant to this Section 9 from the date of purchase to the
date of repurchase at the rate of interest announced by Security First as its
prime or base lending or reference rate during such period, less any dividends
received on the shares being repurchased, divided by the number of shares
being repurchased.
10. Registration Rights. If requested by FirstMerit at any time and from
time to time within (a) the period beginning upon the first exercise of the
Option and ending 18 months thereafter or (b) the period beginning upon the
occurrence of either of the events set forth in clauses (i) and (ii) of
Section 3(e), or the receipt by FirstMerit of official notice that an approval
of the Federal Reserve or any other regulatory authority required for a
repurchase pursuant to Section 8(c) will not be issued or granted, and ending
30 business days thereafter (but solely as to shares of Common Stock with
respect to which the required approval was not received), Security First shall
prepare and file a registration statement under the Securities Act, if such
registration is necessary, in order to permit the sale or other disposition of
any or all shares of Common Stock or other securities that have been purchased
by or are issuable to FirstMerit upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by FirstMerit,
including, if applicable, a "shelf" registration statement under Rule 415
under the Securities Act or any successor provision, and Security First shall
use its best efforts to qualify such shares or other securities under any
applicable state securities laws.
FirstMerit shall use all reasonable efforts to cause, and to cause any
underwriters of any sale or other disposition to cause, any sale or other
disposition pursuant to registration statement to be effected on a widely
distributed basis. Security First shall use all reasonable efforts to cause
such registration statement to become effective, to obtain all consents or
waivers of other parties that are required therefor, and to keep such
registration statement effective for such period (not in excess of 180 days
from the day such registration statement first becomes effective) as may be
reasonably necessary to effect such sale or other disposition. In the event
that FirstMerit requests Security First to file a registration statement
following the failure to obtain an approval required for an exercise of the
Option as described in Section 3(e), the closing of the sale or other
disposition of Common Stock pursuant to such registration statement shall
occur substantially simultaneously with the exercise of the Option.
The obligations of Security First hereunder to file a registration
statement and to maintain its effectiveness may be suspended for one or more
periods of time not exceeding 90 days in the aggregate if the Board of
Directors of Security First determines that the filing of such registration
statement or the maintenance of its effectiveness would require disclosure of
non-public information that would materially and adversely affect Security
First. Any registration statement prepared and filed under this Section 10,
and any sale covered thereby, shall be at Security First's expense, except for
underwriting discounts or commissions, brokers' fees, and the fees and
disbursements of FirstMerit's counsel related thereto. FirstMerit shall
provide all information reasonably requested by Security First for inclusion
in any registration statement to be filed hereunder, and shall make all
necessary representations and warranties with respect to the accuracy and
completeness thereof and shall hold Security First harmless with respect to
any liability therefor.
If, during the time periods referred to in the first sentence of this
Section 10, Security First effects a registration under the Securities Act of
any Common Stock for its own account or for the account of any stockholder of
Security First (other than a registration on Form S-4, Form S-8, or any
successor form), Security First shall afford FirstMerit the right to
participate in such registration, and such participation shall not affect the
obligation of Security First to effect the registration statement for
FirstMerit under this Section 10; provided that, if the managing underwriters
of such offering advise Security First in writing that, in their opinion, the
number of shares of Common Stock requested to be included in such registration
exceeds the number that can be sold in such offering, Security First shall
include the shares requested to be included in the offering by FirstMerit pro
rata with the shares intended to be included in the offering by Security
First. In connection with the registration pursuant to this Section 10,
Security First and FirstMerit shall provide each other and any underwriter of
the offering with customary representations, warranties, covenants,
indemnification, and contribution in connection with such registration.
11. First Refusal. At any time after the first occurrence of a Purchase
Event and prior to the later of (a) the expiration of 24 months following the
first purchase of shares of Common Stock upon exercise of the Option and (b)
the termination of the right to exercise the Option pursuant to Section 3(c),
if FirstMerit desires to sell, assign, transfer, or otherwise dispose of all
or any of the shares of Common Stock or other securities purchased by it upon
exercise of the Option, FirstMerit shall give Security First written notice of
the proposed transaction (an "Offeror's Notice"), identifying the proposed
transferee, accompanied by a copy of a binding offer to purchase such shares
or other securities signed by such transferee and setting forth the terms of
the proposed transaction. An Offeror's Notice shall be deemed an offer by
FirstMerit to Security First, which may be accepted within 10 business days
after receipt of such Offeror's Notice by Security First, to sell such shares
or other securities to Security First on the same terms and conditions and at
the same price as those set forth in the Offeror's Notice for the proposed
transaction. The purchase of any such shares or other securities by Security
First shall be settled within 10 business days of the date of the acceptance
of the offer by Security First, and the purchase price shall be paid to
FirstMerit in immediately available funds. Notwithstanding the foregoing, if
prior notification to or approval by the Federal Reserve or any other
regulatory authority is required in connection with such purchase, Security
First shall promptly file and expeditiously process the required notice or
application for approval (and FirstMerit shall cooperate with Security First
in the filing of any such notice or application and the obtaining of any such
approval), and the purchase of such shares or other securities by Security
First shall be settled within 10 business days after the date on which, as the
case may be, (a) any required notification period has expired or been
terminated or (b) such approval has been obtained.
In the event of the failure or refusal of Security First to purchase all
the shares or other securities covered by an Offeror's Notice, or if the
Federal Reserve or any other regulatory authority disapproves of Security
First's proposed purchase of such shares or other securities, FirstMerit may
thereafter sell such shares to the proposed transferee at no less than the
price specified and on terms no more favorable than those set forth in the
Offeror's Notice. The requirements of this Section 11 shall not apply to (x)
any disposition as a result of which the proposed transferee will purchase or
acquire in such transaction not more than 2% of the outstanding Common Stock,
(y) any sale by means of a public offering registered under the Securities Act
in which steps are taken to reasonably ensure that no purchaser will purchase
or acquire more than 2% of the outstanding Common Stock, or (z) any transfer
to a wholly-owned subsidiary of FirstMerit that agrees in writing to be bound
by the terms hereof.
12. Listing. If shares of Common Stock or any other securities to be
acquired upon exercise of the Option are quoted on Nasdaq, Security First, at
the request of FirstMerit, will thereafter, use reasonable efforts to cause
the Common Stock to continue to be so quoted.
13. Division of Option. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of FirstMerit, upon
presentation and surrender of this Agreement at the principal office of
Security First, for other Agreements providing for options of different
denominations entitling the Holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The terms
"Agreement" and "Option" as used herein include any other Agreements and
related options for which this Agreement and the Option granted hereby may be
exchanged. Upon receipt by Security First of evidence reasonably satisfactory
to it of the loss, theft, destruction, or mutilation of this Agreement, and
(in the case of loss, theft, or destruction) of reasonably satisfactory
indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Agreement, Security First will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement, when executed and
delivered, shall constitute an additional contractual obligation on the part
of Security First, whether or not the Agreement so lost, stolen, destroyed, or
mutilated shall at any time be enforceable by anyone.
14. FirstMerit's Breach. Notwithstanding anything to the contrary
contained herein, all of Security First's obligations under this Agreement
shall be terminated and the Option shall not be exercisable if the Merger
Agreement has been terminated and FirstMerit was in material breach of any
term, condition, covenant, representation or warranty of or contained within
the Merger Agreement when it was terminated; provided, however, that Security
First may not assert, for purposes of this Section 14 only, a material breach
of the Merger Agreement by FirstMerit if FirstMerit terminated the Merger
Agreement pursuant to the terms of the Merger Agreement and Security First
failed to notify FirstMerit, upon FirstMerit's written request prior to
termination, of the material breach; provided, further, however, that Security
First may not assert, for purposes of this Section 14 only, a material breach
of the Merger Agreement by FirstMerit if Security First terminated the Merger
Agreement pursuant to the terms of the Merger Agreement and all material
breaches by FirstMerit were curable, unless Security First provided written
notice to FirstMerit of the material breaches and an opportunity to cure as
soon as reasonably practicable.
15. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 10, each of
the parties hereto shall bear and pay all expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is entitled to the benefits of such
provision, but such waiver shall only be effective if in writing and signed by
the party entitled to the benefits of such provision. This Agreement may not
be modified, amended, altered, or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability.
Except as otherwise set forth in the Merger Agreement, this Agreement, the
Merger Agreement, and the other documents and instruments referred to therein
and herein (a) constitute the entire agreement and understanding, and
supersede all prior agreements and understandings, both written and oral,
between the parties with respect to their subject matter and (b) are not
intended to confer upon any person other than the parties hereto any rights or
remedies. If any term, provision, covenant, or restriction of this Agreement
is held by a court of competent jurisdiction or a federal or state regulatory
agency to be invalid, void, or unenforceable, the other terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall not be affected, impaired, or invalidated. If for any reason
such court or regulatory agency determines that the Option does not permit
FirstMerit to acquire, or does not require Security First to repurchase, the
full number of shares of Common Stock as provided in Sections 3 and 8 (as
adjusted pursuant to Section 7), it is the express intention of Security First
to allow FirstMerit to acquire, or to require Security First to repurchase,
such lesser number of shares as may be permissible without any amendment or
modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio without regard to any applicable
conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
as shall be specified by like notice):
To Security First: To FirstMerit:
Charles F. Valentine, Chairman of the John R. Cochran, Chairman and
Board and Chief Executive Officer Chief Executive Officer
Security First Corp. FirstMerit Corporation
1413 Golden Gate Boulevard III Cascade Plaza, 7th Floor
Mayfield Heights, Ohio 44124 Akron, Ohio 44308
With a copy to: With copies to:
James S. Fleischer Terry E. Patton, Senior Vice
Silver, Freedman & Taff, L.L.P. President and Secretary
1100 New York Ave., N.W. FirstMerit Corporation
Suite 700 III Cascade Plaza, 7th Floor
Washington, D.C. 20005 Akron, Ohio 44308
Kevin C. O'Neil
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
(g) Counterparts. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the
same agreement and shall become effective when both counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that both Parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other party. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
FirstMerit, Security First and FirstMerit shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
(j) Specific Performance. This Agreement may be enforced by either
party through specific performance, injunctive relief, and other equitable
relief. Both parties hereby waive any requirement for the securing or posting
of any bond in connection with the obtaining of any such equitable relief and
agree that this provision is without prejudice to any other rights that the
parties hereto may have for any failure to perform this Agreement. Both
parties acknowledge that damages would be an inadequate remedy for a breach of
this Agreement by either party.
<PAGE>
IN WITNESS WHEREOF, Security First and FirstMerit have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
FirstMerit Corporation
Attest:
/s/ Terry E. Patton By: /s/ John R. Cochran
- ------------------------------ -----------------------------
Terry E. Patton, Secretary John R. Cochran, Chairman and
Chief Executive Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, John R.
Cochran, Chairman and Chief Executive Officer, and Terry E. Patton, Senior
Vice President and Secretary of FirstMerit Corporation, an Ohio corporation,
and they duly executed the Agreement of Affiliation and Plan of Merger before
me and acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day of
April, 1998.
/s/ Kevin C. O'Neil
--------------------------------
Kevin C. O'Neil, Notary Public
<PAGE>
Security First Corp.
Attest:
/s/ Jeffrey J. Calabrese By: /s/ Charles F. Valentine
- ------------------------------ ---------------------------------
Jeffrey J. Calabrese, Secretary Charles F. Valentine, Chairman of
the Board and Chief Executive
Officer
ACKNOWLEDGMENT
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
BE IT REMEMBERED that on this 5th day of April, 1998, personally came
before me, a Notary Public in and for the State and County aforesaid, Charles
F. Valentine, Chairman of the Board and Chief Executive Officer and Jeffrey
J. Calabrese, Secretary of Security First Corp., a Delaware corporation, and
they duly executed the Agreement of Affiliation and Plan of Merger before me
and acknowledged it to be their act and deed and the act and deed of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day of
April, 1998.
/s/
----------------------------
Notary Public
<PAGE>
Exhibit 99
SECURITY FIRST CORP.
Mary H. Crotty, Vice President/Chief Financial Officer
(440) 449-3700 Ext. 3273
April 5, 1998
FIRSTMERIT CORPORATION TO ACQUIRE SECURITY FIRST
AKRON, Ohio, April 6 /PRNewswire/ FirstMerit Corporation (Nasdaq: FMER)
and Security First Corporation (Nasdaq: SFSL) today announced that a
definitive agreement was signed for the acquisition of Security First by
FirstMerit. This transaction will further enhance FirstMerit's market share
in Northeast Ohio and will add Security First's strong franchise and expertise
in residential construction and development lending.
According to a joint announcement by John R. Cochran, Chairman and Chief
Executive Officer of FirstMerit Corp., and Charles F. Valentine, Chairman and
Chief Executive Officer of Security First Corp., the transaction will be
structured as a tax-free exchange of stock. Under the terms of the agreement,
the fixed exchange ratio will be 0.8855 shares of FirstMerit stock for each
share of Security First. Based on FirstMerit's April 3, 1998 closing price of
$33.06 per share, the transaction is valued at $29.28 per share, for a total
value of $256 million.
The acquisition is expected to close by the end of the third quarter of
1998, subject to regulatory and Security First shareholder approval. Security
First has also provided FirstMerit with an option to acquire up to 19.9
percent of its common shares exercisable under certain conditions.
Commenting on the merger, Mr. Cochran stated, "FirstMerit is excited to
add Security First to its family of community banks. This combination will
enhance our already strong market share in Northeast Ohio. FirstMerit will
strengthen deposit share in six of the eleven counties we serve through this
transaction. We look forward to serving Security First's customers, providing
additional products to meet their ever-changing needs, as well as offering
greater convenience through our network of branches which will total 152 by
year end. Through revenue enhancements and cost savings, this acquisition
will improve shareholder value. The transaction is projected to be accretive
in the first full year.
"Charles Valentine and his team will join FirstMerit to provide strong
expertise and focus in residential construction, acquisition and development
lending. FirstMerit and Security First believe in the future of community
banking and the benefits it brings to our customers.""
Mr. Valentine added, "Security First looks forward to becoming a part of
FirstMerit which will enable us to continue to serve our customers and
communities as we have for over 80 years. FirstMerit's commitment to long-term
relationships with customers is very compatible with our goals. Our
shareholders will receive an attractive price per share along with a
significant increase in their dividends. More importantly, they will share in
the future growth of a successful, dynamic bank-holding company."
Security First Corp. is a $678 million holding company headquartered in
Mayfield Heights, Ohio. Subsidiaries include Security Federal Savings and
Loan Association of Cleveland and First Federal Savings Bank of Kent. The
company operates 14 branch offices throughout six counties in Northeast Ohio.
The acquisition will be accounted for as a pooling-of-interests. In
connection with the transaction, FirstMerit is suspending its stock repurchase
program.
FirstMerit Corporation is a $5.3 billion holding company. FirstMerit's
wholly-owned subsidiaries, FirstMerit Bank, N.A., FirstMerit Mortgage
Corporation, FirstMerit Credit Life Insurance Company and FirstMerit Community
Development Corporation, serve Summit, Cuyahoga, Medina, Lorain, Stark, Wayne,
Portage, Erie, Ashtabula, Lake and Geauga counties in Ohio. Visit
FirstMerit's home page on the World Wide Web at http://www.firstmerit.com.
SOURCE FirstMerit Corporation
CONTACT: Analysts, Gary Elek, SVP Mergers & Acquisitions, 330-384-7136, or
Media, Dixie Vinez, VP Marketing, 330-384-7068, both of FirstMerit
Company News On Call: http://www.prnewswire.com or fax, 800-758-5804, ext.
312405
Web Site: http://www.firstmerit.com
