SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___ )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Seven Hills Financial Corporation
(Name of Registrant as Specified In Its Charter)
Seven Hills Financial Corporation
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Shares
2) Aggregate number of securities to which transaction applies:
534,357
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
$19.65 per share is proposed to be paid. If there is a payment
to Seven Hills Financial
Corporation from the Ohio Deposit Guarantee Fund before the
merger is closed, that payment
will be passed on tot he Seven Hills Financial Corporation
shareholders, but it is not certain
whether such a payment will occur before closing. Thus, the
total fee is $19.65 x 534,357
= $10,500,115 x 1/50 x 1% = $2,100.02 fee.
4) Proposed maximum aggregate value of transaction:
$10,500,115
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
................................................................................
2) Form, Schedule or Registration Statement No.:
................................................................................
3) Filing Party:
SEVEN HILLS FINANCIAL CORPORATION
1440 Main Street
Cincinnati, Ohio 45210
(513) 621-9143
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of the Shareholders of
Seven Hills Financial Corporation, an Ohio corporation ("SHFC"), will be held
at ________________, Cincinnati, Ohio 452__, on ________________, 1996, at
______________________ __.m., local time (the "Special Meeting"), for the
following purposes, all of which are more completely set forth in the
accompanying Proxy Statement:
1. To consider and vote upon the adoption of an amendment to the
amended Articles of Incorporation of SHFC to delete Article
EIGHTH, which prohibits an offer to acquire or the acquisition
of more than 10% of the outstanding common shares of SHFC;
2. To consider and vote upon the adoption of the Agreement and
Plan of Merger and Reorganization dated June 14, 1996, by and
among Western Ohio Financial Corporation ("WOFC"), SHFC and
Seven Hills Savings Association, an Ohio savings and loan
association and a wholly-owned subsidiary of SHFC, pursuant to
which a wholly-owned subsidiary of WOFC will, upon the
satisfaction of certain conditions, merge with and into SHFC in
a transaction in which each outstanding SHFC common share will
be canceled and extinguished in consideration and exchange for
the right to receive a minimum of $19.65 cash and a maximum of
$19.71 cash;
3. To consider and vote upon a proposal to adjourn the Special
Meeting in the event that a sufficient number of votes
necessary to adopt the foregoing proposals is not received; and
4. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
Only shareholders of SHFC of record at the close of business on
_____________, 1996, will be entitled to receive notice of and to vote at the
Special Meeting and at any adjournments thereof. Whether or not you expect to
attend the Special Meeting, we urge you to consider the accompanying Proxy
Statement carefully and to SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND THE
PRESENCE OF A QUORUM MAY BE ASSURED. The giving of a Proxy does not affect
your right to vote in person in the event you attend the Special Meeting.
By Order of the Board of Directors,
Arthur W. Wendel, Jr., President
Cincinnati, Ohio
____________________, 1996
<PAGE>
SEVEN HILLS FINANCIAL CORPORATION
1440 Main Street
Cincinnati, Ohio 45210
(513) 621-9143
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement and the accompanying Notice and Proxy are
furnished to shareholders of Seven Hills Financial Corporation, an Ohio
corporation ("SHFC"), in connection with the solicitation of proxies by the
Board of Directors of SHFC to be used at the Special Meeting of Shareholders
to be held at ____________________ on _______________, 1996, at __.m., local
time, and at any adjournments thereof (the "Special Meeting"). Copies of this
Proxy Statement and the accompanying Notice and Proxy are first being mailed
to shareholders on or about August 30, 1996.
At the Special Meeting, shareholders of SHFC will be asked to consider
and vote upon the following:
1. The adoption of an amendment to the amended Articles of
Incorporation of SHFC to delete Article EIGHTH, which prohibits
an offer to acquire or the acquisition of more than 10% of the
outstanding common shares of SHFC (the "Amendment");
2. The adoption of the Agreement and Plan of Merger and
Reorganization dated June 14, 1996, by and among Western Ohio
Financial Corporation, a Delaware corporation located in Ohio
("WOFC"), SHFC and Seven Hills Savings Association, an Ohio
savings and loan association and a wholly-owned subsidiary of
SHFC ("Seven Hills"), a copy of which is attached hereto as
Annex A (the "Agreement"), pursuant to which a wholly-owned
subsidiary of WOFC will, upon the satisfaction of certain
conditions, merge with and into SHFC (the "Merger") in a
transaction in which each outstanding SHFC common share will be
canceled and extinguished on the effective date of the Merger
in consideration and exchange for the right to receive the sum
of the following (the "Per Share Merger Consideration"):
(A) $19.65 in cash; plus
(B) The quotient of
(I) The difference between (a) the
amount(s) actually received from the
liquidation and winding up of the Ohio
Deposit Guarantee Fund (the "ODGF")
between June 14, 1996, and the effective
date of the Merger, less (b) the
out-of-pocket expenses and estimated
federal and state income tax liabilities
attributable to such amount(s);
divided by
(II) 583,763, an amount which equals the
sum of the number of SHFC outstanding
common shares on the effective date of the
Merger, plus the number of shares subject
to outstanding options to purchase SHFC
common shares.
Such quotient will not exceed $.06, as a result
of which the maximum cash amount to be paid by
WOFC in consideration and exchange for each SHFC
common share is $19.71.
3. The adjournment of the Special Meeting in the event
that a sufficient number of votes necessary to approve the
foregoing proposals is not received; and
4. The transaction of such other business as may properly
come before the Special Meeting.
<PAGE>
On June 13, 1996, the date preceding the public announcement of the
execution of the Agreement, the closing bid and asked prices for SHFC's common
shares were $14.50 and $16.50 per share, respectively. On ____________, 1996,
the closing bid and asked prices for SHFC's common shares were $______ and
$______ per share, respectively.
The Board of Directors believes that the adoption of the Amendment and
the Agreement is in the best interests of SHFC shareholders and
recommends, therefore, the adoption of the Amendment and the
Agreement. The Board of Directors also recommends that shareholders
vote for the adjournment of the Special Meeting, if necessary, in
order to facilitate the adoption of the Amendment and the Agreement.
The close of business on _____________, 1996, has been fixed as the
record date for determining the shareholders entitled to receive notice of,
and to vote at, the Special Meeting (the "Record Date"). On the Record Date,
there were 536,472 SHFC common shares outstanding. SHFC has no other class of
shares outstanding other than the common shares.
All common shares represented by each properly executed Proxy received
by the Board of Directors pursuant to this solicitation will be voted in
accordance with the shareholder's directions as specified on the Proxy. If no
directions are specified on the Proxy, the common shares represented by the
Proxy will be voted in favor of the adoption of the Amendment, in favor of the
adoption of the Agreement and in favor of the adjournment of the Special
Meeting, if necessary.
Management knows of no other matters to be brought before the Special
Meeting. If any other matters are properly brought before the Special Meeting,
however, the persons named as proxies in the enclosed Proxy will vote in
accordance with their best judgment on such matters.
Without affecting any vote previously taken, a shareholder signing and
returning the accompanying Proxy has the power to revoke the proxy at any time
before exercise (i) by giving notice to SHFC in a writing received by Arthur
W. Wendel, Jr., President of SHFC, at SHFC's offices at 1440 Main Street,
Cincinnati, Ohio 45210, (ii) by executing a subsequent proxy received by SHFC
or (iii) by attending the Special Meeting and giving notice of such revocation
in person to the Inspectors of Election at the Special Meeting. Attendance at
the Special Meeting will not, in and of itself, constitute a revocation of a
Proxy.
The presence, in person or by Proxy, of the holders of a majority of
the issued and outstanding SHFC common shares entitled to vote at the Special
Meeting is necessary to constitute a quorum at the Special Meeting. Each
shareholder is entitled to one vote for each share held. Under Ohio law,
shares that are held by a nominee for a beneficial owner and which are
represented in person or by proxy, but which are not voted with respect to the
adoption of the Amendment, the adoption of the Agreement or the adjournment of
the Special Meeting ("non-votes"), are counted as present for purposes of
establishing a quorum. The effect of an abstention or a non-vote is the same
as a vote against the adoption of the Amendment, the adoption of the Agreement
or the adjournment of the Special Meeting. If, however, the accompanying Proxy
is signed and dated by the shareholder, but no vote is specified thereon, the
shares held by such shareholder will be voted FOR the adoption of the
Amendment, FOR the adoption of the Agreement and for the adjournment of the
Special Meeting will not be considered a "non-vote."
SHFC will bear the cost of the solicitation of Proxies from its
shareholders. In addition to the use of the mail, Proxies may be solicited by
personal interview, telephone, telegram and telecopy by the directors and
officers of SHFC, who will receive no additional compensation for such
services. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries for the distribution of solicitation materials to the
beneficial owners of SHFC common shares held of record by such persons, and
such brokers, custodians, nominees and fiduciaries will be reimbursed for
reasonable out-of-pocket expenses incurred by them in connection with such
distribution.
AVAILABLE INFORMATION
SHFC is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected or copied at the public
reference facilities of the Commission located at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549; at the Commission's Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601;
and at its New York Regional Office, Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such materials may also be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
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<PAGE>
SEVEN HILLS FINANCIAL CORPORATION
PROXY STATEMENT
TABLE OF CONTENTS
Page
SUMMARY....................................................................1
Introduction...........................................................1
Parties to the Agreement...............................................2
SHFC and Seven Hills................................................2
WOFC................................................................2
Special Meeting of SHFC Shareholders...................................3
The Amendment..........................................................3
The Merger.............................................................3
Background and Reasons for the Merger...............................3
Opinion of Webb & Company...........................................5
Terms of the Merger....................................................6
Exchange of SHFC Common Shares......................................6
Assumption of SHFC Options..........................................6
Representations, Warranties and Covenants...........................7
Conditions and Effective Time.......................................7
Subsequent Merger...................................................7
Termination.........................................................7
Surrender of Certificates Evidencing SHFC Common Shares.............7
Federal Income Tax Consequences.....................................8
Effect of Merger on SHFC Directors and Executive Officers
and the Seven Hills Savings Association Employee Stock
Ownership Plan......................................................8
Dissenters' Rights of Appraisal........................................8
Market for the SHFC Common Shares and Related
Shareholder Matters.................................................9
Selected Consolidated Financial Data...................................9
AMENDMENT OF THE AMENDED ARTICLES OF INCORPORATION........................11
THE MERGER................................................................12
Background and Reasons for the Merger.................................12
Opinion of Charles Webb & Company.....................................14
Recommendation of the Board of Directors of SHFC......................15
Exchange of SHFC Common Shares........................................15
Assumption of SHFC Options.........................................16
Representations, Warranties and Covenants.............................16
Conditions............................................................17
Effective Time........................................................17
Subsequent Merger.....................................................17
Termination...........................................................17
Surrender of Certificates Evidencing SHFC Common Shares...............18
Federal Income Tax Consequences.......................................19
Effect of Merger on SHFC Directors and Executive Officers
and the ESOP.......................................................19
Interests of Certain Persons..........................................20
Accounting Treatment..................................................20
REGULATORY APPROVALS......................................................20
IDENTITY AND BACKGROUND OF WOFC...........................................21
DISSENTERS' RIGHTS OF APPRAISAL...........................................21
MARKET FOR THE SHARES AND RELATED SHAREHOLDER MATTERS.....................22
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.........................................................23
ADJOURNMENT OF THE SPECIAL MEETING........................................24
AUDITORS..................................................................25
SHAREHOLDER PROPOSALS.....................................................25
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................25
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<PAGE>
ANNEX A:.......AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
ANNEX B:.......OPINION OF CHARLES WEBB & COMPANY
ANNEX C:.......PROVISIONS OF THE OHIO REVISED CODE WITH RESPECT TO DISSENTERS'
RIGHTS
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<PAGE>
SUMMARY
The following is a summary of certain information with respect to
matters to be considered at the Special Meeting and is not intended to be a
complete statement of all material facts regarding such matters. This summary
should be read in conjunction with, and is qualified in its entirety by
reference to, the full text of this Proxy Statement, including the Agreement
attached hereto as Annex A, the other annexes attached hereto and the
documents incorporated herein by reference.
Introduction
On June 14, 1996, SHFC, Seven Hills and WOFC entered into the
Agreement. If the Amendment and the Agreement are adopted by the affirmative
vote of the holders of a majority of the outstanding SHFC common shares and if
all other conditions to the consummation of the Merger are satisfied or
waived, a wholly-owned subsidiary of WOFC (the "Acquisition Subsidiary") will
merge with and into SHFC. On the date on which the Merger becomes effective
(the "Effective Date"), each outstanding SHFC common share will be canceled
and extinguished in consideration and exchange for the right to receive the
Per Share Merger Consideration, which is the sum of the following:
(A) $19.65 cash; plus
(B) The quotient of
(I) The difference between (a) the amount(s)
actually received from the liquidation and
winding up of the ODGF between June 14, 1996, and
the Effective Date, less (b) the out-of-pocket
expenses and estimated federal and state income
tax liabilities attributable to such amount(s);
divided by
(II) 583,763, an amount which equals the sum of
the number of SHFC outstanding shares on the
Effective Date, plus the number of shares subject
to outstanding options. See "THE MERGER-Exchange
of SHFC Options."
There is no assurance that any amounts will be actually received from the ODGF
before the Effective Date. If, however, the maximum possible amounts are
received by SHFC from the ODGF before the Effective Date, the foregoing
quotient will not exceed, after the deduction of such expenses and
liabilities, $.06. Accordingly, the maximum Per Share Merger Consideration
will equal $19.71.
The Per Share Merger Consideration was determined as a result of
arms-length negotiations between the Boards of Directors of WOFC and SHFC.
Such negotiations commenced when WOFC responded to SHFC's request by making an
offer to SHFC based upon the subjective consideration by WOFC of a number of
factors, including, but not limited to, the book value and earnings per share
of SHFC, the asset quality of SHFC and the amounts paid in similar
transactions.
On June 14, 1996, there were 536,472 SHFC common shares outstanding
and 49,406 SHFC common shares subject to outstanding options, the exercise
price of each of which was $10 (the "SHFC Options"). Of the 536,472 SHFC
common shares outstanding on June 14, 1996, 2,115 shares were held by the
Seven Hills Savings Association Recognition and Retention Plan ("RRP") and
were available for award to RRP participants in accordance with the terms the
RRP (the "Unallocated Shares"). See "VOTING SECURITIES AND OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." The Agreement requires that SHFC
retire the Unallocated Shares to authorized, but unissued, shares without the
payment of any consideration before the Effective Date. Accordingly, the
outstanding shares on the Effective Date will equal 534,357.
Each holder of SHFC Options has agreed not to exercise the SHFC
Options before the Effective Date and to the assumption of such options on the
Effective Date, thereafter entitling the optionholder to purchase WOFC common
shares. Based upon the provisions of the Agreement, each of the SHFC Options
will after the Effective Date entitle the optionholder to purchase 6,136
common shares of WOFC at $11.50 per share, or 6,155 common shares of WOFC at
$11.47 per share if the shareholders of SHFC receive $.06 per share from an
ODGF distribution. See "Terms of the Merger."
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<PAGE>
Following the consummation of the Merger, SHFC will be the
wholly-owned subsidiary of WOFC. Immediately after the Effective Date, SHFC
will merge with and into WOFC, as a result of which the separate corporate
existence of SHFC will terminate. Seven Hills will thereafter be a direct,
wholly-owned subsidiary of WOFC and will continue to serve the community as
Seven Hills Savings Association.
Parties to the Agreement
SHFC and Seven Hills. SHFC is a unitary savings and loan holding
company incorporated under the laws of the State of Ohio and owns all of the
issued and outstanding common shares of Seven Hills, a savings and loan
association incorporated under the laws of the State of Ohio. In December
1993, SHFC acquired all of the common shares issued by Seven Hills upon its
conversion from a mutual savings and loan association to a stock savings and
loan association (the "Conversion"). Since the Conversion, SHFC's activities
have been limited primarily to holding the common shares of Seven Hills.
Serving the Cincinnati, Ohio, area since 1882, Seven Hills conducts
business from its main office at 1440 Main Street in Cincinnati and from two
full-service branch offices located in the Cincinnati area. Engaged
principally in the business of making first mortgage loans secured by one- to
four-family residential real estate located in and around Cincinnati, Ohio,
Seven Hills also originates loans for the construction of one- to four-family
residential real estate, loans secured by multi-family residences (over four
units) and non-residential real estate and loans secured by deposits at Seven
Hills. Seven Hills also invests in U.S. Government and agency obligations,
interest-bearing deposits in other financial institutions, government
guaranteed mortgage-backed securities and other investments permitted by
applicable law. Funds for lending and other investment activities are obtained
primarily from savings deposits and loan principal repayments.
As a savings and loan holding company, SHFC is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings and loan
association incorporated under the laws of the State of Ohio, SHFC is subject
to regulation, supervision and examination by the OTS, the Federal Deposit
Insurance Corporation (the "FDIC") and the Ohio Division of Financial
Institutions (the "Division"). Deposits in Seven Hills are insured up to
applicable limits by the FDIC. Seven Hills is also a member of the Federal
Home Loan Bank of Cincinnati (the "FHLB").
WOFC. WOFC, a Delaware corporation, was organized in March 1994 for
the purpose of becoming the savings and loan holding company for Springfield
Federal Savings and Loan Association (the "Springfield FSLA") in connection
with Springfield FSLA's conversion from the mutual to the stock form of
organization (the "Springfield Conversion"). In the Springfield Conversion,
Springfield FSLA converted to a federal stock savings bank under the name
"Springfield Federal Savings Bank" ("Springfield FSB"). WOFC owns all of the
outstanding stock of Springfield FSB issued on July 29, 1994. WOFC's common
stock is traded on the Nasdaq National Market System under the symbol "WOFC."
On March 29, 1996, WOFC acquired Mayflower Financial Corporation
("Mayflower"), located in Cincinnati, Ohio, and its subsidiary, Mayflower
Savings Bank. In connection with such acquisition, Mayflower Savings Bank
converted to a federal savings bank charter under the name "Mayflower Federal
Savings Bank" ("Mayflower FSB") and is held as a subsidiary separate from
Springfield FSB.
WOFC, Springfield FSB and Mayflower FSB are subject to comprehensive
regulation, examination and supervision by the OTS and the FDIC. Springfield
FSB and Mayflower FSB are members of the FHLB System, and their deposits are
backed by the full faith and credit of the United States Government and are
separately insured up to applicable limits by the FDIC.
Springfield FSB is headquartered in Springfield, Ohio. Springfield
FSB's primary market area covers Clark County, Ohio, and parts of contiguous
counties, and is serviced through its main office in Springfield, Ohio, and
four branch offices in Enon, New Carlisle, Springfield and Yellow Springs.
Mayflower FSB is headquartered in Cincinnati and primarily serves that area.
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<PAGE>
Special Meeting of SHFC Shareholders
The Special Meeting will be held at ______, local time, on
____________, 1996, at ___________________, _______________. At the Special
Meeting, shareholders of SHFC will be asked to consider and act upon (i) the
adoption of the Amendment, (ii) the adoption of the Agreement and (iii) such
other business as may properly come before the Special Meeting and any
adjournment thereof. Only the holders of record of SHFC common shares
outstanding on the Record Date will be entitled to notice of and to vote at
the Special Meeting and any adjournment thereof. As of the Record Date,
536,472 SHFC common shares were outstanding and entitled to vote and held of
record by ____ shareholders. The affirmative vote of the holders of a majority
of the outstanding SHFC common shares, voting in person or by proxy, will be
necessary to adopt the Amendment and the Agreement. The affirmative vote,
therefore, of the holders of 268,237 SHFC common shares will be necessary to
adopt the Amendment and the Agreement.
As of the Record Date, the directors and executive officers of SHFC
had sole or shared voting power, in the aggregate, with respect to 160,880
outstanding SHFC common shares, or 29.99% of the outstanding SHFC common
shares. Each of the directors of SHFC has agreed to vote all of the SHFC
common shares held solely or jointly by each such director, other than shares
held in a fiduciary capacity, FOR the adoption of the Amendment and FOR the
adoption of the Agreement.
The Amendment
Article EIGHTH of the amended Articles of Incorporation of SHFC
prohibits the offer to acquire or the acquisition of more than 10% of the
outstanding shares of SHFC. Upon the consummation of the Merger, WOFC will be
deemed under Article EIGHTH to have acquired more than 10% of the outstanding
shares of SHFC.
The Board of Directors believes that the Agreement is fair to and in
the best interests of SHFC shareholders. As a result, the Board of Directors
unanimously recommends that the shareholders of SHFC vote to adopt the
Agreement at the Special Meeting. Accordingly, the Board of Directors
unanimously recommends that the SHFC shareholders remove Article EIGHTH of the
amended Articles of Incorporation, which prohibits an offer to acquire or the
acquisition of 10% or more of the outstanding shares of SHFC by voting to
approve the Amendment at the Special Meeting. The affirmative vote of the
holders of a majority of the outstanding SHFC common shares is required to
adopt the Amendment. See "THE AMENDMENT OF THE AMENDED ARTICLES OF
INCORPORATION."
The Merger
Background and Reasons for the Merger. After the consummation of the
Conversion in 1993, the Board of Directors continually evaluated various
possible strategies for increasing the comparatively low returns on equity and
assets of SHFC. At June 30, 1994, 1995 and 1996, for example, the returns on
equity of SHFC equaled 3.37%, 5.17% and 1.80%, respectively. On the same
dates, the returns on assets of SHFC equaled 0.55%, 1.10% and 0.38%,
respectively. The Board of Directors was not satisfied with such returns.
While specific possible strategies to increase such returns were
identified during the past few years, the directors generally recognized that
effective implementation would require significant capital investment. As a
small, neighborhood thrift, Seven Hills could not make the capital investment
necessary to market a competitive array of products and services without a
material impact on earnings. Although the directors believed that the erosion
of short-term earnings was an acceptable consequence of an eventual
improvement in net income, they understood clearly that ultimate improvement
was not assured.
For example, the Board of Directors agreed that Seven Hills should
provide access to automated teller machines ("ATMs") in order to retain
existing and attract new customers. An investment in ATMs and the expense of
joining an ATM network were substantial, however, and did not provide any
prospect of significant income in the short or long term. Accordingly, the
directors concluded that the investment and expense would decrease the
earnings of Seven Hills on a short-term basis and would not produce any
material income in the long term.
The Board of Directors also believed that the net interest margin of
Seven Hills might be materially enhanced by a substantial increase in loan
volume. During the past several years, Seven Hills invested available funds in
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<PAGE>
comparatively low-yield mortgage-backed securities because the nominal demand
for home financing from Seven Hills precluded the origination of a material
amount of higher-yield mortgage loans. The directors concluded that a strategy
to revitalize the mortgage loan department and to increase loan volume
substantially required the employment of a mortgage loan solicitor and support
personnel and an investment in equipment, including computer hardware and
software. Although such employment and investment might eventually increase
loan volume, they would substantially decrease earnings during the next
several years.
The Board of Directors considered, therefore, whether the
implementation of a long-term strategy to improve earnings would be in the
best interests of shareholders in view of the consequent adverse impact on the
existing low level of earnings and the uncertainty of ultimate success. As
part of such consideration, the directors noted the consolidation of the
thrift and bank industries in a manner by which the larger thrifts and banks
competed more effectively for deposits and loans than the smaller,
neighborhood thrifts; the uncertainty of Congressional and other proposals to
eliminate the thrift as a viable financial institution; and the absence of an
active and liquid market for the outstanding shares of SHFC. The directors
questioned whether such competition and legislation could detrimentally affect
the viability of SHFC even if the directors successfully implemented the
strategy for long-term improvement in earnings. Specifically, the directors
wondered whether the future would permit the profitable operation of a small,
neighborhood thrift.
In addition, the directors focused on the fact that the market for the
outstanding common shares of SHFC would remain inactive and illiquid for the
foreseeable future regardless of whether the strategy was successfully
implemented. Both the relatively small number of shareholders and the
comparatively small capitalization of SHFC had impeded the development of an
active and liquid market. While an increase in earnings would benefit
shareholders generally, the continuation of the illiquid and inactive market
would make the realization by shareholders of any such benefit through a sale
of the SHFC shares in the open market difficult.
As the directors considered the foregoing factors, they focused on
whether a sale of SHFC might be in the best interests of shareholders because
the risk of the implementation of a long-term strategy would be eliminated. As
a result, the directors decided to investigate the possible sale of SHFC and
retained the services of Charles Webb & Company, Inc. ("Webb"), the investment
banking firm which advised SHFC in the mutual to stock conversion, to assist
in such investigation.
Beginning in March of 1996, the Board of Directors conducted through
Webb a confidential inquiry into the possible interest of 15 entities in
pursuing a merger with or acquisition of SHFC. Each of such entities
expressing an interest was provided certain information on SHFC, including
financial statements, loan and deposit summaries and other data. Following
such inquiry, WOFC and a thrift institution (the "Thrift") expressed an
interest in immediately pursuing discussions.
The Thrift, an entity approximately equal in size to Seven Hills,
proposed a "merger of equals" in which the shareholders of each entity would
own approximately equal percentages of the combined entity. With the
assistance of Webb, the Board of Directors carefully examined the benefits of
the proposed merger of equals, including the preservation of the historic role
of Seven Hills as a neighborhood depository and lender, the continuation of
the local ownership of the institution and the continuity of management and
personnel. As the directors pondered the nature of a pro forma combined entity
and internally projected earnings for five years into the future, they agreed
that a merger of equals may produce a larger entity with essentially the same
earnings' posture as each individual institution. Although the directors
recognized that a larger entity might more effectively make necessary capital
investments and compete for business, they perceived the same overall
uncertainty of implementing a long-term strategic plan after a merger with the
Thrift as they perceived in implementing the various strategies to improve the
earnings of SHFC. Moreover, the development of an active and liquid market for
the shares of the combined entity would be unlikely for the foreseeable future
regardless of whether a long-term strategy were successfully implemented.
As a result, the directors turned their attention to WOFC. If a
negotiated transaction with WOFC would produce for shareholders a premium over
the market price of SHFC shares, then the WOFC transaction might be preferable
to a merger of equals because the risk of the implementation of a long-term
strategy to improve earnings would be eliminated.
WOFC then performed an extensive due diligence examination of the
books and records of SHFC. Following such examination, SHFC and WOFC commenced
negotiations over the terms and conditions of the Agreement. When such
negotiations were concluded, WOFC indicated a willingness to pay $19.65 cash
per share of SHFC, plus the per share value of any amounts paid to SHFC by the
-4-
<PAGE>
ODGF before the Effective Date of the merger, less the expenses and state and
federal tax consequences of such payment. In evaluating the proposed price,
the directors focused on the fact that many shareholders paid $10 for their
shares at the time of the Conversion; that the bid prices of SHFC shares
ranged between $14.50 and $14.75 for the last several months; that the $19.65
per share offer equalled 109% of SHFC's book value per share at March 31,
1996, and that the $19.65 was 63.4 times the annualized earnings per share of
SHFC for the quarter ended March 31, 1996.
The directors questioned Webb about the financial aspects of the
proposed transaction, specifically inquiring into the key financial components
of comparable transactions. Following such questioning, Webb provided the
Board of Directors with the opinion that the transaction was fair to SHFC's
shareholders from a financial point of view.
Based upon all of the foregoing, the Board of Directors concluded that
a merger of the Acquisition Subsidiary with and into SHFC in a transaction in
which SHFC's shareholders would receive a minimum of $19.65 cash per share was
preferable to the implementation of a long-term strategy to improve earnings
and was, therefore, in the best interests of SHFC's shareholders. Accordingly,
the Board of Directors unanimously approved the Agreement and unanimously
recommends the adoption of the Agreement by the shareholders at the Special
Meeting.
Opinion of Charles Webb & Company. On January 26, 1996, Webb was
retained by SHFC to evaluate SHFC's strategic alternatives for increasing
shareholder value and, in certain circumstances, to act as its financial
advisor in connection with its ongoing consideration and implementation of
such alternatives. Webb, as part of its investment banking business, is
continuously engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings and
distributions of listed and unlisted securities. Webb is familiar with the
market for common stocks of publicly traded Midwest-based banks, thrifts and
bank and thrift holding companies. The SHFC Board of Directors selected Webb
on the basis of the firm's reputation and its experience and expertise in
transactions similar to the Merger and its prior work for and relationship
with SHFC in connection with SHFC's initial offering of common shares to the
public.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the Per Share Merger
Consideration to the shareholders of SHFC. Webb has delivered its fairness
opinion to the SHFC Board of Directors that as of June 14, 1996, the Per Share
Merger Consideration is fair to the shareholders of SHFC from a financial
point of view. No limitations were imposed by the SHFC Board of Directors upon
Webb with respect to the investigations made or procedures followed in
rendering its opinion. Webb has consented to the inclusion herein of the
summary of its opinion to the SHFC Board of Directors and to the reference to
the entire opinion attached hereto as Annex B.
The full text of the opinion of Webb, updated as of the date of this
Proxy Statement, which sets forth certain assumptions made, matters considered
and limitations on the reviews undertaken, is attached as Annex B to the Proxy
Statement and should be read in its entirety. The summary of the opinion of
Webb set forth in this Proxy Statement is qualified in its entirety by
reference to the opinion.
In rendering its opinion, Webb (i) reviewed the financial and business
data supplied to it by SHFC, including SHFC's Annual Reports to Shareholders
and Annual Reports on Form 10-KSB for the fiscal years ended June 30, 1995 and
1994, and SHFC's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996; (ii) reviewed WOFC's Annual Report to Shareholders and Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, and WOFC's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; (iii) discussed with
senior management and the Board of Directors of SHFC and Seven Hills the
possibility of obtaining other acquisition proposals and the Board of
Directors' reasons for seeking affiliation and merger; (iv) discussed with
senior management of WOFC the current and prospective outlook for WOFC and the
reasons for seeking affiliation and merger; (v) considered historical
quotations and the prices of recorded transactions in SHFC's common shares
since its Conversion; and (vi) reviewed the financial and stock market data of
other thrifts, particularly in the Midwest region, and the financial and
structural terms of several other recent transactions involving thrift mergers
or acquisitions or proposed changes of control of comparably situated
companies.
In rendering its opinion, Webb assumed and relied upon the accuracy
and completeness of the information provided to it by WOFC and SHFC and
obtained by it from public sources. In its review, with the consent of the
SHFC Board of Directors, Webb did not undertake any independent verification
-5-
<PAGE>
of the information provided to it, nor did it make any independent appraisal
or evaluation of the assets or liabilities or potential or contingent
liabilities of WOFC or SHFC.
Webb's review of comparable transactions included the compilation of
pending or recently completed acquisitions of thrift institutions. Such
companies were selected for one of the following reasons: (i) comparable total
transaction value; (ii) similar Midwestern location; or (iii) similar asset
size to SHFC. Webb identified in its analysis 19 comparable transactions that
met the above criteria, nine transactions were completed and ten transactions
had been announced but not yet closed.
The information in the following table summarizes the material
information analyzed by Webb with respect to the transactions referred to
above. The summary does not purport to be a complete description of the
analysis performed by Webb and should not be construed independently of the
other information considered by Webb in rendering its opinion. Selecting
portions of Webb's analysis or isolating certain aspects of the comparable
transaction without considering all analyses and factors could create an
incomplete or potentially misleading view of the evaluation process.
<TABLE>
Aggregate Consideration as a Consideration as a
Consideration Multiple of Percent of Book
Earnings(1) Value
<S> <C> <C> <C>
Median for comparable transactions $ 8.0 million 24.8x 155%
Highest amount/value for a $ 15.0 million 57.9x 219%
comparable transaction
Lowest amount/value for a $ 4.6 million 15.1x 107%
comparable transaction
WOFC Offer $ 11.5 million 63.4x(2) 109%
</TABLE>
- - - -----------------------------
(1) Earnings were computed for a twelve-month period, but not necessarily a
fiscal year basis.
(2) Based on earnings for the twelve months ended March 31, 1996, the most
recent available quarterly data at the time of Webb's analyses, and
585,878 fully diluted shares outstanding at March 31, 1996.
In preparing its analyses, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and SHFC. The analyses performed
by Webb are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses and do not purport to be appraisals or reflect the prices at which a
business may be sold.
For services rendered in connection with advising SHFC regarding the
Merger, including the fairness opinion and financial advisory services
provided to SHFC since the completion of SHFC's conversion from a mutual to a
stock company. Webb will receive a fee of approximately $175,000 assuming a
fair market value of $22.60 per WOFC share. As of the date of this Proxy
Statement, Webb has received $60,000 of such fee.
Terms of the Merger
Exchange of SHFC Common Shares. At the Effective Date, the Acquisition
Subsidiary will merge with and into SHFC. As a result of the consummation of
the Merger, each of the outstanding SHFC common shares will be canceled and
extinguished in consideration and exchange for the Per Share Merger
Consideration. See "THE MERGER-Exchange of SHFC Common Shares."
Assumption of SHFC Options. In connection with the Conversion, SHFC
issued to the directors and executive officers options to purchase an
aggregate of 49,406 SHFC common shares at an option exercise price of $10 per
share. See "VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT." Each of the holders of SHFC Options has agreed not to exercise
his or her SHFC Option before the Effective Date and to the assumption of such
options by WOFC on the Effective Date. During the arm's length negotiations of
the Agreement, SHFC and WOFC agreed that the exercise price of, and the number
-6-
<PAGE>
of shares subject to, the SHFC option after its assumption should preserve as
of June 14, 1996, the economic value of the SHFC Option as measured by the
difference between the $10 exercise price of each SHFC Option and the Per
Share Merger Consideration.
As a result, the number of WOFC common shares subject to an SHFC Option
after assumption will equal the product of the number of shares subject to the
SHFC Option, multiplied by the following quotient (the "Exchange Ratio"):
(A) The Per Share Merger Consideration,
divided by
(B) $22.60, which was the average of the closing
prices for a share of WOFC on the Nasdaq National
Market System reported for the five consecutive
trading days before June 14, 1996, the date of
the execution of the Agreement.
Similarly, the exercise price of each SHFC Option after assumption will equal
the quotient of the $10 option exercise price of each SHFC Option, divided by
the Exchange Ratio. The exercise price will, therefore, equal $11.47 to
$11.50, depending upon the amount of any distribution from the ODGF received
by the SHFC shareholders as part of the Per Share Merger Consideration.
Each holder of an SHFC Option has also agreed not to exercise his or her
SHFC Option until the assumption of the SHFC Options is approved by the
stockholders of WOFC at the next annual meeting of the stockholders of WOFC.
If the WOFC stockholders fail to approve the assumption of the SHFC Options,
each holder of an SHFC Option will be entitled to receive for each SHFC common
share formerly subject to an SHFC Option a cash payment equal to the Per Share
Merger Consideration, less the $10 exercise price of the SHFC Options. See
"THE MERGER -Assumption of SHFC Options."
Representations, Warranties and Covenants. Each of SHFC, Seven Hills and
WOFC has made certain representations and warranties in the Agreement in
respect of various matters, including, but not limited to, the corporate
organization and financial condition of each. In addition, SHFC and Seven
Hills have made certain covenants in respect of various matters, including,
but not limited to, the conduct of business between the date of the Agreement
and the Effective Date. See "THE MERGER - Representations, Warranties and
Covenants."
Conditions and Effective Time. The consummation of the Merger is subject
to the satisfaction or waiver of a number of conditions, including, but not
limited to, the adoption of the Amendment and the Agreement by the affirmative
vote of the holders of a majority of the outstanding SHFC common shares; the
receipt of all necessary regulatory approvals; the exercise of dissenters'
rights by the holders of no more than 10% of the outstanding shares of SHFC;
the absence of any material adverse change in the business, operations,
properties, assets or financial condition of SHFC since March 31, 1996; and a
minimum SHFC shareholders' equity in the amount of $9.65 million, exclusive of
certain expenses of the Merger, accounting adjustments and other amounts.
Following the satisfaction or waiver of all of such conditions, Certificates
of Merger will be filed as soon as practicable with the Ohio Secretary of
State, after which the Merger will be effective. See "THE MERGER - Conditions
and - Effective Time."
Subsequent Merger. Following the consummation of the Merger, SHFC will be
a wholly-owned subsidiary of WOFC. Immediately after such consummation, SHFC
will merge with and into WOFC, as a result of which the separate corporate
existence of SHFC will terminate. Seven Hills will thereafter be a direct
wholly-owned subsidiary of WOFC and will continue to serve the community as
Seven Hills Savings Association. See "THE MERGER - Subsequent Merger."
Termination. The Agreement may be terminated and the Merger abandoned
upon the occurrence of certain events, including, but not limited to, the
mutual agreement of the parties, the uncured material breach of the Agreement
by either party, the failure to satisfy or waive all conditions to the
consummation of the Merger and the failure to consummate the Merger on or
before March 31, 1997. See "THE MERGER - Termination."
Surrender of Certificates Evidencing SHFC Common Shares. As soon as
practicable after the consummation of the Merger, each SHFC shareholder will
be advised of such consummation by letter accompanied by instructions for use
in surrendering the certificate or certificates evidencing SHFC to Registrar
and Transfer Company, the exchange agent for the Merger (the "Exchange
Agent"). CERTIFICATES FOR SHFC SHARES SHOULD NOT BE FORWARDED TO THE EXCHANGE
AGENT UNTIL AFTER RECEIPT OF THE LETTER OF TRANSMITTAL AND SHOULD NOT BE
RETURNED TO SHFC WITH THE ENCLOSED PROXY. See "THE MERGER - Surrender of
Certificates Evidencing SHFC Common Shares."
-7-
<PAGE>
Federal Income Tax Consequences. The following is a summary discussion
of the material federal income tax consequences of the Merger. This summary
does not purport to discuss all aspects of federal income taxation that may be
applicable to particular shareholders, some of whom may be subject to special
rules, nor does it address any aspects of state, local or foreign tax laws.
This summary is based upon current law, which is subject to change. SHFC's
shareholders are advised to consult their own tax advisors.
Under current law, each SHFC shareholder who receives cash for his or
her SHFC common shares, either in the Merger or pursuant to the exercise of
dissenters' rights, will recognize a gain or loss for federal income tax
purposes in an amount measured by the difference between the cash received and
such SHFC shareholder's adjusted basis in the SHFC common shares surrendered.
Provided the SHFC common shares surrendered for cash qualify as capital assets
in the hands of each SHFC shareholder, the gain or loss will be treated as
capital gain or loss and will be either long-term or short-term, depending
upon whether on the Effective Date such shareholder has held his or her SHFC
common shares for more than one year. See "THE MERGER - Federal Income Tax
Consequences."
Effect of Merger on SHFC Directors and Executive Officers and the
Seven Hills Savings Association Employee Stock Ownership Plan. Arthur W.
Wendel, Jr., James R. Maurer, Robert A. West and Roger L. Ruhl, four of the
five current members of the Board of Directors of SHFC and Seven Hills, have
agreed to serve on the Board of Directors of Seven Hills following the
consummation of the Merger. Henry Gessing, the fifth current member of the
Board of Directors of SHFC and Seven Hills, has agreed to serve Seven Hills
following the consummation of the Merger as a Director Emeritus. In addition,
Diana Bowman D'Amico, the Vice President of SHFC and Seven Hills, has agreed
to serve on the Board of Directors and as President and Managing Officer of
Seven Hills following the consummation of the Merger.
Currently, the directors of SHFC are paid no fees for service as SHFC
directors. Each director of Seven Hills is paid $950 per month for service as
a director of Seven Hills. Generally, the Board of Directors meets twice each
month. Each member of the Executive Committee receives an additional $200 per
month for service as a member of the Executive Committee. Each director is
also entitled to a death benefit of $500 for each year of service to Seven
Hills, up to a maximum of $5,000. In addition, the directors received stock
options and RRP awards. See "VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."
Following the Effective Time, the directors of Seven Hills are
expected to be paid a total of $700 per month, and the Board of Directors will
meet only once per month on a regular basis. No additional death benefits will
accrue, and the RRP will be terminated.
On the Effective Date, certain actions will be taken with respect to
the Seven Hills Savings Association Employee Stock Ownership Plan (the "ESOP")
which, in their entirety, will terminate the ESOP and distribute ESOP benefits
to the ESOP participants pursuant to the terms of the ESOP. See "THE MERGER -
Effect of Merger on SHFC Directors and Executive Officers and the ESOP."
Dissenters' Rights of Appraisal
Any shareholder of SHFC who does not vote in favor of the adoption of
the Agreement and who delivers a written demand for payment of the fair cash
value of such shareholder's SHFC common shares not later than ten days after
the Special Meeting and in the manner provided by Ohio Revised Code
ss.1701.85, a copy of which is attached hereto as Annex B, shall be entitled,
if and when the Merger is consummated and upon strict compliance with certain
procedures set forth in Ohio Revised Code ss.1701.85, to receive the fair cash
value of such SHFC common shares. A shareholder of SHFC who wishes to submit a
written demand for payment of the fair cash value of common shares should
deliver such demand to Arthur W. Wendel, Jr., President, Seven Hills Financial
Corporation, 1440 Main Street, Cincinnati, Ohio 45210. See "DISSENTERS' RIGHTS
OF APPRAISAL."
-8-
<PAGE>
Market for the SHFC Common Shares and Related Shareholder Matters
On the Record Date, there were 536,472 common shares of SHFC
outstanding and held of record by approximately _____ shareholders. Price
information with respect to SHFC's common shares is quoted on The Nasdaq
SmallCap Market ("Nasdaq"). The following table sets forth the range of high
and low bid information for the common shares of SHFC, as quoted by Nasdaq,
together with the dividends declared per common share for each quarter since
the completion of the Conversion.
Quarter Ended High Low Cash Dividends Declared
March 31, 1994 $12.00 $11.00 $.00
June 30, 1994 $15.50 $11.50 $.05
September 30, 1994 $17.50 $15.75 $.55
December 31, 1994 $17.50 $15.00 $.07
March 31, 1995 $16.25 $14.50 $.07
June 30, 1995 $17.50 $15.00 $.07
September 30, 1995 $16.00 $16.00 $.63
December 31, 1995 $16.00 $14.50 $.08
March 31, 1996 $14.75 $14.50 $.08
June 30, 1996 $17.50 $14.50 $.09
Selected Consolidated Financial Data
The following tables set forth certain information concerning the
consolidated financial condition, earnings and other data regarding SHFC at
the dates and for the periods indicated.
<TABLE>
At June 30,
_________________________________________________
Selected financial condition and 1996 1995 1994
other data: (Dollars in thousands)
<S> <C> <C> <C>
Total amount of:
Assets $44,944 $46,580 $48,020
Cash and cash equivalents(1) 552 1,830 1,699
Certificates of deposit in
other financial institutions - 750 1,800
Investment securities(2) 1,364 3,843 4,018
Mortgage-backed securities(2) 6,677 6,412 7,257
Loans receivable - net 34,988 32,477 32,024
Deposits 34,767 36,115 37,840
Shareholders' equity - 9,676 10,111 9,912
restricted, net
Number of:
Real estate loans outstanding 570 575 565
Deposit accounts 3,502 3,754 3,884
Full service offices 3 4 4
- - - -----------------------------
</TABLE>
(Footnotes on next page)
-9-
<PAGE>
<TABLE>
Year ended June 30,
Summary of earnings: 1996 1995 1994
__________________________________________________
(In thousands, except per share data)
<S> <C> <C> <C>
Interest income $3,297 $3,227 $3,200
Interest expense 1,780 1,668 1,704
------- ------- -------
Net interest income 1,517 1,559 1,496
Provision for loan losses - 2 6
------- ------- -------
Net interest income after
provision for loan losses 1,517 1,557 1,490
Other income 12 523 18
General, administrative and other
expense 1,295 1,295 1,111
------- ------- -------
Earnings before income taxes 234 785 397
Federal income taxes 59 262 133
--------- ------- --------
Net earnings 175 $ 523 $ 264
======== ====== =======
Earnings per share $ 0.31 $ 0.96 $ 0.23
======= ====== =======
- - - -----------------------------
</TABLE>
(1) Includes cash and due from banks, interest-bearing deposits in other
financial institutions and federal funds sold.
(2) Includes securities designated as available for sale. SHFC adopted SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," as of July 1, 1994. See Notes A-2 and B of Notes to
Consolidated Financial Statements for additional information.
<TABLE>
At or for the year ended June 30,
Selected financial ratios: 1996 1995 1994
___________________________________________________
<S> <C> <C> <C>
Interest rate spread (difference
between average yield on
interest-earning assets and
average cost of 2.43% 2.46% 2.56%
interest-bearing liabilities)
Net interest margin (net interest
income as a percentage of
average interest-earning assets) 3.43 3.38 3.21
Return on equity (net earnings
divided by average equity) 1.80 5.17 3.37
Return on assets (net earnings
divided by average total assets) 0.38 1.10 0.55
Equity-to-assets ratio (average
equity divided by average total 21.34 21.38 16.36
assets)
Loan loss allowance as a
percentage of non-performing 47.39 56.20 27.00
loans
-10-
</TABLE>
<PAGE>
AMENDMENT OF THE AMENDED ARTICLES OF INCORPORATION
Since the Conversion, Article EIGHTH of the Articles of Incorporation
of SHFC has provided as follows:
EIGHTH:Until the expiration of five years from the date
of the acquisition by the corporation of the capital stock of
Seven Hills Savings Association ("Seven Hills") to be issued in
connection with the conversion of Seven Hills from mutual to
stock form, no Person (hereinafter defined) shall directly or
indirectly offer (hereinafter defined) to Acquire (hereinafter
defined) or Acquire the Beneficial Ownership (hereinafter
defined) of more than 10% of any class of any equity security
of the corporation; provided, however, that such prohibition
shall not apply to the purchase of shares by underwriters in
connection with a public offering or the power of trustees to
vote shares of the corporation held by the Seven Hills Savings
Association Employee Stock Ownership Plan or its successor. In
the event that any shares of the corporation are Acquired in
violation of this Article Eighth, all shares Beneficially Owned
by any Person in excess of 10% of any class of equity security
of the corporation shall not be counted as shares entitled to
vote, shall not be voted by any Person and shall not be counted
as voting shares in connection with any matter submitted to the
shareholders for a vote. For purposes of this Article Eighth,
the following terms shall have the meanings set forth below:
(A) "Person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other
group formed for the purpose of acquiring or disposing of
the equity securities of the corporation, but does not
include the Seven Hills Savings Association Employee Stock
Ownership Plan or its successor.
(B) "Offer" includes every offer to buy or otherwise acquire,
solicitations of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or
interest in a security for value.
(C) "Acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or
otherwise.
(D) "Acting in concert" means (i) participation in a joint
activity or conscious parallel action towards a common
goal, whether or not pursuant to an express agreement, or
(ii) a combination or pooling of voting or other interests
in the securities of an issuer for a common purpose
pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or
otherwise.
(E) "Beneficial Ownership" shall include, without limitation,
(i) all shares directly or indirectly owned by a Person,
by an Affiliate (hereinafter defined) of such Person or by
an Associate (hereinafter defined) of such Person or such
Affiliate, (ii) all shares which such Person, Affiliate or
Associate has the right to acquire through the exercise of
any option, warrant or right (whether or not currently
exercisable), through the conversion of a security,
pursuant to the power to revoke a trust, discretionary
account or similar arrangement, or pursuant to the
automatic termination of a trust, discretionary account or
similar arrangement, and (iii) all shares as to which such
Person, Affiliate or Associate directly or indirectly
through any contract, arrangement, understanding,
relationship or otherwise (including, without limitation,
any written or unwritten agreement to act in concert) has
or shares voting power (which includes the power to vote
or to direct the voting of such shares) or investment
power (which includes the power to dispose or to direct
the disposition of such shares) or both.
(F) "Affiliate" shall mean a Person that directly or
indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with,
another Person.
(G) "Associate" of a Person shall mean (i) any corporation or
organization (other than the corporation or a subsidiary
of the corporation) of which the Person is an officer or
partner or is, directly or indirectly, the beneficial
owner of ten percent or more of any class of equity
-11-
<PAGE>
securities, (ii) any trust or other estate in which the
Person has a substantial beneficial interest or as to
which the Person serves as trustee or in a similar
fiduciary capacity, except a tax-qualified employee stock
benefit plan in which the Person has a substantial
beneficial interest or serves as a trustee or in a similar
fiduciary capacity or a tax-qualified employee stock
benefit plan, and (iii) any relative or spouse of the
Person, or any relative of such spouse, who has the same
home as the Person or is a director or officer of the
corporation or any of its parents or subsidiaries.
Provisions similar to Article EIGHTH are contained in the Articles of
Incorporation of savings associations which convert from mutual to stock form
and are designed to discourage changes in control which are deemed by the
Board of Directors of the association not to be in the best interests of the
association or its shareholders. Because the Board of Directors of SHFC has
determined that the adoption of the Agreement would be in the best interests
of the shareholders of SHFC, the Board of Directors of SHFC unanimously
recommends that the SHFC shareholders vote to approve an amendment to the SHFC
amended Articles of Incorporation to delete Article EIGHTH in its entirety and
to remove thereby the prohibition against the offer to acquire or the
acquisition of 10% or more of the outstanding SHFC common shares. Accordingly,
the Board of Directors of SHFC unanimously recommends that the SHFC
shareholders vote to approve the following resolution at the Special Meeting:
RESOLVED, that an amendment of the amended Articles of Incorporation
of Seven Hills Financial Corporation to delete Article EIGHTH in its
entirety be, and it hereby is, adopted.
The affirmative vote of the holders of a majority of the outstanding SHFC
common shares is required to adopt the Amendment.
THE MERGER
This section of the Proxy Statement describes certain aspects of the
Agreement, a copy of which is attached hereto as Annex A. The following
description does not purport to be complete and is qualified in its entirety
by reference to the Agreement. All shareholders are urged to read the
Agreement in its entirety.
Background and Reasons for the Merger
After consummation of the Conversion in December 1993, the Board of
Directors continually evaluated various possible strategies for increasing the
comparatively low returns on equity and assets of SHFC. At June 30, 1994, 1995
and 1996, for example, the returns on equity of SHFC equaled 3.37%, 5.17% and
1.80%, respectively. On the same dates, the returns on assets of SHFC equaled
0.55%, 1.10% and 0.38%, respectively. The Board of Directors was not satisfied
with such returns.
While specific possible strategies to increase such returns were
identified during the past few years, the directors generally recognized that
effective implementation would require significant capital investment. As a
small, neighborhood thrift, Seven Hills could not make the capital investment
necessary to market a competitive array of products and services without a
material impact on earnings. Although the directors believed that the erosion
of short-term earnings was an acceptable consequence of an eventual
improvement in net income, they understood clearly that ultimate improvement
was not assured.
For example, the Board of Directors agreed that Seven Hills should
provide access to ATMs in order to retain existing and attract new customers.
An investment in ATMs and the expense of joining an ATM network were
substantial, however, and did not provide any prospect of significant income
in the short or long term. Accordingly, the directors concluded that the
investment and expense would decrease the earnings of Seven Hills on a
short-term basis and would not produce any material income in the long term.
The Board of Directors also believed that the net interest margin of
Seven Hills might be materially enhanced by a substantial increase in loan
volume. During the past several years, Seven Hills invested available funds in
comparatively low-yield mortgage-backed securities because the nominal demand
for home financing from Seven Hills precluded the origination of a material
amount of higher-yield mortgage loans. The directors concluded that a strategy
to revitalize the mortgage loan department and to increase loan volume
substantially required the employment of a mortgage loan solicitor and support
personnel and an investment in equipment, including computer hardware and
software. Although such employment and investment might eventually increase
loan volume, they would substantially decrease earnings during the next
several years.
-12-
<PAGE>
The Board of Directors considered, therefore, whether the
implementation of a long-term strategy to improve earnings would be in the
best interests of shareholders in view of the consequent adverse impact on the
existing low level of earnings and the uncertainty of ultimate success. As
part of such consideration, the directors noted the consolidation of the
thrift and bank industries in a manner by which the larger thrifts and banks
competed more effectively for deposits and loans than the smaller,
neighborhood thrifts; the uncertainty of Congressional and other proposals to
eliminate the thrift as a viable financial institution; and the absence of an
active and liquid market for the outstanding shares of SHFC. The directors
questioned whether such competition and legislation could detrimentally affect
the viability of SHFC even if the directors successfully implemented the
strategy for long-term improvement in earnings. Specifically, the directors
wondered whether the future would permit the profitable operation of a small,
neighborhood thrift.
In addition, the directors focused on the fact that the market for the
outstanding common shares of SHFC would remain inactive and illiquid for the
foreseeable future regardless of whether the strategy was successfully
implemented. Both the relatively small number of shareholders and the
comparatively small capitalization of SHFC had impeded the development of an
active and liquid market. While an increase in earnings would benefit
shareholders generally, the continuation of the illiquid and inactive market
would make the realization by shareholders of any such benefit through a sale
of the SHFC shares in the open market difficult.
As the directors considered the foregoing factors, they focused on
whether a sale of SHFC might be in the best interests of shareholders because
the risk of the implementation of a long-term strategy would be eliminated. As
a result, the directors decided to investigate the possible sale of SHFC and
retained the services of Webb, the investment banking firm which advised SHFC
in the mutual to stock conversion, to assist in such investigation.
Beginning in March of 1996, the Board of Directors conducted through
Webb a confidential inquiry into the possible interest of 15 entities in
pursuing a merger with or acquisition of SHFC. Each of such entities
expressing an interest was provided certain information on SHFC, including
financial statements, loan and deposit summaries and other data. Following
such inquiry, WOFC and the Thrift expressed an interest in immediately
pursuing discussions.
The Thrift, an entity approximately equal in size to Seven Hills,
proposed a "merger of equals" in which the shareholders of each entity would
own approximately equal percentages of the combined entity. With the
assistance of Webb, the Board of Directors carefully examined the benefits of
the proposed merger of equals, including the preservation of the historic role
of Seven Hills as a neighborhood depository and lender, the continuation of
the local ownership of the institution and the continuity of management and
personnel. As the directors pondered the nature of a pro forma combined entity
and internally projected earnings for five years into the future, they agreed
that a merger of equals may produce a larger entity with essentially the same
earnings' posture as each individual institution. Although the directors
recognized that a larger entity might more effectively make necessary capital
investments and compete for business, they perceived the same overall
uncertainty of implementing a long-term strategic plan after a merger with the
Thrift as they perceived in implementing the various strategies to improve the
earnings of SHFC. Moreover, the development of an active and liquid market for
the shares of the combined entity would be unlikely for the foreseeable future
regardless of whether a long-term strategy were successfully implemented.
As a result, the directors turned their attention to WOFC. If a
negotiated transaction with WOFC would produce for shareholders a premium over
the market price of SHFC shares, then the WOFC transaction might be preferable
to a merger of equals because the risk of the implementation of a long-term
strategy to improve earnings would be eliminated.
WOFC then performed an extensive due diligence examination of the
books and records of SHFC. Following such examination, SHFC and WOFC commenced
negotiations over the terms and conditions of the Agreement. When such
negotiations were concluded, WOFC indicated a willingness to pay $19.65 cash
per share of SHFC, plus the per share value of any amounts paid to SHFC by the
ODGF before the Effective Date, less the expenses and state and federal tax
consequences of such payment. In evaluating the proposed price, the directors
focused on the fact that many shareholders paid $10 for their shares at the
time of the Conversion; that the bid prices of SHFC shares ranged between
$14.50 and $14.75 for the last several months; that the $19.65 share offer
equalled 109% of SHFC's book value per share at March 31, 1996, and that the
$19.65 was 63.4 times the annualized earnings per share of SHFC for the
quarter ended March 31, 1996.
The directors questioned Webb about the financial aspects of the
proposed transaction, specifically inquiring into the key financial components
of comparable transactions. Following such questioning, Webb provided the
Board of Directors with the opinion that the transaction was fair to
shareholders from a financial point of view.
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<PAGE>
Based upon all of the foregoing, the Board of Directors concluded that
a merger of the Acquisition Subsidiary with and into SHFC in a transaction in
which SHFC shareholders would receive a minimum of $19.65 cash per share was
preferable to the implementation of a long-term strategy to improve earnings
and was, therefore, in the best interests of SHFC's shareholders. Accordingly,
the Board of Directors unanimously approved the Agreement and unanimously
recommends the adoption of the Agreement by the shareholders at the Special
Meeting.
Opinion of Charles Webb & Company
On January 26, 1996, Webb was retained by SHFC to evaluate SHFC's
strategic alternatives for increasing shareholder value and, in certain
circumstances, to act as its financial advisor in connection with its ongoing
consideration and implementation of such alternatives. Webb, as part of its
investment banking business, is continuously engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings and distributions of listed and unlisted securities.
Webb is familiar with the market for common stocks of publicly traded
Midwest-based banks, thrifts and bank and thrift holding companies. The SHFC
Board of Directors selected Webb on the basis of the firm's reputation and its
experience and expertise in transactions similar to the Merger and its prior
work for and relationship with SHFC in connection with SHFC's initial offering
of common shares to the public.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the Per Share Merger
Consideration to the shareholders of SHFC. Webb has delivered its fairness
opinion to the SHFC Board of Directors that as of June 14, 1996, the Per Share
Merger Consideration is fair to the shareholders of SHFC from a financial
point of view. No limitations were imposed by the SHFC Board of Directors upon
Webb with respect to the investigations made or procedures followed in
rendering its opinion. Webb has consented to the inclusion herein of the
summary of its opinion to the SHFC Board of Directors and to the reference to
the entire opinion attached hereto as Annex B.
The full text of the opinion of Webb, updated as of the date of this
Proxy Statement, which sets forth certain assumptions made, matters considered
and limitations on the reviews undertaken, is attached as Annex B to the Proxy
Statement and should be read in its entirety. The summary of the opinion of
Webb set forth in this Proxy Statement is qualified in its entirety by
reference to the opinion.
In rendering its opinion, Webb (i) reviewed the financial and business
data supplied to it by SHFC, including SHFC's Annual Reports to Shareholders
and Annual Reports on Form 10-KSB for the fiscal years ended June 30, 1995 and
1994, and SHFC's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996; (ii) reviewed WOFC's Annual Report to Shareholders and Annual Report
on Form 10-K for the fiscal year ended December 31, 1995, and WOFC's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; (iii) discussed with
senior management and the Board of Directors of SHFC and Seven Hills the
possibility of obtaining other acquisition proposals and the Board of
Directors' reasons for seeking affiliation and merger; (iv) discussed with
senior management of WOFC the current and prospective outlook for WOFC and the
reasons for seeking affiliation and merger; (v) considered historical
quotations and the prices of recorded transactions in SHFC's common shares
since its Conversion; and (vi) reviewed the financial and stock market data of
other thrifts, particularly in the Midwest region, and the financial and
structural terms of several other recent transactions involving thrift mergers
or acquisitions or proposed changes of control of comparably situated
companies.
In rendering its opinion, Webb assumed and relied upon the accuracy
and completeness of the information provided to it by WOFC and SHFC and
obtained by it from public sources. In its review, with the consent of the
SHFC Board of Directors, Webb did not undertake any independent verification
of the information provided to it, nor did it make any independent appraisal
or evaluation of the assets or liabilities or potential or contingent
liabilities of WOFC or SHFC.
Webb's review of comparable transactions included the compilation of
pending or recently completed acquisitions of thrift institutions. Such
companies were selected for one of the following reasons: (i) comparable total
transaction value; (ii) similar Midwestern location; or (iii) similar asset
size to SHFC. Webb identified in its analysis 19 comparable transactions that
met the above criteria, nine transactions were completed and ten transactions
had been announced but not yet closed.
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<PAGE>
The information in the following table summarizes the material
information analyzed by Webb with respect to the transactions referred to
above. The summary does not purport to be a complete description of the
analysis performed by Webb and should not be construed independently of the
other information considered by Webb in rendering its opinion. Selecting
portions of Webb's analysis or isolating certain aspects of the comparable
transaction without considering all analyses and factors could create an
incomplete or potentially misleading view of the evaluation process.
<TABLE>
Aggregate Consideration as a Consideration as a
Consideration Multiple of Percent of Book
Earnings(1) Value
<S> <C> <C> <C>
Median for comparable transactions $ 8.0 million 24.8x 155%
Highest amount/value for a $ 15.0 million 57.9x 219%
comparable transaction
Lowest amount/value for a $ 4.6 million 15.1x 107%
comparable transaction
WOFC Offer $ 11.5 million 63.4x(2) 109%
</TABLE>
- - - -----------------------------
(1) Earnings were computed for a twelve-month period, but not necessarily a
fiscal year basis.
(2) Based on earnings for the twelve months ended March 31, 1996, the most
recent available quarterly data at the time of Webb's analyses, and
585,878 fully diluted shares outstanding at March 31, 1996.
In preparing its analyses, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and SHFC. The analyses performed
by Webb are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses and do not purport to be appraisals or reflect the prices at which a
business may be sold.
For services rendered in connection with advising SHFC regarding the
Merger, including the fairness opinion and financial advisory services
provided to SHFC since the completion of SHFC's conversion from a mutual to a
stock company. Webb will receive a fee of approximately $175,000 assuming a
fair market value of $22.60 per WOFC share. As of the date of this Proxy
Statement, Webb has received $60,000 of such fee.
Recommendation of the Board of Directors of SHFC
The SHFC Board of Directors believes that the terms of the Merger are
fair to, and in the best interests of, SHFC's shareholders and, therefore,
unanimously recommends that the shareholders of SHFC vote FOR the adoption of
the Agreement.
Exchange of SHFC Common Shares
On the Effective Date, the Acquisition Subsidiary will merge with and
into SHFC. As a result of the consummation of the Merger, each outstanding
SHFC common share will be canceled and extinguished in consideration and
exchange for the right to receive the sum of the following:
(A) $19.65; plus
(B) The quotient of
(I) The difference between (a) the amount(s)
actually received from the liquidation and
winding up of the ODGF between June 14, 1996, and
the Effective Date, less (b) the out-of-pocket
expenses and estimated federal and state income
tax liabilities attributable to such amount(s);
divided by
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<PAGE>
(II) 583,763, an amount which equals the sum of
the number of SHFC outstanding shares on the
Effective Date, plus the number of shares subject
to outstanding options.
There is no assurance that any amounts will be actually received from the ODGF
before the Effective Date. If however, the maximum possible amounts are
received by SHFC from the ODGF before the Effective Date, the foregoing
quotient would not exceed, after the deduction of such expenses and
liabilities, $.06. Accordingly, the maximum Per Share Merger Consideration
will equal $19.71.
Assumption of SHFC Options
In connection with the Conversion, SHFC issued to the directors and
executive officers options to purchase an aggregate of 49,406 SHFC common
shares at an option exercise price of $10 per share. See "VOTING SECURITIES
AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Each of the
holders of SHFC Options has agreed not to exercise his or her SHFC Option
before the Effective Date and to the assumption of such SHFC Option by WOFC on
the Effective Date. During the arm's length negotiations of the Agreement,
SHFC and WOFC agreed that the exercise price of, and the number of shares
subject to, each SHFC Option after its assumption should preserve as of June
14, 1996, the economic value of the SHFC Option as measured by the difference
between the $10 exercise price of each SHFC Option and the Per Share Merger
Consideration.
As a result, the number of WOFC common shares subject to an SHFC Option
after assumption will equal the product of the number of shares subject to the
SHFC Option, multiplied by the following quotient (the "Exchange Ratio"):
(A) The Per Share Merger Consideration,
divided by
(B) $22.60, which was the average of the closing
prices for a share of WOFC on the Nasdaq National
Market System reported for the five consecutive
trading days before June 14, 1996, the date of
the execution of the Agreement.
Similarly, the exercise price of each SHFC Option after assumption will equal
the quotient of the $10 option exercise price of each SHFC Option, divided by
the Exchange Ratio. The exercise price will, therefore, equal $11.47 to
$11.50, depending upon the amount of any distribution from the ODGF received
by the SHFC shareholders as part of the Per Share Merger Consideration.
Each of the holders of an SHFC Option has also agreed not to exercise
his or her SHFC Option until the approval of WOFC's assumption of the SHFC
Options by the stockholders of WOFC at the next annual meeting of the
stockholders of WOFC. If the WOFC stockholders fail to approve the assumption,
each holder of an SHFC Option shall be entitled to receive for each SHFC
common share formerly subject to an SHFC Option a cash payment equal to the
Per Share Merger Consideration, less the $10 exercise price of the SHFC
Options.
Representations, Warranties and Covenants
Each of SHFC, Seven Hills and WOFC has made certain representations
and warranties in the Agreement in respect of various matters. Such matters
include representations and warranties in respect of corporate organization,
authority, capital, financial condition, legal proceedings and business
condition. In addition, SHFC and Seven Hills have made certain other
representations and warranties in respect of the past conduct of business,
investments, properties, taxes, contracts, employee benefit plans,
environmental issues and other matters.
SHFC, Seven Hills and WOFC have also each made certain covenants in
the Agreement. During the period between June 14, 1996, and the Effective
Date, for example, SHFC must conduct its business only in the ordinary course
consistent with past practice, except to the extent authorized in writing by
WOFC. In addition, SHFC may not solicit, encourage or initiate any
negotiations or discussions with respect to inquiries, offers or proposals
relating to the possible sale or other disposition of SHFC common shares or
other disposition of a substantial portion of its assets to, or merger or
consolidation with, any person (collectively, an "Unsolicited Acquisition
Proposal"), subject to the good faith exercise of the fiduciary duties of the
Board of Directors of SHFC. In the event that the Board of Directors of SHFC
receives an Unsolicited Acquisition Proposal and, as a result, determines that
a recommendation that the shareholders of SHFC vote in favor of the adoption
of the Agreement is reasonably likely to constitute a breach of its fiduciary
duties to the shareholders of SHFC, then either WOFC or SHFC may terminate the
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<PAGE>
Agreement, and SHFC and the Association must pay to WOFC $535,000 upon such
termination.
SHFC has also agreed to establish and take, at the request of WOFC and
to the extent permitted by law and consistent with generally accepted
accounting principles and the fiduciary duties of the directors, such reserves
and accruals to conform SHFC loan, accrual, reserve and other accounting
policies to WOFC's policies. SHFC does not have to establish and take such
reserves and accruals, however, unless certain conditions to closing have been
satisfied and unless there is no basis for the termination of the Agreement.
In addition, WOFC has agreed to indemnify the officers and directors
of SHFC from and against certain liabilities for a three-year period beginning
at the Effective Date to the maximum extent permitted by the WOFC Certificate
of Incorporation and the Bylaws of WOFC, but subject to applicable limitations
under Delaware law.
Conditions
The obligation of each of WOFC and SHFC to consummate the Merger is
subject to a number of conditions, including, but not limited to, the receipt
of all necessary regulatory approvals. In addition, the obligation of WOFC to
consummate the Merger is subject to a number of conditions, including, but not
limited to, the truth in all material respects of all of SHFC's
representations and warranties in the Agreement; the performance and
compliance by SHFC of all agreements, covenants and conditions in the
Agreement; the absence of a material adverse change in the financial
condition, results of operations, assets, deposit liabilities or business
since March 31, 1996; the exercise of dissenters' rights by the holders of not
more than 10% of the SHFC common shares of SHFC; and SHFC shareholders' equity
on the Effective Date, as calculated in accordance with generally accepted
accounting principles, in an amount not less than $9.65 million, exclusive of
expenses related to the Merger, of reserves, accruals and charges taken or
established by SHFC at the request of WOFC and of certain other expenses and
charges.
The obligation of SHFC to consummate the Merger is also subject to a
number of conditions, including, but not limited to, the truth in all material
respects of all of WOFC's representations and warranties in the Agreement, the
adoption of the Amendment and the Agreement at the Special Meeting, and the
material performance and compliance of WOFC with all agreements, covenants and
conditions in the Agreement.
Any of the foregoing conditions may be waived by the party which is
entitled to the benefits thereof.
Effective Time
Following the satisfaction or waiver of all conditions set forth in
the Agreement, Certificates of Merger in respect of the Merger will be filed
as soon as practicable with the Ohio Secretary of State, after which the
Merger will be consummated. It is currently anticipated that the Merger will
be consummated in November 1996.
Subsequent Merger
Following the consummation of the Merger, SHFC will be a wholly-owned
subsidiary of WOFC. Immediately after such consummation, SHFC will merge with
and into WOFC, as a result of which the separate corporate existence of SHFC
will terminate. Seven Hills will thereafter be a direct, wholly-owned
subsidiary of WOFC and will continue to serve the community as Seven Hills
Savings Association.
Termination
The Agreement may be terminated in writing, either before or after its
adoption by the shareholders of SHFC, at any time on or prior to the Effective
Date:
(a) By the mutual consent of WOFC and SHFC;
(b) By WOFC if SHFC or Seven Hills has, or by SHFC,
if WOFC has, breached in any material respect any
of the representations and warranties or
agreements contained in the Agreement and such
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<PAGE>
breach is not cured within ten days after notice
to cure such breach is given by the non-breaching
party or, if such breach is not capable of being
cured within ten days, steps are not initiated
within ten days to effect a cure;
(c) On the Effective Date, by either WOFC or SHFC, if
any conditions precedent to closing set forth in
the Agreement with respect to such party have not
been satisfied or waived;
(d) At any time on or prior to the Effective Date, by
either WOFC or SHFC, if any of the applications
for prior approval from regulatory agencies have
been denied;
(e) At any time on or prior to the Effective Date, by
either WOFC or SHFC, if (i) SHFC's Board of
Directors is excused from its obligation to
recommend that SHFC's shareholders vote in favor
of the adoption of the Agreement due to the
receipt of an Unsolicited Acquisition Proposal or
(ii) the required approval of the Agreement by
SHFC's shareholders has not been obtained;
(f) At any time on or prior to the Effective Date, by
WOFC, if Seven Hills has become a party or is
subject to any regulatory enforcement action or
proceeding with or by any federal or state agency
charged with the supervision or regulation of
savings banks or savings associations, which is
reasonably determined by WOFC to be significant
to Seven Hills' business, operations or financial
condition; or
(g) By either WOFC or SHFC, if the Effective Date has
not occurred on or prior to March 31, 1997.
In the event the Agreement is terminated, the Agreement will become void and
will have no effect, except that the parties will continue to be bound by
their agreements in the Agreement with respect to the payment of expenses and
the confidentiality of information, and a termination resulting from the
uncured willful breach of a covenant or agreement will not relieve the
breaching party from liability for that breach. In the event that the Board of
Directors of SHFC receives an Unsolicited Acquisition Proposal and, as a
result, determines that a recommendation that the shareholders of SHFC vote in
favor of the adoption of the Agreement is reasonably likely to constitute a
breach of its fiduciary duties to the shareholders of SHFC, then either WOFC
or SHFC may terminate the Agreement, and SHFC and the Association must pay to
WOFC $535,000 upon such termination.
Surrender of Certificates Evidencing SHFC Common Shares
As soon as practicable after the consummation of the Merger, the
Exchange Agent will mail to each holder of record of a certificate or
certificates which immediately before such consummation evidenced outstanding
SHFC common shares (the "Certificates") a form letter of transmittal. The
letter of transmittal will contain instructions for effecting the surrender of
the Certificates in exchange for the Per Share Merger Consideration. Upon
surrender of a Certificate, together with such letter of transmittal, duly
executed, to the Exchange Agent for exchange and cancellation, the holder of
such Certificate will be entitled to receive the Per Share Merger
Consideration to which such Certificate holder will have become entitled
pursuant to the provisions of the Agreement. Any shareholder of SHFC who has
lost or misplaced a Certificate should immediately contact Diana Bowman
D'Amico, Vice President of SHFC, at (513) 621-9143. A written statement
detailing the procedures for replacing the lost Certificates will be mailed to
the shareholder following such contact.
If any check for the Per Share Merger Consideration is to be issued in
a name other than that in which the certificate for Shares of SHFC surrendered
for exchange is registered, the certificates so surrendered must be properly
endorsed or otherwise be in proper from for transfer and the person requesting
such exchange must pay to SHFC or its agent any applicable transfer or other
taxes required by reason thereof. CERTIFICATES FOR SHARES OF SHFC SHOULD NOT
BE SENT WITH YOUR PROXY.
On the Effective Date, holders of certificates representing common
shares of SHFC shall cease to have any rights with respect to such common
shares (except such rights, if any, as such holders may have as dissenting
shareholders), and each such certificate will be deemed for all purposes to
evidence the right to receive the cash into which such SHFC shares have been
converted.
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<PAGE>
Federal Income Tax Consequences
The following is a summary discussion of the material federal income
tax consequences of the Merger. This summary does not purport to discuss all
aspects of federal income taxation that may be applicable to particular
categories of shareholders, some of which may be subject to special rules, nor
does it address any aspects of state, local or foreign tax laws. This summary
is based upon current federal law, which is subject to change. SHFC's
shareholders are advised to consult their own tax advisors as to the specific
consequences to them of the Merger, including the applicability and affect of
federal, state, local and other tax laws.
For federal income tax purposes, the Merger will be treated as a
direct purchase by WOFC for cash of the SHFC common shares. The Merger will
qualify as a tax-free liquidation under Section 332 and Section 337 of the
Internal Revenue Code of 1986, as amended. Under current law, each holder of
SHFC common shares who receives cash for his or her SHFC common shares, either
in the Merger or pursuant to the exercise of dissenters' rights, will
recognize a gain or loss for federal income tax purposes in an amount measured
by the difference between the cash received and such SHFC shareholder's
adjusted basis in the SHFC common shares surrendered. Provided the shares
surrendered for cash qualify as capital assets in the hands of each SHFC
shareholder, the gain or loss will be treated as capital gain or loss and will
be either long-term or short-term, depending upon whether at the Effective
Time of the Merger such shareholder has held his or her SHFC shares for more
than one year.
Effect of Merger on SHFC Directors and Executive Officers and the ESOP
Arthur W. Wendel, Jr., James R. Maurer, Robert A. West and Roger L.
Ruhl, four of the five current members of the Board of Directors of SHFC and
Seven Hills, have agreed to serve on the Board of Directors of Seven Hills
following the consummation of the Merger. Henry Gessing, the fifth current
member of the Board of Directors of SHFC and Seven Hills, has agreed to serve
Seven Hills following the consummation of the Merger as a Director Emeritus.
In addition, Diana Bowman D'Amico, the Vice President of SHFC and Vice
President and Managing Officer of Seven Hills, has agreed to serve on the
Board of Directors and as President and Managing Officer of Seven Hills
following the consummation of the Merger.
Currently, the directors of SHFC are paid no fees for service as SHFC
directors. Each director of Seven Hills is paid $950 per month for service as
a director of Seven Hills. Generally, the Board of Directors meets twice each
month. Each member of the Executive Committee receives an additional $200 per
month for service as a member of the Executive Committee. Each director is
also entitled to a death benefit of $500 for each year of service to Seven
Hills, up to a maximum of $5,000. In addition, the directors received stock
options and RRP awards. See "VOTING SECURITIES OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT."
Following the Effective Time, the directors of Seven Hills are
expected to be paid a total of $700 per month, and the Board of Directors will
meet only once per month on a regular basis. No additional death benefits will
accrue, and the RRP will be terminated.
At the time of the Conversion, the ESOP borrowed from SHFC the funds
needed to purchase SHFC shares. As the loan has been repaid with contributions
made to the ESOP by Seven Hills, the shares for which payment has been made
have been allocated to the accounts of employees. Payments have been made on
the loan in installments of one-fifth each year. The amount of the allocation
is limited not only by the contribution of funds determined by the Board of
Directors of Seven Hills, but also by tax laws that limit the amount which may
be allocated each year to the account of any individual participant and to the
accounts of all participants in the aggregate in tax-qualified employee stock
benefit plans.
On the Closing Date, the cash received by the ESOP from WOFC for the
unallocated SHFC shares will be used to repay the ESOP loan. Seven Hills and
WOFC will also request from the IRS a determination letter permitting the cash
held in the ESOP and not yet allocated to the accounts of participants to be
immediately allocated without limitation by the applicable tax laws. If the
IRS issues a favorable determination letter, all of the funds held by the ESOP
will be allocated to the accounts of participants as soon as practicable, and
the ESOP will be terminated. If the IRS does not issue a favorable
determination letter, then the funds in the ESOP will be allocated as soon as
possible within the limits of the applicable tax laws. It is expected that all
amounts in the ESOP will be allocated by the end of 1997. To the extent such
amounts cannot be allocated by the end of 1997, the remaining unallocated
amounts will be transferred to a tax-qualified plan of WOFC.
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Interests of Certain Persons
As of the Record Date, the directors and executive officers of SHFC
had sole or shared voting power, in the aggregate, with respect to 160,880
outstanding SHFC common shares, or 29.99% of the outstanding SHFC common
shares. The directors of SHFC have agreed to vote 83,771 shares, which are all
of the outstanding SHFC common shares owned solely or jointly by each such
director, other than shares held in a fiduciary capacity, FOR the approval of
the Amendment and FOR the adoption of the Agreement.
In connection with the Conversion, SHFC issued to the directors and
executive officers options to purchase an aggregate of 49,406 SHFC common
shares at an option exercise price of $10 per share. See "VOTING SECURITIES
AND OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Each of the
holders of SHFC Options has agreed not to exercise the SHFC Options before the
Effective Date and to the assumption of such options by WOFC on the Effective
Date. During the arm's length negotiations of the Agreement, SHFC and WOFC
agreed that the exercise price of, and the number of shares subject to, an
SHFC Option after assumption should preserve as of June 14, 1996, the economic
value of an SHFC Option as measured by the difference between the $10 exercise
price of each SHFC Option and the Per Share Merger Consideration. See
"Assumption of SHFC Options."
The following table sets forth certain information in respect of the
existing SHFC Options and the SHFC Options after assumption by WOFC based on
Per Share Merger Consideration of $19.65:
<TABLE>
Number of Shares Exercise Price Number of WOFC Exercise Price
Subject to of SHFC Option Shares Subject of Assumed
Optionee Office SHFC Option to Assumed Option Option
- - - -------- ------ --- ------------- ------------- -------------- -------
<S> <C> <C> <C> <C> <C>
Diana Bowman D'Amico Vice President 7,058 $10 6,136 $11.50
Henry C. Gessing Secretary
and Director 7,058 $10 6,136 $11.50
Shirley A. Gluck Treasurer 7,058 $10 6,136 $11.50
James R. Maurer Director 7,058 $10 6,136 $11.50
Roger L. Ruhl Director 7,058 $10 6,136 $11.50
Arthur W. Wendel, Jr. President
and Director 7,058 $10 6,136 $11.50
Robert A. West Director 7,058 $10 6,136 $11.50
</TABLE>
Accounting Treatment
The acquisition of SHFC pursuant to the Merger will be accounted for
pursuant to the purchase method of accounting. Under the purchase method of
accounting, the assets and liabilities of SHFC will be recorded on the books
of WOFC at their respective fair values at the Effective Time. Any excess of
the value of the consideration paid by WOFC over the fair value of SHFC's
identifiable net assets acquired will be recorded as good will.
REGULATORY APPROVALS
The consummation of the Merger is subject to the receipt of approvals
from the OTS and the Division.
WOFC and SHFC are not aware of any governmental approvals or actions
that are required for consummation of the Merger, except as described above.
Should any such approval or action be required, it is presently contemplated
that such approval or action would be sought. There can be no assurance that
any such approval or action, if needed, could be obtained and would not be
conditioned in a manner that would cause WOFC to abandon the Merger. There can
be no assurance that no action would be brought challenging the Merger.
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<PAGE>
IDENTITY AND BACKGROUND OF WOFC
WOFC, a Delaware corporation, was organized in March 1994 for the
purpose of becoming the savings and loan holding company for Springfield FSB
in connection with the Springfield Conversion. In the Springfield Conversion,
Springfield FSLA converted to a federal stock savings bank under the name
"Springfield Federal Savings Bank". WOFC owns all of the outstanding stock of
Springfield FSB issued on July 29, 1994. WOFC's common stock is traded on the
Nasdaq National Market System under the symbol "WOFC."
On March 29, 1996, WOFC acquired Mayflower, located in Cincinnati,
Ohio, and its subsidiary, Mayflower Savings Bank. In connection with such
acquisition, Mayflower Savings Bank converted to a federal savings bank
charter under the name "Mayflower Federal Savings Bank" and is held as a
subsidiary separate from Springfield FSB.
WOFC, Springfield FSB and Mayflower FSB are subject to comprehensive
regulation, examination and supervision by the OTS and the FDIC. Springfield
FSB and Mayflower FSB are members of the FHLB System, and their deposits are
backed by the full faith and credit of the United States Government and are
separately insured up to applicable limits by the FDIC.
Springfield FSB is headquartered in Springfield, Ohio. Springfield
FSB's primary market area covers Clark County, Ohio, and parts of contiguous
counties, and is serviced through its main office in Springfield, Ohio, and
four branch offices in Enon, New Carlisle, Springfield and Yellow Springs.
Mayflower FSB is headquartered in Cincinnati and primarily serves that area.
At March 31, 1996, WOFC had assets of $320 million, Springfield FSB
had assets of $253 million, and Mayflower FSB had assets of $54 million. At
March 31, 1996, Springfield FSB had deposits of $141 million, and Mayflower
FSB had deposits of $41 million.
DISSENTERS' RIGHTS OF APPRAISAL
Holders of SHFC common shares who so desire are entitled to relief as
dissenting shareholders under Ohio Revised Code ss.1701.85. A shareholder of
SHFC will be entitled to such relief, however, only if he complies strictly
with all of the procedural and other requirements of ss.1701.85. The following
summary does not purport to be a complete statement of the method of
compliance with ss.1701.85 and is qualified in its entirety by reference to
the copy of ss. 1701.85 attached hereto as Annex C.
An SHFC shareholder who wishes to perfect his rights as a dissenting
shareholder in the event the Agreement is adopted:
(a) Must have been a record holder of the SHFC common shares
as to which he seeks relief on the SHFC Record Date;
(b) Must not have voted his SHFC common shares in favor of
adoption of the Agreement; and
(c) Must deliver to SHFC, not later than ten days after the
Special Meeting, a written demand for payment of the fair
cash value of the shares as to which he seeks relief. Such
written demand must state the name of the shareholder, his
address, the number of shares as to which he seeks relief
and the amount claimed as the fair cash value thereof.
A vote against the adoption of the Agreement will not satisfy the
requirements of a written demand for payment. Any written demand for payment
should be mailed or delivered to: Arthur W. Wendel, Jr., President, Seven
Hills Financial Corporation, 1440 Main Street, Cincinnati, Ohio 45210. As the
written demand must be delivered to Seven Hills within the ten-day period
following the Special Meeting, it is recommended, although not required, that
a shareholder using the mails should use certified or registered mail, return
receipt requested, to confirm that he has made a timely delivery.
If SHFC sends the dissenting shareholder, at the address specified in
his demand, a request for the certificate(s) representing his shares, such
dissenting shareholder must deliver the certificate(s) to SHFC within 15 days
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<PAGE>
of the sending of such request. SHFC may endorse the certificate(s) with a
legend to the effect that the shareholder has demanded the fair cash value of
the shares represented by the certificate(s). Failure to deliver the
certificate(s) within 15 days of the request terminates the shareholder's
rights as a dissenting shareholder. SHFC must notify the shareholder of its
election to terminate his rights as a dissenting shareholder within 20 days
after the lapse of the 15-day period.
Unless the dissenting shareholder and SHFC agree on the fair cash
value per share of the SHFC common shares, either may, within three months
after the service of the written demand by the shareholder, file a petition in
the Court of Common Pleas of Hamilton County, Ohio. If the court finds that
the shareholder is entitled to be paid the fair cash value of any shares, the
court may appoint one or more appraisers to receive evidence and to recommend
a decision on the amount of the fair cash value.
Fair cash value: (i) will be determined as of the day prior to the
Special Meeting, (ii) will be the amount a willing seller and willing buyer
would accept or pay with neither being under compulsion to sell or buy, (iii)
will not exceed the amount specified in the shareholder's written demand, and
(iv) will exclude any appreciation or depreciation in market value resulting
from the Merger. The court will make a finding as to the fair cash value of a
share and render judgment against SHFC, for its payment with interest at such
rate and from such date as the court considers equitable. The costs of
proceedings shall be assessed or apportioned as the court considers equitable.
The rights of any dissenting shareholder will terminate if (a) the
dissenting shareholder has not complied with ss.1701.85, unless SHFC, by its
Board of Directors, waives such failure, (b) SHFC abandons or is finally
enjoined or prevented from carrying out, or the shareholders of SHFC rescind
their adoption of, the Agreement, (c) the dissenting shareholder withdraws his
written demand with the consent of SHFC, by its Board of Directors, or (d)
SHFC and the dissenting shareholder have not agreed upon the fair cash value
per share of the SHFC common shares and neither has timely filed or joined in
a petition in an appropriate court for a determination of the fair cash value
of the shares. For a discussion of the tax consequences to a shareholder who
exercises dissenters' rights, see "THE MERGER - Federal Income Tax
Consequences."
Because a proxy which does not contain voting instructions will be
voted for adoption of the Amendment and the Agreement, a shareholder who
wishes to exercise dissenters' rights must either (i) not sign and return his
proxy or, (ii) if he signs and returns his proxy, vote against or abstain from
voting on the adoption of the Agreement.
SHFC shareholders who are not in favor of the Merger but who do not
wish to exercise dissenters' rights may, in the alternative, attempt to sell
their shares in the open market at the then current market price. There is,
however, no active trading market for SHFC common shares.
MARKET FOR THE SHARES AND RELATED SHAREHOLDER MATTERS
On the Record Date, there were _______ common shares of SHFC
outstanding and held of record by approximately _____ shareholders. Price
information with respect to SHFC's common shares is quoted on Nasdaq. The
following table sets forth the range of high and low bid information for the
common shares of SHFC, as quoted by Nasdaq, together with the dividends
declared per common share for each quarter since the completion of the
Conversion.
Quarter Ended High Low Cash Dividends Declared
March 31, 1994 $12.00 $11.00 $.00
June 30, 1994 $15.50 $11.50 $.05
September 30, 1994 $17.50 $15.75 $.55
December 31, 1994 $17.50 $15.00 $.07
March 31, 1995 $16.25 $14.50 $.07
June 30, 1995 $17.50 $15.00 $.07
September 30, 1995 $16.00 $16.00 $.63
December 31, 1995 $16.00 $14.50 $.08
March 31, 1996 $14.75 $14.50 $.08
June 30, 1996 $17.50 $14.50 $.09
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<PAGE>
On June 13, 1996, the date preceding the public announcement of the execution
of the Agreement, the bid and asked prices for SHFC's common shares were
$14.50 and $16.50 per share, respectively.
VOTING SECURITIES AND OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
only persons known to SHFC to own beneficially more than five percent of the
outstanding common shares of SHFC as of __________, 1996:
Amount and Nature of Percent of
Name and Address (1) Beneficial Ownership Shares Outstanding (2)
- - - ---------------- -------------------- ------------------
Shirley A. Gluck 34,018(3) 6.26%
James R. Maurer 35,203(4) 6.48%
Arthur W. Wendel, Jr. 63,330(5) 11.65%
Robert A. West 44,049(6) 8.10%
- - - ------------------------
(1) Each of the individuals named in the table may be contacted at 1440 Main
Street, Cincinnati, Ohio 45210.
(2) "Beneficial ownership," as defined by the regulations of the Commission
governing disclosures within this Proxy Statement, includes shares which
are not included in the definition of "beneficial ownership" in the
regulations of the OTS governing acquisitions of 10% or more of the
common shares of a savings association or its holding company and which
are not included with respect to the prohibition contained in the
Articles of Incorporation of SHFC that no persons may, within five years
after the consummation of the conversion of SHFC from a mutual savings
association to a stock savings association, acquire the beneficial
ownership of more than 10% of any equity security of SHFC. In addition,
the definition of "beneficial ownership" governing disclosures within the
Proxy Statement includes shares not included for purposes of certain
aspects of the Seven Hills Financial Corporation 1993 Stock Option and
Incentive Plan (the "Stock Option Plan").
(3) Consists of 6,177 shares held solely by Ms. Gluck; 14,372 shares held
jointly with Ms. Gluck's husband; 2,797 shares held by Ms. Gluck's
husband; 1,272 shares awarded to Ms. Gluck pursuant to the SHFC Savings
Association Recognition and Retention Plan and Trust Agreement (the
"RRP"), with respect to which Ms. Gluck had voting but no dispositive
power; 2,342 shares allocated to Ms. Gluck's account pursuant to the SHFC
Financial Corporation Employee Stock Ownership Plan (the "ESOP"); and
7,058 shares which may be acquired by Ms. Gluck upon the exercise of an
option granted to Ms. Gluck pursuant to the Stock Option Plan.
(4) Consists of 5,166 shares held solely by Mr. Maurer; 17,524 shares held
jointly with Mr. Maurer's wife; 1,220 shares held solely by Mr. Maurer's
wife; 2,120 shares awarded to Mr. Maurer pursuant to the RRP; 2,115
shares held by the RRP trust and not yet awarded to participants, with
respect to which Mr. Maurer shares voting and dispositive power as a
member of the RRP Committee of the Board of Directors of SHFC Savings
Association ("SHFC"); and 7,058 shares which may be acquired by Mr.
Maurer upon the exercise of an option granted to Mr. Maurer pursuant to
the Stock Option Plan.
(5) Consists of 13,668 shares held solely by Mr. Wendel; 7,100 shares held by
Mr. Wendel's wife; 3,389 shares awarded to Mr. Wendel pursuant to the RRP
and 4,366 allocated to Mr. Wendel's account under the ESOP, with respect
to which Mr. Wendel has voting but not dispositive power; 27,749 shares
held by the ESOP, of which Mr. Wendel is a co-trustee and pursuant to
which Mr. Wendel shares voting power with respect to unallocated shares;
and 7,058 shares which may be acquired by Mr. Wendel upon the exercise of
an option granted to Mr. Wendel pursuant to the Stock Option Plan.
(6) Consists of 4,933 shares held solely by Mr. West; 1,346 shares held by
Mr. West's wife; 2,115 shares held by the RRP and not yet awarded to
participants, with respect to which Mr. West shares voting and
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<PAGE>
dispositive power as a member of the RRP Committee; 848 shares awarded to
Mr. West pursuant to the RRP, with respect to which Mr. West has sole
voting but no dispositive power; 27,749 shares held by the ESOP, of which
Mr. West is a co-trustee and pursuant to which Mr. West shares voting
power with respect to unallocated shares; and 7,058 shares which may be
acquired by Mr. West upon the exercise of an option granted to Mr. West
pursuant to the Stock Option Plan. Does not include 15,635 shares held in
a trust for the benefit of Mr. West's wife, with respect to which Mr.
West disclaims beneficial ownership.
The following table set forth certain information with respect
to the number of common shares of SHFC beneficially owned by each director of
SHFC and by all directors and executive officers of SHFC as a group as of
August 31, 1996:
Amount and Nature Percent of
Name and Address (1) of Beneficial Ownership (2) Shares Outstanding
-------------------- --------------------------- ------------------
Henry C. Gessing 26,294(3) 4.84%
James R. Maurer 35,203(4) 6.48%
Roger L. Ruhl 21,694(5) 3.99%
Arthur W. Wendel, Jr. 63,330(6) 11.65%
Robert A. West 44,049(7) 8.10%
All directors and executive
officers of SHFC as a group 210,286(8) 35.89%
(8 persons)
- - - ----------------------------
(1) Each of the persons listed in this may be contacted at the address of
SHFC.
(2) The beneficial owner has sole voting and investment power unless
otherwise indicated. Shares awarded under the RRP are earned over time
and may be voted after being awarded but not disposed of until earned.
(3) Includes 2,544 shares awarded to Mr. Gessing pursuant to the RRP, with
respect to which Mr. Gessing has voting but no dispositive power, and
7,058 shares which may be acquired by Mr. Gessing upon the exercise of an
option granted to Mr. Gessing pursuant to the Stock Option Plan.
(4) See footnote 4 to the previous table for a description of the nature of
Mr. Maurer's beneficial ownership.
(5) Consists of 11,673 shares held solely by Mr. Ruhl; 848 shares awarded to
Mr. Ruhl pursuant to the RRP; 2,115 shares held by the RRP trust and not
yet awarded to participants, with respect to which Mr. Ruhl shares voting
and dispositive power as a member of the RRP Committee; and 7,058 shares
which may be acquired by Mr. Ruhl upon the exercise of an option granted
to Mr. Ruhl pursuant to the Stock Option Plan.
(6) See footnote 5 to the previous table for a description of the nature of
Mr. Wendel's beneficial ownership.
(7) See footnote 6 to the previous table for a description of the nature of
Mr. West's beneficial ownership.
(8) Includes 106,202 shares with respect to which directors and executive
officers share voting and dispositive power and 49,406 shares which may
be acquired in the aggregate upon the exercise of options granted to all
directors and executive officers of SHFC pursuant to the Stock Option
Plan. Because the same unallocated ESOP shares and unawarded RRP shares
are included in more than one individual director's amount, the total of
all shares beneficially owned by the directors and executive officers is
less than the sum of their individual amounts.
The directors and executive officers of SHFC have expressed their
intention to vote all of the shares they beneficially own in favor of adoption
of the Agreement.
ADJOURNMENT OF THE SPECIAL MEETING
The shareholders of SHFC will be asked to approve a proposal to permit
the adjournment of the Special Meeting, if necessary, to solicit additional
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<PAGE>
proxies with respect to the adoption of the Amendment and the adoption of the
Agreement. The Amendment and the Agreement must be adopted by the affirmative
vote of at least a majority of the outstanding shares of SHFC. If either of
such matters does not receive the requisite vote of shareholders at the
Special Meeting and does not receive a sufficient number of negative votes to
assure the failure of the matter, the Board of Directors may decide to adjourn
the Special Meeting to solicit additional proxies. If the Board of Directors
decides to adjourn the Special Meeting with respect to the Amendment and the
Agreement, the Chairman of the Special Meeting will request a motion that the
Special Meeting be adjourned for up to 30 days.
Each proxy given in connection with the Special Meeting will be voted
on a motion for adjournment in accordance with the instructions contained
therein. If no contrary instructions are given, each proxy will be voted in
favor of any motion to adjourn the Special Meeting. The holders of the
majority of the shares of SHFC represented in person or by proxy at the
Special Meeting will be required to approve a motion to adjourn the Special
Meeting.
If a motion to adjourn the Special Meeting is approved, no vote will
be taken on the Amendment or the Agreement at the Special Meeting on
___________, 1996, but the Amendment and the Agreement will be voted upon at
the adjourned meeting. Unless revoked prior to its use, any proxy solicited
for the Special Meeting will continue to be valid and will be voted in
accordance with the instructions contained therein at the adjourned meeting.
Because the Board of Directors recommends that the shareholders vote
FOR the adoption of the Amendment and the Agreement, the Board of Directors
also recommends that the shareholders vote FOR the proposal to adjourn the
Special Meeting, which will facilitate the adoption of the Amendment and the
Agreement. Such an adjournment would be disadvantageous to shareholders who
oppose the Amendment and the Agreement because the adjournment will give SHFC
additional time to solicit votes in favor of the Amendment and the Agreement,
thereby increasing the chances of passing the Amendment and Agreement
proposals. SHFC has no reason to believe that an adjournment of the Special
Meeting will be required.
If a quorum is not present at the Special Meeting, none of the
proposals will be acted upon, and the Board of Directors will adjourn the
Special Meeting to a later date in order to solicit additional proxies to
assure the presence of a quorum. The proposal to approve a motion to adjourn
the Special Meeting does not apply to an adjournment relating to the absence
of a quorum.
AUDITORS
A representative of Grant Thornton, SHFC's auditors for the current
year and for the fiscal year ended June 30, 1996, is expected to be present at
the Special Meeting, will have the opportunity to make a statement if he or
she so desires and is expected to be available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS
In accordance with the Exchange Act, proposals by SHFC's shareholders
for inclusion in SHFC's Proxy Statement for SHFC's 1996 Annual Meeting of
Shareholders were required to be received by SHFC at its principal office not
later than May 29, 1996. Because management of SHFC expects the Merger to
close in November 1996, no preparations are currently being made for a 1996
Annual Meeting of Shareholders. If a 1996 Annual Meeting of Shareholders
should become necessary and the meeting will be held later than _________,
1996, shareholders will be notified and provided the new date by which
proposals must be received. Each proposal submitted should be accompanied by
the name and address of the shareholder submitting the proposal, the number of
shares of SHFC owned and the date such shares were acquired by the holder. If
the proponent is not a shareholder of record, proof of beneficial ownership
also should be submitted. The proponent should also state his intention to
personally appear at the 1996 Annual Meeting to present the proposal. The
proxy rules of the Commission govern the content and form of shareholder
proposals. All proposals must be a proper subject for action at the 1996
Annual Meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference certain documents of
SHFC which are not presented herein or delivered herewith. These documents
(without exhibits, unless such exhibits are specifically incorporated by
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<PAGE>
reference into this Proxy Statement) are available without charge to each
person, including any beneficial owner, to whom a copy of this Proxy Statement
is delivered, upon written request. Requests for such documents should be
directed to Diana Bowman D'Amico, Vice President, Seven Hills Financial
Corporation, 1440 Main Street, Cincinnati, Ohio 45210. In order to ensure
timely delivery of such documents, any request should be made no later than
_______________, 1996.
The following documents filed by SHFC with the Commission under the
Exchange Act are hereby incorporated by reference into this Proxy Statement:
(a) the SHFC Annual Report on Form 10-KSB for the year ended June 30, 1995;
(b) SHFC's Quarterly Reports on Form 10-QSB for the quarters ended September
30 and December 31, 1995, and March 31, 1996; and (c) SHFC's Current Report on
Form 8-K dated June 14, 1996. In addition, the Agreement is incorporated
herein by reference.
All documents filed by SHFC under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act between the date of this Proxy Statement and the date of
the Special Meeting, and any exhibits thereto, shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy Statement to
the extent that a statement contained herein or in any other subsequently
filed document which is also incorporated or deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement, as
so modified or superseded, shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement.
The information relating to SHFC contained in this Proxy Statement
should be read together with the information in the documents incorporated by
reference.
-26-
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .................. F-2
FINANCIAL STATEMENTS ................................................ F-3
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION .................... F-3
CONSOLIDATED STATEMENTS OF EARNINGS ............................... F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ................... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................. F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................ F-9
-F-1-
<PAGE>
DRAFT
Report of Independent Certified Public Accountants
Board of Directors
Seven Hills Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Seven Hills Financial Corporation and Subsidiary as of June 30,
1996 and 1995, and the related consolidated statements of earnings,
shareholders' equity, and cash flows for each of the years ended June 30,
1996, 1995 and 1994. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Seven Hills
Financial Corporation and Subsidiary as of June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years ended June 30, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.
Cincinnati, Ohio
July 11, 1996
-F-2-
<PAGE>
DRAFT
Seven Hills Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
(In thousands, except per share data)
ASSETS 1996 1995
Cash and due from banks .................................... $ 347 $ 629
Federal funds sold ......................................... -- 150
Interest-bearing deposits in other financial institutions .. 205 1,051
------- -------
Cash and cash equivalents .......................... 552 1,830
Certificates of deposit in other financial institutions .... -- 750
Investment securities designated as available for sale
- at market .............................................. 1,265 55
Investment securities - at amortized cost, approximate
market value of $99 and $3,797 as of June 30,
1996 and 1995 ............................................ 99 3,788
Mortgage-backed securities designated as available for
sale - at market ......................................... 5,395 1,427
Mortgage-backed securities - at cost, approximate
market value of $1,265 and $4,816 as of June 30,
1996 and 1995 ............................................ 1,282 4,985
Loans receivable - net ..................................... 34,988 32,477
Office premises and equipment - at depreciated cost ........ 376 403
Federal Home Loan Bank stock - at cost ..................... 490 457
Accrued interest receivable on loans ....................... 152 130
Accrued interest receivable on mortgage-backed securities .. 55 44
Accrued interest receivable on investments and
interest-bearing deposits ................................ 24 79
Prepaid expenses and other assets .......................... 227 145
Prepaid federal income taxes ............................... 39 10
------- -------
Total assets ....................................... $44,944 $46,580
======= =======
-F-3-
<PAGE>
DRAFT
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
Deposits ......................................... $34,767 $36,115
Advances from Federal Home Loan Bank ............. 200 --
Accrued interest payable ......................... 49 36
Other liabilities ................................ 56 55
Deferred federal income taxes .................... 196 263
------- -------
Total liabilities ........................ 35,268 36,469
Commitments - -
Shareholders' equity
Common stock- authorized 1,000,000 shares
without par or stated value; 564,707 shares
issued in 1996 and 1995 - -
Additional paid-in capital ........................... 5,438 5,362
Retained earnings - restricted ....................... 5,067 5,335
Unrealized gains (losses) on securities
designated as available for sale .................. (34) 32
Less required contributions for shares acquired
by employee benefit plans ......................... (339) (474)
Less 28,235 and 9,000 shares of treasury stock
- at cost ......................................... (456) (144)
-------- --------
Total shareholders' equity ..................... 9,676 10,111
-------- --------
Total liabilities and shareholders' equity ..... $ 44,944 $ 46,580
======== ========
The accompanying notes are an integral part of these statements.
-F-4-
<PAGE>
DRAFT
Seven Hills Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the year ended June 30,
(In thousands, except per share data)
1996 1995 1994
Interest income
Loans ........................................... $ 2,631 $2,457 $2,626
Mortgage-backed securities ...................... 408 352 288
Investment securities ........................... 131 234 110
Interest-bearing deposits and other ............. 127 184 176
------- ------ ------
Total interest income .............. 3,297 3,227 3,200
Interest expense
Deposits ........................................ 1,779 1,667 1,704
Borrowings ...................................... 1 1 --
------- ------ ------
1,780 1,668 1,704
------- ------ ------
Net interest income ................ 1,517 1,559 1,496
Provision for losses on loans ..................... -- 2 6
------- ------ ------
Net interest income after
provision for losses on loans .... 1,517 1,557 1,490
Other income
Gain on sale of FHLMC stock ..................... -- 504 --
Service fees, charges and other operating ....... 12 15 18
Recovery of loss on Ohio Deposit Guarantee
Fund Certificate of Deposit ................... -- 4 --
------- ------ ------
Total other income ................. 12 523 18
General, administrative and other expense
Employee compensation and benefits .............. 714 737 599
Occupancy and equipment ......................... 185 192 176
Federal deposit insurance premiums .............. 85 91 92
Franchise taxes ................................. 121 98 75
Other operating ................................. 190 177 169
------- ------ ------
Total general, administrative
and other expense ................ 1,295 1,295 1,111
------- ------ ------
Earnings before income taxes ....... 234 785 397
Federal income taxes
Current ......................................... 92 200 77
Deferred ........................................ (33) 62 56
------- ------ ------
Total federal income taxes ......... 59 262 133
------- ------ ------
NET EARNINGS ....................... $ 175 $ 523 $ 264
======= ====== ======
EARNINGS PER COMMON SHARE .......... $ 0.31 $ 0.96 $ 0.23
======= ====== ======
The accompanying notes are an integral part of these statements.
-F-5-
<PAGE>
DRAFT
Seven Hills Financial Corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended June 30, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
Unrealized
gains (losses)
on securities
Additional designated
Common paid-in Retained as available
stock capital earnings for sale
<S> <C> <C> <C> <C>
Balance at July 1, 1993 $ - $ - $4,974 $-
Proceeds from issuance of common stock, no stated value - 5,314 - -
Net earnings for the year ended June 30, 1994 - - 264 -
Amortization of expense related to employee benefit plans - - - -
Cash dividends of $.05 per common share - - (28) -
--- ----- ------- --
Balance at June 30, 1994 - 5,314 5,210 -
Designation of securities as available for sale upon
adoption of SFAS No. 115 - - - 284
Purchase of treasury stock - - - -
Net earnings for the year ended June 30, 1995 - - 523 -
Amortization of expense related to employee benefit plans - 48 - -
Cash dividends of $0.76 per common share - - (398) -
Realized gain on sale of securities designated as
available for sale, net of related tax effects - - - (333)
Unrealized gain on securities designated as available
for sale, net of related tax effects - - - 81
--- ----- ----- ----
Balance at June 30, 1995 - 5,362 5,335 32
Purchase of treasury stock - - - -
Net earnings for the year ended June 30, 1996 - - 175 -
Amortization of expense related to employee benefit plans - 76 - -
Cash dividends of $0.88 per common share - - (443) -
Unrealized loss on securities designated as available
for sale, net of related tax effects - - - (66)
--- ----- ----- ----
Balance at June 30, 1996 $ - $5,438 $5,067 $ (34)
=== ===== ===== ====
ABOVE TABLE IS CONTINUED BELOW:
Shares acquired
by employee Treasury
benefit plans stock Total
Balance at July 1, 1993 $ - $ - $ 4,974
Proceeds from issuance of common stock, no stated value (678) - 4,636
Net earnings for the year ended June 30, 1994 - - 264
Amortization of expense related to employee benefit plans 66 - 66
Cash dividends of $.05 per common share - - (28)
--- --- ---------
Balance at June 30, 1994 (612) - 9,912
Designation of securities as available for sale upon
adoption of SFAS No. 115 - - 284
Purchase of treasury stock - (144) (144)
Net earnings for the year ended June 30, 1995 - - 523
Amortization of expense related to employee benefit plans 138 - 186
Cash dividends of $0.76 per common share - - (398)
Realized gain on sale of securities designated as
available for sale, net of related tax effects - - (333)
Unrealized gain on securities designated as available
for sale, net of related tax effects - - 81
--- --- ------
Balance at June 30, 1995 (474) (144) 10,111
Purchase of treasury stock - (312) (312)
Net earnings for the year ended June 30, 1996 - - 175
Amortization of expense related to employee benefit plans 135 - 211
Cash dividends of $0.88 per common share - - (443)
Unrealized loss on securities designated as available
for sale, net of related tax effects - - (66)
--- --- ---------
Balance at June 30, 1996 $(339) $(456) $ 9,676
==== ==== =======
The accompanying notes are an integral part of these statements.
</TABLE>
-F-6-
<PAGE>
DRAFT
Seven Hills Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
For the year ended June 30,
(In thousands)
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the year ................................... $ 175 $ 523 $ 264
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees ............ -- (3) (34)
Depreciation and amortization ............................. 32 34 27
Amortization of premiums and discounts on mortgage-
backed securities ...................................... 22 17 31
Accretion of discounts on investment securities ........... (6) (8) (17)
Provision for losses on loans ............................. -- 2 6
Gain on sale of FHLMC stock ............................... -- (504) --
Amortization of expense attendant to employee benefit plans 211 186 66
Federal Home Loan Bank stock dividends .................... (33) (28) (20)
Increase (decrease) in cash due to changes in:
Accrued interest receivable on loans .................... (22) (1) 12
Accrued interest receivable on mortgage-backed securities (11) (2) (10)
Accrued interest receivable on investments and
interest-bearing deposits ............................. 55 (2) (60)
Prepaid expenses and other assets ....................... (82) (55) (19)
Accrued interest payable ................................ 13 6 (12)
Other liabilities ....................................... 6 (1) (5)
Federal income taxes
Current ............................................... (29) 14 (23)
Deferred .............................................. (33) 62 56
------- ------- --------
Net cash provided by operating activities ........... 298 240 262
Cash flows provided by (used in) investing activities:
Purchase of investment securities ........................... -- (400) (3,672)
Proceeds from maturity of investment securities ............. 2,501 600 810
Purchase of mortgage-backed securities ...................... (1,475) -- (4,264)
Principal repayments on mortgage-backed securities .......... 1,073 827 1,191
Principal repayments on loans ............................... 5,091 3,640 11,750
Loan disbursements .......................................... (7,603) (4,092) (9,177)
Proceeds from sale of FHLMC stock ........................... -- 539 --
Purchase of office premises and equipment ................... (5) (7) (63)
(Increase) decrease in certificates of deposit in
other financial institutions - net ....................... 750 1,050 (1,000)
------- ------- --------
Net cash provided by (used in) investing activities . 332 2,157 (4,425)
------- ------- --------
Net cash provided by (used in) operating and
investing activities (balance carried forward) ... 630 2,397 (4,163)
------- ------- --------
</TABLE>
-F-7-
<PAGE>
DRAFT
Seven Hills Financial Corporation
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
For the year ended June 30,
(In thousands)
1996 1995 1994
<S> <C> <C> <C>
Net cash provided by (used in) operating
and investing activities (balance brought forward) $ 630 $ 2,397 $(4,163)
Cash flows provided by (used in) financing activities:
Net decrease in deposits .................................. (1,348) (1,725) (2,592)
Net proceeds from issuance of common stock ................ -- -- 4,636
Dividends paid on common stock ............................ (443) (398) (28)
Purchase of treasury stock ................................ (312) (144) --
Proceeds from Federal Home Loan Bank advances ............. 400 -- --
Repayment of Federal Home Loan Bank advances .............. (200) -- --
Advances by borrowers for taxes and insurance ............. (5) 1 (1)
------- ------- -------
Net cash provided by (used in) financing activities . (1,908) (2,266) 2,015
------- ------- -------
Net increase (decrease) in cash and cash equivalents ........ (1,278) 131 (2,148)
Cash and cash equivalents at beginning of year .............. 1,830 1,699 3,847
------- ------- -------
Cash and cash equivalents at end of year .................... $ 552 $ 1,830 $ 1,699
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes .................................... $ 83 $ 185 $ 112
======= ======= =======
Interest on deposits and borrowings ..................... $ 1,766 $ 1,662 $ 1,716
======= ======= =======
Supplemental disclosure of noncash investing activities:
Unrealized (loss) gain on investment securities
designated as available for sale, net of applicable
tax effects ............................................... $ (31) $ 32 $ --
======= ======= =======
Transfer of investments and mortgage-backed securities
to an available for sale classification ................. $ 4,379 $ 2,021 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
-F-8-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Seven Hills Financial Corporation (the "Corporation") is a savings and loan
holding company whose activities are primarily limited to holding the stock
of Seven Hills Savings Association (the "Association"). The Association
conducts a general banking business in southwestern Ohio which consists of
attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer and nonresidential purposes.
The Association's profitability is significantly dependent on net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest
expense paid on interest-bearing liabilities (i.e. customer deposits and
borrowed funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or
received by the Association can be significantly influenced by a number of
environmental factors, such as governmental monetary policy, that are
outside of management's control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles ("GAAP") and general
accounting practices within the financial services industry. In preparing
financial statements in accordance with GAAP, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from such estimates.
The following is a summary of significant accounting policies which, with
the exception of the policies described in Notes A-2 and A-9, have been
consistently applied in the preparation of the accompanying consolidated
financial statements.
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and the Association. All significant intercompany balances and
transactions have been eliminated in the accompanying consolidated
financial statements.
2. Investment Securities and Mortgage-Backed Securities
Prior to July 1, 1994, investment securities and mortgage-backed securities
were stated at the unpaid principal balance (cost), adjusted for
unamortized premiums and discounts. Premiums and discounts are amortized
and accreted to operations using the interest method over the estimated
life of the underlying loans collateralizing the securities. Investment
securities and mortgage-backed securities held for portfolio investments
were carried at cost, rather than the lower of cost or market, as it was
management's intent, and the Corporation had the ability to hold the
securities until maturity. Investment securities and mortgage-backed
securities which would be held for indefinite periods of time, or used as
part of the Corporation's asset/liability management strategy, or that may
be sold in response to changes in interest rates, prepayment risk or the
perceived need to increase regulatory capital were classified as held for
sale and were carried at the lower of aggregate cost or market.
-F-9-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2. Investment Securities and Mortgage-Backed Securities (continued)
In May 1993, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried
at cost only if the Corporation has the positive intent and ability to hold
these securities to maturity. Trading securities and securities available
for sale are carried at fair value with resulting unrealized gains or
losses recorded to operations or shareholders' equity, respectively. The
Corporation adopted SFAS No. 115 for the fiscal year beginning July 1,
1994. The effect of initial adoption was to increase shareholders' equity
by approximately $284,000 on July 1, 1994, representing the unrealized
market value appreciation on investment and mortgage-backed securities
designated as available for sale, net of applicable deferred federal income
taxes. During fiscal 1995, the Corporation sold the preponderance of its
FHLMC stock, which resulted in an approximate realized gain of $504,000.
During September 1995, the FASB granted financial institutions the
opportunity to reclassify their investment portfolios without violating
SFAS No. 115. The Corporation took advantage of this opportunity by
reclassifying approximately $3.9 million of mortgage-backed securities from
held to maturity to available for sale, $770,000 of mortgage-backed
securities available for sale to held to maturity, and $1.2 million of
investment securities from held to maturity to available for sale. All
reclassifications were made on a single day in conformity with the
requirement. Management believes that such changes will allow more
flexibility in managing interest rate risk within the investment and
mortgage-backed securities portfolios. At June 30, 1996, the Corporation's
net unrealized loss on securities designated as available for sale totaled
$34,000.
Gains and losses on the sale of investment and mortgage-backed securities
are recognized using the specific identification method.
3. Loans Receivable
Loans held in portfolio are stated at the principal amount outstanding,
adjusted for deferred loan origination fees and the allowance for loan
losses. Interest is accrued as earned unless the collectibility of the loan
is in doubt. Uncollectible interest on loans that are contractually past
due is charged off, or an allowance is established based on management's
periodic evaluation. The allowance is established by a charge to interest
income equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status. If the ultimate collectibility of principal is
in doubt, in whole or in part, all payments received on nonaccrual loans
are applied to reduce principal until such doubt is eliminated.
-F-10-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
4. Loan Origination Fees
The Corporation accounts for loan origination fees in accordance with the
provisions of SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases." Pursuant to the provisions of SFAS No. 91, origination fees
received from loans, net of direct origination costs, are deferred and
amortized to interest income using the level-yield method, giving effect to
actual loan prepayments. Additionally, SFAS No. 91 generally limits the
definition of loan origination costs to the direct costs attributable to
originating a loan, i.e., principally actual personnel costs. Fees received
for loan commitments that are expected to be drawn upon, based on the
Corporation's experience with similar commitments, are deferred and
amortized over the life of the related loan using the level-yield method.
Fees for other loan commitments will be deferred and amortized over the
loan commitment period on a straight-line basis.
5. Allowance for Loan Losses
It is the Corporation's policy to provide valuation allowances for
estimated losses on loans based on past loss experience, current trends in
the level of delinquent and problem loans, loan concentrations to single
borrowers, changes in the composition of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral and current and anticipated economic
conditions in its primary lending areas. When the collection of a loan
becomes doubtful, or otherwise troubled, the Corporation records a
charge-off equal to the difference between the fair value of the property
securing the loan and the loan's carrying value. Major loans and major
lending areas are reviewed periodically to determine potential problems at
an early date. The allowance for loan losses is increased by charges to
earnings and decreased by charge-offs (net of recoveries).
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". This Statement requires that impaired loans be
measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or fair value of the
collateral. SFAS No. 114 was effective for years beginning after December
15, 1994 (July 1, 1995 as to the Corporation). The Corporation adopted the
Statement effective July 1, 1995, without material effect on consolidated
financial condition or results of operations.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Association
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Association's investment in impaired multi-family and nonresidential loans,
such loans are collateral dependent and as a result are carried as a
practical expedient at the lower of cost or fair value.
-F-11-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Allowance for Loan Losses (continued)
It is the Association's policy to charge off unsecured credits that are
more than ninety days delinquent. Similarly, collateral dependent loans
which are more than ninety days delinquent are considered to constitute
more than a minimum delay in repayment and are evaluated for impairment
under SFAS No. 114 at that time.
At June 30, 1996, the Association had no loans that would be defined as
impaired under SFAS No. 114.
6. Office Premises and Equipment
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation and amortization are provided primarily using the
straight-line method over the useful lives of the assets, estimated to be
twenty-five to forty-five years for buildings, ten to twenty-five years for
building improvements, seven to fifteen years for leasehold improvements,
and three to ten years for furniture and equipment. An accelerated
depreciation method is used for tax reporting purposes.
7. Real Estate Acquired through Foreclosure
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. The loan loss allowance is charged for
any write down in the loan's carrying value to fair value at the date of
acquisition. Real estate loss provisions are recorded if the properties'
fair value subsequently declines below the value determined at the
recording date. In determining the lower of cost or fair value at
acquisition, costs relating to development and improvement of property are
considered. Costs relating to holding real estate acquired through
foreclosure, net of rental income, are charged against earnings as
incurred.
8. Federal Income Taxes
The Corporation accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109
established financial accounting and reporting standards for the effects of
income taxes that result from the Corporation's activities within the
current and previous years. It requires an asset and liability approach for
financial accounting and reporting for income taxes. The major provisions
of SFAS No. 109, as they affect the Corporation, address the computational
methodology of the effective tax rate for temporary differences, as well as
the methodology utilized to recognize a deferred tax liability for
post-1987 percentage of earnings bad debt deductions. Pursuant to the
provisions
-F-12-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Federal Income Taxes (continued)
of SFAS No. 109, a deferred tax liability or deferred tax asset is computed
by applying the current statutory tax rates to net taxable or deductible
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable deductible
amounts in future periods. Deferred tax assets are recorded only to the
extent that the amount of net deductible temporary differences or
carryforward attributes may be utilized against current period earnings,
carried back against prior years' earnings, offset against taxable
temporary differences reversing in future periods, or utilized to the
extent of management's estimate of future taxable income. A valuation
allowance is provided for deferred tax assets to the extent that the value
of net deductible temporary differences and carryforward attributes exceeds
management's estimates of taxes payable on future taxable income. Deferred
tax liabilities are provided on the total amount of net temporary
differences taxable in the future.
Deferral of Federal income taxes results primarily from the practice of
preparing the Federal income tax return on the cash basis of accounting,
while the consolidated financial statements are prepared on the accrual
basis of accounting and from different methods of accounting for deferred
loan origination fees, Federal Home Loan Bank stock dividends and certain
components of retirement expense. Additionally, a temporary difference is
recognized for depreciation utilizing accelerated methods for Federal
income tax purposes.
9. Employee Benefit Plans and Stock Option Plans
The Association provides retirement benefits to the surviving spouses or
other designated beneficiaries of all present and past directors of the
Association. Upon the death of a director, a retirement benefit is paid
equal to the number of years of service as a director times $500, with a
maximum benefit of $5,000. The accrual for such retirement benefits at June
30, 1996 totaled approximately $26,594 . Expense incurred by the
Association for director retirement benefits amounted to $2,800, $4,000 and
$8,000 for the years ended June 30, 1996, 1995 and 1994, respectively.
In conjunction with the conversion to the stock form of ownership, the
Corporation implemented an Employee Stock Ownership Plan ("ESOP"). The ESOP
provides retirement benefits for substantially all employees who have
completed one year of service. During fiscal 1995, the Corporation adopted
Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee
Stock Ownership Plans". SOP 93-6 changes the measure of compensation
expense recorded by employers from the cost of allocated ESOP shares to the
fair value of ESOP shares allocated to participants during a fiscal year.
Adoption of SOP 93-6 resulted in an increase in compensation expense from
the amount which would have been computed under the prior accounting method
totaling $63,000 and $50,000 for the fiscal years ended June 30, 1996 and
1995, respectively. The Corporation recognized approximately $166,000 and
$140,000 of expense related to the ESOP for the years ended June 30, 1996
and 1995, respectively.
-F-13-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
9. Employee Benefit Plans and Stock Option Plans (continued)
Additionally, the Association adopted a Recognition and Retention Plan
("RRP") as a means of providing directors and certain key employees of the
Association with an ownership interest in a manner designed to compensate
such directors and key employees for services to the Association. In
connection with implementation of the Plan, the RRP purchased 22,588 shares
of common stock during fiscal 1994. Such common shares granted under the
RRP vest ratably over a five-year period, commencing in December, 1994. The
Association recorded a provision of $74,000 and $48,000 to expense under
this plan for the years ended June 30, 1996 and 1995, respectively.
The Corporation has a stock option plan that provides for the issuance of
56,470 shares of common stock. At June 30, 1996, 49,406 options had been
granted at an exercise price of $10.00 per share, none of which had been
exercised.
In October 1994, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes a fair value based
method of accounting for stock-based compensation paid to employees. The
Statement recognizes the fair value of an award of stock or stock options
on the grant date and is required to be adopted by fiscal 1997, although
earlier adoption is permitted. Management does not believe that adoption of
SFAS No. 123 will have a material adverse effect on the Corporation's
consolidated financial condition or results of operations.
10. Earnings Per Share
Primary and fully diluted earnings per share is based upon the
weighted-average shares outstanding during the period plus those stock
options that are dilutive, less shares in the ESOP that are unallocated and
not committed to be released. Primary and fully-diluted weighted-average
common shares deemed outstanding totaled 557,861 and 544,131 for the years
ended June 30, 1996 and 1995, respectively. Earnings per share for the
fiscal year ended June 30, 1994 is based on the Corporation's net earnings
for the six months that it was operational divided by 564,707
weighted-average shares outstanding.
11. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, federal funds sold and interest-bearing deposits
in other financial institutions with original maturities of less than 90
days.
-F-14-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Repurchase of Common Stock
During the fiscal year ended June 30, 1995, the Corporation repurchased
9,000 of its common shares in the marketplace at $16.00 per share. During
the fiscal year ended June 30, 1996, the Corporation completed its 5% stock
repurchase with purchases of an additional 19,235 shares at prices ranging
from $16.125 to $16.25 per share. The treasury shares are carried at cost
in the Corporation's consolidated statement of financial condition as a
reduction of shareholders' equity.
13. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value of financial instruments, both assets and
liabilities, whether or not recognized in the consolidated statement of
financial condition, for which it is practicable to estimate that value.
For financial instruments where quoted market prices are not available,
fair values are based on estimates using present value and other valuation
methods.
The methods used are greatly affected by the assumptions applied, including
the discount rate and estimates of future cash flows. Therefore, the fair
values presented may not represent amounts that could be realized in an
exchange for certain financial instruments.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments at June 30,
1996:
Cash and cash equivalents: The carrying amounts presented in
the consolidated statement of financial condition for cash and
cash equivalents are deemed to approximate fair value.
Investment and mortgage-backed securities: For investment and
mortgage-backed securities, fair value is deemed to equal the
quoted market price.
Loans receivable: The loan portfolio has been segregated into
categories with similar characteristics, such as one-to-four
family residential, multi-family residential and nonresidential
real estate. These loan categories were further delineated into
fixed-rate and adjustable-rate loans. The fair values for the
resultant loan categories were computed via discounted cash
flow analysis, using current interest rates offered for loans
with similar terms to borrowers of similar credit quality. For
loans on deposit accounts and consumer and other loans, fair
values were deemed to equal the historic carrying values. The
historical carrying amount of accrued interest on loans is
deemed to approximate fair value.
Federal Home Loan Bank stock: The carrying amount presented in
the consolidated statement of financial condition is deemed to
approximate fair value.
-F-15-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Fair Value of Financial Instruments (continued)
Deposits: The fair value of NOW accounts, passbook and club
accounts, and money market deposits is deemed to approximate
the amount payable on demand at June 30, 1996. Fair values for
fixed-rate certificates of deposit have been estimated using a
discounted cash flow calculation using the interest rates
currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank advances: The fair value of Federal Home
Loan Bank advances have been estimated using discounted cash
flow analysis, based on the interest rates currently offered
for advances of similar remaining maturities.
Commitments to extend credit: For fixed-rate and
adjustable-rate loan commitments, the fair value estimate
considers the difference between current levels of interest
rates and committed rates.
Based on the foregoing methods and assumptions, the carrying value and fair
value of the Corporation's financial instruments are as follows at June 30,
1996:
Carrying Fair
value value
(In thousands)
Financial assets
Cash and cash equivalents $ 552 $ 552
Investment securities 1,364 1,364
Mortgage-backed securities 6,677 6,660
Loans receivable 34,988 34,449
Federal Home Loan Bank stock 490 490
-------- --------
$44,071 $43,515
======= =======
Financial liabilities
Deposits $34,767 $34,792
Advances from Federal Home Loan Bank 200 200
Advances by borrowers for taxes and
insurance (3) (3)
---------- ----------
$34,964 $34,989
======= =======
14. Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
consolidated financial statement presentation.
-F-16-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
Amortized cost and approximate market values of investment securities are
summarized as follows at June 30:
1996 1995
Amortized Market Amortized Market
cost value cost value
(In thousands)
Held to maturity:
U. S. Government and
agency obligations $ 99 $ 99 $3,788 $3,797
======= ======= ===== =====
Available for sale:
U. S. Government and
agency obligations $1,194 $1,196 $ - $ -
FHLMC stock 3 69 3 55
-------- ------- -------- -------
$1,197 $1,265 $ 3 $ 55
===== ===== ======== =======
At June 30, 1996, the market value of U.S. Government and agency
obligations exceeded the Corporation's amortized cost by $2,000, comprised of
$1,000 of unrealized losses and $3,000 of unrealized gains. The market value
of the Corporation's FHLMC stock exceeded the amortized cost at June 30, 1996
by $66,000.
At June 30, 1995, the market value of U.S. Government and agency
obligations exceeded the Corporation's amortized cost by $9,000 comprised of
$7,000 of unrealized losses and $16,000 of unrealized gains. The market value
of the Corporation's FHLMC stock exceeded the amortized cost at June 30, 1995
by $52,000. During the fiscal year, the Corporation sold the preponderance of
its FHLMC stock, recognizing a $504,000 gain.
The amortized cost and market value of U. S. Government and agency
obligations at June 30, 1996, by term to maturity are shown below.
Amortized Market
cost value
(In thousands)
Due within three years $ 893 $ 894
Due in thirteen years 400 401
------ ------
$1,293 $1,295
===== =====
-F-17-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost, gross unrealized gains, gross unrealized losses and
market values of mortgage-backed securities, including those designated as
available for sale, at June 30, 1996 and 1995 are shown below.
<TABLE>
1996
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
Held to maturity: (In thousands)
<S> <C> <C> <C> <C>
FNMA $ 133 $- $ (3) $ 130
FHLMC 605 2 (10) 597
GNMA 544 3 (9) 538
------ ----- ------ ------
Total mortgage-backed securities
held to maturity 1,282 5 (22) 1,265
Available for sale:
FNMA 1,313 - (47) 1,266
FHLMC 3,019 9 (72) 2,956
GNMA 1,181 - (8) 1,173
----- -- ------ -----
Total mortgage-backed securities
designated as available for sale 5,513 9 (127) 5,395
----- ----- ---- -----
Total mortgage-backed securities $6,795 $ 14 $(149) $6,660
===== ==== ==== =====
1995
Gross Gross
Amortized unrealized unrealized Market
cost gains losses value
Held to maturity: (In thousands)
FNMA $1,198 $- $ (51) $1,147
FHLMC 2,346 - (101) 2,245
GNMA 1,441 3 (20) 1,424
----- ----- ----- -----
Total mortgage-backed securities
held to maturity 4,985 3 (172) 4,816
Available for sale:
FHLMC 865 2 - 867
GNMA 564 3 (7) 560
------ ----- ------ ------
Total mortgage-backed securities
designated as available for sale 1,429 5 (7) 1,427
----- ----- ------ -----
Total mortgage-backed securities $6,414 $ 8 $(179) $6,243
===== ===== ==== =====
</TABLE>
-F-18-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE B - INVESTMENT AND MORTGAGE-BACKED SECURITIES (continued)
The amortized cost of mortgage-backed securities at June 30, 1996,
including those designated as available for sale, by contractual terms to
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may generally prepay obligations with or without
prepayment penalties.
Amortized
cost
(In thousands)
Due in one to three years $ 415
Due in three to five years -
Due in five to ten years 54
Due in ten to twenty years 736
Due after twenty years 5,590
-----
Total mortgage-backed securities $6,795
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio at June 30 is summarized as follows:
1996 1995
(In thousands)
Residential real estate
One-to-four family $27,280 $26,411
Multi-family 3,435 2,679
Construction 862 322
Nonresidential real estate and land 3,688 3,171
Home equity 194 54
Consumer and other 37 32
--------- ---------
35,496 32,669
Less:
Undisbursed portion of loans in process (479) (136)
Deferred loan origination (fees) costs 21 (6)
Allowance for loan losses (50) (50)
--------- ---------
$34,988 $32,477
========= =========
-F-19-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE C - LOANS RECEIVABLE (continued)
As depicted above, the Association's lending efforts have historically
focused on one-to-four family residential and multi-family residential real
estate loans, which comprise approximately $31.1 million, or 89%, of the
total loan portfolio at June 30, 1996, and $29.2 million, or 90%, of the
total loan portfolio at June 30, 1995. Generally, such loans have been
underwritten on the basis of no more than an 80% loan-to-value ratio, which
has historically provided the Association with adequate collateral coverage
in the event of default. Nevertheless, the Association, as with any lending
institution, is subject to the risk that residential real estate values
could deteriorate in its primary lending area of southwestern Ohio, thereby
impairing collateral values. However, management is of the belief that
residential real estate values in the Association's primary lending area
are presently stable.
The Association has sold whole loans in the secondary market, retaining
servicing on the loans sold. Loans sold and serviced for others totaled
approximately $257,000, $438,000 and $445,000 at June 30, 1996, 1995 and
1994, respectively.
In the ordinary course of business, the Association has granted loans to
some of the officers, directors and their related business interests.
Related party loans are made on substantially the same terms, except for
loan origination fees, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons
and do not involve more than the normal risk of collectibility. At June 30,
1996 and 1995, the Association had no loans outstanding to officers and
directors.
-F-20-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows for the years
ended June 30:
1996 1995 1994
(In thousands)
Beginning balance $ 50 $48 $42
Provision for loan losses - 2 6
-- --- ---
Ending balance $ 50 $50 $48
==== == ==
At June 30, 1996, the Association's allowance for loan losses was
comprised solely of a general loan loss allowance, which is includible as a
component of regulatory risk-based capital.
At June 30, 1996, the Association had no loans which had been placed on
nonaccrual status due to concerns as to borrowers' ability to pay. At June 30,
1995, the Association had loans of $6,000, which had been placed on nonaccrual
status due to concerns as to borrowers' ability to pay. Interest income that
would have been recognized had nonaccrual loans performed pursuant to
contractual terms totaled approximately $300 for the year ended June 30, 1995.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment consist of the following at June 30:
1996 1995
(In thousands)
Land and improvements $106 $106
Office buildings and improvements 452 451
Leasehold improvements 24 52
Furniture, fixtures and equipment 149 219
--- ---
731 828
Less accumulated depreciation and amortization 355 425
--- ---
$376 $403
-F-21-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE F - DEPOSITS
Deposits consist of the following major classifications at June 30:
Deposit type and weighted-average 1996 1995
interest rate (In thousands)
Passbook accounts
1996 - 3.00% $ 3,905
1995 - 3.00% $ 4,457
Money market demand deposit
1996 - 3.15% 2,214
1995 - 3.15% 2,959
NOW accounts
1996 - 2.25% 577
1995 - 2.25% 902
Super NOW accounts
1996 - 2.00% 1,704
1995 - 2.00% 1,983
----------- -------
Total demand, transaction
and passbook accounts 8,400 10,301
Certificates of deposit
Original maturities of:
Less than 12 months
1996 - 5.21% 4,801
1995 - 6.15% 4,134
12 to 24 months
1996 - 5.76% 9,066
1995 - 5.90% 8,317
24 to 36 months
1996 - 5.92% 6,564
1995 - 5.57% 7,329
More than 36 months
1996 - 5.64% 1,610
1995 - 5.90% 1,977
Individual Retirement Accounts
1996 - 5.32% 2,314
1995 - 6.59% 2,374
Jumbo
1996 - 5.63% 2,011
1995 - 6.03% 1,683
------ -------
Total certificates of deposit 26,367 25,814
------ ------
Total deposits $34,767 $36,115
====== ======
-F-22-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE F - DEPOSITS (continued)
Interest expense on deposits is summarized as follows:
June 30,
1996 1995 1994
(In thousands)
Passbook accounts $ 123 $ 156 $ 192
Money market passbook accounts 76 105 133
NOW accounts 15 30 38
Super NOW accounts 42 54 57
Certificates of deposit 1,523 1,322 1,284
----- ----- -----
$1,779 $1,667 $1,704
===== ===== =====
Maturities of outstanding certificates of deposit are summarized as
follows:
June 30,
1996 1995
(In thousands)
Less than six months $12,799 $ 8,097
Six months to one year 7,820 9,083
One to three years 5,229 8,061
Three to five years 519 573
-------- --------
$26,367 $25,814
======== ========
NOTE G - COMMITMENTS
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the consolidated statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Association's involvement in such financial instruments.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit is represented by the contractual notional amount of those
instruments. The Association uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
-F-23-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE G - COMMITMENTS (continued)
At June 30, 1996, the Association had outstanding commitments of
approximately $378,000 to originate residential one-to-four family real
estate fixed-rate loans on the basis of an 80% loan-to-value ratio. The
Association also had unused lines of credit under home equity loans of
$387,000. Additionally, the Association had previously committed a total of
$150,000 of loan funds to the Cincinnati Development Fund, a nonprofit
organization created to provide financing and financial consulting to
developers of affordable housing in the Cincinnati area. In April 1996, the
Association committed an additional $500,000 of loan funds. The fund was
established to target below market rate housing for the poor. As of June
30, 1996 and 1995, approximately $551,000 and $93,000 of such funds are
undisbursed, respectively. In the opinion of management, all loan
commitments equaled or exceeded prevalent market interest rates as of June
30, 1996, and such commitments have been underwritten on the same basis as
that of the existing loan portfolio. Management believes that all loan
commitments are able to be funded through cash flow from operations and
existing excess liquidity. Fees received in connection with these
commitments have not been recognized in earnings.
The Association has a $2.1 million line of credit facility with the Federal
Home Loan Bank of Cincinnati. As of June 30, 1996, the Association had one
90-day advance outstanding in the amount of $200,000. The interest rate on
the advance is 5.40%.
The Association leases one of its branch offices under an operating lease
agreement. The following is a schedule by years of minimum payments
required under such operating lease, which have original terms of one and
ten years.
Year ending June 30, (In thousands)
1997 $22
1998 11
--
Total minimum payments required $33
The lease on the Association's Westwood office expired September 30, 1995.
Management decided not to renew the lease and the office closed in
September 1995. Management believes that the Westwood customers will be
adequately served by the three other locations.
-F-24-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES
The provision for Federal income taxes on earnings differs from that
computed at the statutory corporate tax rate as follows:
June 30,
1996 1995 1994
(In thousands)
Federal income taxes computed at statutory rate $80 $267 $135
Increase (decrease) resulting from:
Other (primarily surtax exemptions in 1996) (21) (5) (2)
-- ----- -----
Federal income tax provision per consolidated
financial statements $59 $262 $133
== === ===
The composition of the Corporation's net deferred
tax liability at June 30 is as follows:
Taxes (payable) refundable on temporary 1996 1995
differences at statutory rate: (In thousands)
Deferred tax liabilities:
Deferred loan origination costs $ (6) $ -
Difference between cash and accrual basis
of accounting (112) (117)
Federal Home Loan Bank stock dividends (87) (84)
Difference between book and tax depreciation (16) (41)
Percentage of earnings bad debt deduction (35) (48)
Unrealized gain on securities available for sale - (18)
Other (2) (2)
------ ------
Total deferred tax liabilities (258) (310)
Deferred tax assets:
Deferred loan origination fees - 2
Deferred compensation and MRP expense 29 28
General loan loss allowance 17 17
Unrealized losses on securities designated
as available for sale 16 -
----- --
Total deferred tax assets 62 47
----- -----
Net deferred tax liability $(196) $(263)
==== ====
-F-25-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE H - FEDERAL INCOME TAXES (continued)
The Association is allowed a special bad debt deduction based on a
percentage of earnings, generally limited to 8% of otherwise taxable
income, or the amount of qualifying and nonqualifying loans outstanding and
subject to certain limitations based on aggregate loans and savings account
balances at the end of the year. This percentage of earnings bad debt
deduction had accumulated to approximately $1.3 million as of June 30,
1996. If the amounts that qualify as deductions for Federal income tax
purposes are later used for purposes other than for bad debt losses,
including distributions in liquidation, such distributions will be subject
to Federal income taxes at the then current corporate income tax rate. The
approximate amount of the unrecognized deferred tax liability relating to
the cumulative bad debt deduction is $381,000 at June 30, 1996.
NOTE I - OHIO DEPOSIT GUARANTEE FUND CERTIFICATE OF DEPOSIT
The Association was a member of the Ohio Deposit Guarantee Fund (the Fund).
As a condition of membership, the Association was required to deposit in
cash a specified percentage of deposit liabilities with the Fund, receiving
in exchange a promissory note obligation in the form of a promise to repay
the amount of the Association's deposit upon withdrawal or liquidation.
Additionally, the Association was entitled to a pro rata share in the
Fund's cumulative earnings up to the date of withdrawal or liquidation, or
conversely, share ratably in the Fund's losses. In March 1985, the Fund's
largest member was placed in receivership. In May of 1985, emergency
legislation was enacted facilitating the sale of such member, wherein the
Fund transferred substantially all of its assets to the receiver.
As a result of the foregoing, the Association had provided for a loss equal
to the entire amount of the Fund certificate of deposit in 1985.
The Fund subsequently settled various actions against third-party claimants
and, as a result, final liquidating cash distributions were made to the
former Fund members during the year ended June 30, 1995.
-F-26-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL
The Association is subject to minimum regulatory capital standards
promulgated by the Office of Thrift Supervision (OTS). Such minimum capital
standards generally require the maintenance of regulatory capital
sufficient to meet each of three tests, hereinafter described as the
tangible capital requirement, the core capital requirement and the
risk-based capital requirement. The tangible capital requirement provides
for minimum tangible capital (defined as shareholders' equity less all
intangible assets) equal to 1.5% of adjusted total assets. The core capital
requirement provides for minimum core capital (tangible capital plus
certain forms of supervisory goodwill and other qualifying intangible
assets) equal to 3.0% of adjusted total assets. An OTS proposal, if adopted
in present form, would increase the core capital requirement to a range of
4.0% - 5.0% of adjusted total assets for substantially all savings
associations. Management anticipates no material change to the
Association's present excess regulatory capital position as a result of
this change in the regulatory capital requirement. The risk-based capital
requirement provides for the maintenance of core capital plus general loss
allowances equal to 8.0% of risk-weighted assets. In computing
risk-weighted assets, the Association multiplies the value of each asset on
its statement of financial condition by a defined risk-weighting factor,
e.g., one-to-four family residential loans carry a risk-weighted factor of
50%.
As of June 30, 1996, the Association's regulatory capital exceeded all
minimum capital requirements as shown in the following table:
<TABLE>
Regulatory capital
Tangible Core Risk-based
capital Percent capital Percent capital Percent
(In thousands)
<S> <C> <C> <C>
Capital under generally
accepted accounting
principles $8,289 $8,289 $8,289
Additional capital items
Unrealized losses on certain
securities available for sale 34 34 34
General valuation allowances - - 50
----- ----- -------
Regulatory capital 8,323 18.5 8,323 18.5 8,373 38.5
Minimum capital requirement 675 1.5 1,349 3.0 1,740 8.0
------ ----- ----- ----- ----- -----
Regulatory capital - excess $7,648 17.0 $6,974 15.5 $6,633 30.5
===== ==== ===== ==== ===== ====
</TABLE>
-F-27-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)
As a condition to regulatory approval of the reorganization to the holding
company form of ownership, the Association has agreed to limit the amount
of dividends payable to the Corporation. Regulations of the OTS impose
limitations on the payment of dividends and other capital distributions by
savings associations. Under such regulations, a savings association that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS
regulation) that is equal to or greater than the amount of its fully
phased-in capital requirement is generally permitted without OTS approval
(but subsequent to 30 days prior notice to the OTS of the planned dividend)
to make capital distributions during a calendar year in the amount of up to
the greater of (i) 100% of its net earnings to date during the year plus an
amount equal to one-half of the amount by which its total capital to assets
ratio exceeded its fully phased-in capital to assets ratio at the beginning
of the year or (ii) 75% of its net income for the most recent four
quarters. Pursuant to such OTS dividend regulations, Seven Hills Savings
Association had the ability to pay dividends of approximately $6.6 million
to Seven Hills Financial Corporation at June 30, 1996.
The deposit accounts of the Association and of other savings associations
are insured by the FDIC in the Savings Association Insurance Fund ("SAIF").
The reserves of the SAIF are below the level required by law, because a
significant portion of the assessments paid into the fund are used to pay
the cost of prior thrift failures. The deposit accounts of commercial banks
are insured by the FDIC in the Bank Insurance Fund ("BIF"), except to the
extent such banks have acquired SAIF deposits. The reserves of the BIF met
the level required by law in May 1995. As a result of the respective
reserve levels of the funds, deposit insurance assessments paid by healthy
savings associations exceeded those paid by healthy commercial banks by
approximately $.19 per $100 in deposits in 1995. In 1996, no BIF
assessments will be required for healthy commercial banks except for a
$2,000 minimum fee. A continuation of this premium disparity could have a
negative competitive impact on the Association and other institutions with
SAIF deposits.
Congress is considering legislation to recapitalize the SAIF and eliminate
the significant premium disparity. Currently, that recapitalization plan
provides for a special assessment of approximately $.85 per $100 of SAIF
deposits held at March 31, 1995, in order to increase SAIF reserves to the
level required by law. In addition, the cost of prior thrift failures would
be shared by both the SAIF and the BIF. This would likely increase BIF
assessments by $.02 to $.025 per $100 in deposits. SAIF assessments would
initially be set at the same level as BIF assessments and could never be
reduced below the level for BIF assessments. These projected assessment
levels may change if commercial banks holding SAIF deposits are provided
some relief from the special assessment or are allowed to transfer SAIF
deposits to the BIF.
-F-28-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE J - SHAREHOLDERS' EQUITY AND REGULATORY CAPITAL (continued)
A component of the recapitalization plan provides for the merger of the
SAIF and BIF on January 1, 1998. However, the SAIF recapitalization
legislation currently provides for an elimination of the thrift charter or
of the separate federal regulation of thrifts prior to the merger of the
deposit insurance funds. As a result, the Association would be regulated as
a bank under Federal laws which would subject it to the more restrictive
activity limits imposed on national banks. If the Association becomes a
bank, the Association may be required to recapture, as taxable income,
approximately $112,000 of its percentage of earnings bad debt reserve,
representing the post-1987 additions to the reserve, and would be unable to
utilize the percentage of earnings method to compute taxable income in the
future. The Association would be permitted to amortize the recapture of its
bad debt reserve into taxable income over six years. The Association has
previously provided deferred taxes on the amount of the bad debt reserve
subject to recapture.
The Association had $39.9 million in deposits at March 31, 1995. If the
special assessment is finalized at $.85 per $100 in deposits on March 31,
1995, the Association will pay an additional assessment of $339,000. This
assessment should be tax deductible, but it will reduce earnings and
capital for the quarter in which it is recorded.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the
Association can give no assurances that the disparity between BIF and SAIF
assessments will be eliminated and cannot predict the impact of being
regulated as a bank, or the change in tax accounting for bad debt reserves,
until the legislation requiring such change is enacted.
-F-29-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE K - CONDENSED FINANCIAL STATEMENTS OF SEVEN HILLS FINANCIAL CORPORATION
The following condensed financial statements summarize the financial
position of Seven Hills Financial Corporation as of June 30, 1996 and 1995,
and the results of its operations for the periods then ended.
<TABLE>
Seven Hills Financial Corporation
STATEMENT OF FINANCIAL CONDITION
June 30,
(In thousands)
ASSETS 1996 1995
<S> <C> <C>
Interest-bearing deposits in Seven Hills Savings Association $1,070 $ 1,792
Loan receivable from ESOP 282 378
Investment in Seven Hills Savings Association 8,289 7,942
Prepaid expenses and other 45 10
------- ---------
Total assets $9,686 $10,122
===== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 10 $ 11
Shareholders' equity
Common stock and additional paid-in capital 5,438 5,362
Retained earnings 5,067 5,335
Less required contributions for shares acquired
by employee benefit plans (339) (474)
Unrealized gains (losses) on securities designated
as available for sale (34) 32
Less treasury stock (456) (144)
------ --------
Total shareholders' equity 9,676 10,111
----- ------
Total liabilities and shareholders' equity $9,686 $10,122
===== ======
</TABLE>
<TABLE>
Seven Hills Financial Corporation
STATEMENT OF EARNINGS
Period ended June 30,
(In thousands)
1996 1995 1994
<S> <C> <C> <C>
Revenue
Interest income $ 65 $ 92 $ 38
Equity in earnings of Seven Hills Savings Association 171 489 113
--- --- ---
Total revenue 236 581 151
General and administrative expenses 59 41 13
---- ---- ----
Earnings before income taxes 177 540 138
Federal income taxes 2 17 8
----- ---- -----
NET EARNINGS $175 $523 $130
=== === ===
</TABLE>
-F-30-
<PAGE>
DRAFT
Seven Hills Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996, 1995 and 1994
NOTE K - CONDENSED FINANCIAL STATEMENTS OF SEVEN HILLS FINANCIAL CORPORATION
(continued)
<TABLE>
Seven Hills Financial Corporation
STATEMENT OF CASH FLOWS
Year ended June 30,
(In thousands)
1996 1995
<S> <C> <C>
Cash provided by (used in) operating activities:
Net earnings $ 175 $ 523
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
ESOP and RRP amortization expense 211 186
Undistributed earnings of consolidated subsidiary (413) (304)
Decrease in cash due to changes in:
Prepaid expenses and other assets (35) (3)
Other liabilities (1) (1)
-------- --------
Net cash provided by (used in) operating activities (63) 401
Cash flows provided by investing activities:
Proceeds from repayment of loan 96 88
Cash flows used in financing activities:
Purchase of treasury stock (312) (144)
Payment of dividends on common stock (443) (398)
------ ------
Net cash used in financing activities (755) (542)
------ ------
Net decrease in cash and cash equivalents (722) (53)
Cash and cash equivalents at beginning of year 1,792 1,845
----- -----
Cash and cash equivalents at end of year $1,070 $1,792
===== =====
</TABLE>
The 1994 earnings of $130,000 do not agree with the earnings of $264,000 on
the consolidated statement of earnings. Seven Hills Financial Corporation
was formed December 30, 1993 and thus only had equity in earnings of Seven
Hills Savings Association for the six months ended June 30, 1994.
-F-31-
ANNEX A
---------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
by and among
SEVEN HILLS FINANCIAL CORPORATION
SEVEN HILLS SAVINGS ASSOCIATION
and
WESTERN OHIO FINANCIAL CORPORATION
---------------------------------
---------------------
June 14, 1996
--------------------
-A-1-
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE - TERMS OF THE MERGER AND CLOSING
Section 1.01 Formation of Acquisition Subsidiary ....................2
Section 1.02 Merger; Surviving Corporation ..........................2
Section 1.03 Effective Time of the Merger ...........................2
Section 1.04 Company Merger .........................................3
Section 1.05 Closing ................................................7
Section 1.06 Actions At Closing .....................................7
ARTICLE TWO - REPRESENTATIONS AND WARRANTIES OF SHFC AND THE ASSOCIATION
Section 2.01 Organization and Capital Stock .........................9
Section 2.02 Authorization; No Defaults ............................10
Section 2.03 No Subsidiaries; Equity Interests .....................11
Section 2.04 Financial Information .................................12
Section 2.05 Absence of Changes ....................................12
Section 2.06 Regulatory Enforcement Matters ........................13
Section 2.07 Tax Matters ...........................................13
Section 2.08 Litigation ............................................14
Section 2.09 Employment and Severance Agreements ...................14
Section 2.10 Reports ...............................................14
Section 2.11 Investment Portfolio ..................................15
Section 2.12 Loan Portfolio ........................................15
Section 2.13 Employee Matters and ERISA ............................15
Section 2.14 Title to Properties; Insurance; Personal Property .....16
Section 2.15 Environmental Matters .................................18
Section 2.16 Compliance with Laws ..................................19
Section 2.17 Brokerage .............................................19
Section 2.18 Undisclosed Liabilities ...............................19
Section 2.19 Statements True and Correct ...........................20
Section 2.20 Material Contracts ....................................20
Section 2.21 No Sensitive Transactions .............................21
Section 2.22 Certain Payments ......................................21
ARTICLE THREE - REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Section 3.01 Organization and Capital Stock ........................22
Section 3.02 Authorization .........................................22
Section 3.03 Subsidiaries ..........................................24
Section 3.04 Financial Information .................................24
Section 3.05 Absence of Changes ....................................24
Section 3.06 Litigation ............................................24
Section 3.07 Reports ...............................................24
Section 3.08 Compliance With Laws ..................................25
Section 3.09 Statements True and Correct ...........................25
Section 3.10 Undisclosed Liabilities ...............................25
Section 3.11 Regulatory Enforcement Matters ........................25
Section 3.12 Tax Matters ...........................................26
Section 3.13 Investment Portfolio ..................................26
Section 3.14 Stock Ownership .......................................26
Section 3.15 Availability of Funds .................................26
-A-2-
<PAGE>
ARTICLE FOUR - AGREEMENTS OF SHFC AND THE ASSOCIATION
Section 4.01 Business in Ordinary Course ...........................27
Section 4.02 Breaches ..............................................30
Section 4.03 Submission to Shareholders ............................31
Section 4.04 Consents to Contracts and Leases ......................31
Section 4.05 Conforming Accounting and Reserve Policies;
Restructuring Expenses ............................................31
Section 4.06 Consummation of Agreement .............................32
Section 4.07 Access to Information .................................32
Section 4.08 Subsequent Disclosure Schedule ........................32
Section 4.09 Unallocated Recognition and Retention Plan Shares .....33
Section 4.10 Delivery of Reports ...................................33
Section 4.11 Report of Funds Received from ODGF ....................33
Section 4.12 Amendment of Association Articles of Incorporation ....33
ARTICLE FIVE - AGREEMENTS OF ACQUIROR
Section 5.01 Regulatory Approvals and Proxy Statement ..............33
Section 5.02 Breach ................................................33
Section 5.03 Consummation of Agreement .............................34
Section 5.04 Directors and Officers' Liability Insurance
and Indemnification ...............................................34
Section 5.05 Employee Benefit and Related Matters ..................34
Section 5.06 The Association's Employee Stock Ownership Plan .......35
Section 5.07 Board of Directors of the Association .................35
Section 5.08 Managing Officer of the Association ...................36
Section 5.09 Shareholder Approval for Conversion
of SHFC Stock Options .............................................36
Section 5.10 Delivery of Reports ...................................36
Section 5.11 Distribution of RRP Proceeds ..........................36
ARTICLE SIX - CONDITIONS PRECEDENT TO THE MERGER
Section 6.01 Conditions to Acquiror's Obligations ..................36
Section 6.02 Conditions to SHFC's Obligations ......................38
ARTICLE SEVEN - TERMINATION OR ABANDONMENT
Section 7.01 Mutual Agreement ......................................38
Section 7.02 Breach of Agreement ...................................38
Section 7.03 Failure of Conditions .................................39
Section 7.04 Denial of Regulatory Approval .........................29
Section 7.05 Failure of Stockholders to Adopt ......................39
Section 7.06 Regulatory Enforcement Matters ........................39
Section 7.07 Automatic Termination .................................40
Section 7.08 Termination Fee .......................................40
ARTICLE EIGHT - GENERAL
Section 8.01 Confidential Information ..............................40
Section 8.02 Publicity .............................................41
Section 8.03 Return of Documents ...................................41
Section 8.04 Notice ................................................41
Section 8.05 Liabilities ...........................................42
Section 8.06 Expenses ..............................................42
Section 8.07 Nonsurvival of Representations and Warranties .........42
Section 8.08 Entire Agreement ......................................42
Section 8.09 Headings and Captions .................................42
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Section 8.10 Waiver, Amendment or Modification .....................42
Section 8.11 Rules of Construction .................................43
Section 8.12 Counterparts ..........................................43
Section 8.13 Successors and Assigns ................................43
Section 8.14 Governing Law; Assignment .............................43
Section 8.15 Specific Performance and Injunctive Relief ............43
SIGNATURES
EXHIBIT A Shareholder Agreement
EXHIBIT B Optionholder Agreement
EXHIBIT C Plan of Merger
EXHIBIT D Plan of Subsidiary Merger
EXHIBIT E SHFC and Target Association's Legal Opinion
EXHIBIT F Acquiror's Legal Opinion
EXHIBIT G Directors of Target Association
EXHIBIT H Director Emeritus of Target Association
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement"),
dated June 14, 1996, is by and among Western Ohio Financial Corporation, a
Delaware corporation ("Acquiror"); Seven Hills Financial Corporation, an Ohio
corporation ("SHFC"); and Seven Hills Savings Association, an Ohio savings and
loan association and a wholly owned subsidiary of SHFC (the "Association").
A. Acquiror, SHFC and the Association wish to provide for the terms and
conditions of the following described business transaction in which an
inactive transitory subsidiary to be formed by Acquiror and incorporated under
the laws of the State of Ohio ("Acquisition Subsidiary") will be merged with
and into SHFC and the separate existence of Acquisition Subsidiary shall cease
("Company Merger"), SHFC will be merged with and into Acquiror and the
separate existence of SHFC shall cease ("Subsidiary Merger") and, as a result
of the Company Merger and the Subsidiary Merger, the Association will become a
wholly owned subsidiary of Acquiror. The Company Merger and the Subsidiary
Merger are collectively referred to as the "Merger."
B. For federal income tax purposes, it is intended that the Company
Merger be deemed a stock purchase of all of the outstanding capital stock of
SHFC by Acquiror and the Subsidiary Merger shall qualify as a tax-free
liquidation under Section 332 and Section 337 of the Internal Revenue Code of
1986, as amended (the "Code").
C. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase.
D. The parties hereto desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
E. Concurrently with the execution and delivery of this Agreement, and as
a condition and material inducement to Acquiror's willingness to enter into
this Agreement, each of the directors of SHFC has entered into a shareholder
agreement (each a "Shareholder Agreement") in the form attached hereto as
Exhibit A.
F. Concurrently with the execution and delivery of the Agreement, and as
a condition and material inducement to Acquiror's willingness to enter into
this Agreement, each holder of an SHFC option (as defined in Section
1.04(d)(i) hereof) has executed an agreement not to exercise his or her SHFC
Options prior to the Effective Time (as hereinafter defined) and during the
time period described in Section I .04(d)(iv) hereof (each, an "Optionholder
Agreement") in the form attached hereto as Exhibit B.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto
agree as follows:
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ARTICLE ONE
TERMS OF THE MERGER AND CLOSING
Section 1.01. Formation of Acquisition Subsidiary. Acquiror shall
organize Acquisition Subsidiary, an Ohio corporation, as a wholly-owned
subsidiary of Acquiror and shall cause Acquisition Subsidiary to fulfill the
obligations of Acquisition Subsidiary under this Agreement.
Section 1.02. Merger; Surviving Corporation. Subject to the terms and
conditions of this Agreement, and pursuant to the provisions of the Ohio
General Corporation Law ("OGCL"), the Delaware General Corporation Law
("DGCL"), the Home Owners' Loan Act ("HOLA") and the rules and regulations
promulgated thereunder (the "Thrift Regulations"), and Chapter 1151 of Title
II of the Ohio Revised Code, the following shall occur:
(a) At the Effective Time, Acquisition Subsidiary shall be
merged with and into SHFC pursuant to the terms and conditions set
forth herein and pursuant to a Plan of Merger attached hereto as
Exhibit C ("Plan of Merger") which shall be executed by Acquiror, SHFC
and Acquisition Subsidiary at least two (2) days prior to the
Effective Time. Upon consummation of the Company Merger, the separate
existence of Acquisition Subsidiary shall cease and SHFC shall
continue as the surviving corporation. The name of SHFC, as the
surviving corporation, shall by virtue of the Company Merger remain
"Seven Hills Financial Corporation." From and after the consummation
of the Company Merger, SHFC, as the surviving corporation, shall
possess all assets and property of every description, and every
interest in the assets and property, wherever located, and the rights,
privileges, immunities, powers, franchises and authority, of a public
as well as a private nature, 9f SHFC and Acquisition Subsidiary, and
all obligations belonging or due to each of them.
(b) Upon consummation of the Company Merger as set forth in
(a), above, SHFC will be merged with and into Acquiror in accordance
with applicable state law pursuant to a Plan of Merger, attached
hereto as Exhibit D ("Plan of Subsidiary Merger"), which shall be
executed by the parties thereto immediately after the completion of
the Company Merger. Upon completion of the Subsidiary Merger, the
separate existence of SHFC shall cease and Acquiror shall continue as
the surviving corporation. The name of Acquiror, as the surviving
corporation, shall by virtue of the Subsidiary Merger remain "Western
Ohio Financial Corporation." From and after the Subsidiary Merger,
Acquiror, as the surviving corporation, shall possess all assets and
property of every description, and every interest in the assets and
property, wherever located, and the rights, privileges, immunities,
powers, franchises and authority, of a public as well as a private
nature, of SHFC and Acquiror, and all obligations belonging or due to
each of them.
Section 1.03. Effective Time of the Merger. As soon as practicable
after each of the conditions set forth in Article Six hereof have been
satisfied or waived, SHFC and Acquisition Subsidiary will file or cause to be
filed a certificate of merger with the Secretary of State of the State of Ohio
for the Company Merger, and Acquiror and SHFC will file or cause to be filed
certificates of merger with the Secretaries of State of the States of Delaware
and Ohio for the Subsidiary Merger, which certificates of merger shall in each
case be in the form required by and executed in accordance with the applicable
provisions of the OGCL and the DGCL. The Company Merger and the Subsidiary
Merger shall each become effective at the time specified in the respective
certificate of merger for such merger as filed with the Secretaries of State
of the appropriate states (the "Effective Time"). The parties shall cause the
Company Merger to become effective prior to the Subsidiary Merger.
Section 1.04. Company Merger.
(a) (i) Each common share of SHFC, no par value (the "SHFC Common"),
issued and outstanding immediately prior to the Effective Time (except
for Dissenting Shares, as defined in Section 1.04(b) below) shall, by
virtue of the Company Merger and without any action on the part of the
holder thereof be converted to a right to receive in cash from
Acquiror the sum of the following subparagraphs (A) and (B)
(hereinafter referred to as the "Per Share Merger Consideration"):
(A)....Nineteen Dollars and Sixty-Five cents ($19.65); plus
(B)....The quotient of
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(I) The difference between (x) the amount(s) actually
received from the liquidation and winding up of
the Ohio Deposit Guarantee Fund ("ODGF") between
the date of the Agreement and the Effective Time,
less (y) the out-of-pocket expenses and estimated
federal and state income tax liabilities
attributable to such amount(s), as set forth in
the statement referred to in Section 4.11;
divided by
(II) Five hundred eighty-three thousand seven hundred
sixty-three (583,763).
The holders of certificates representing shares of SHFC
Common shall cease to have any rights as shareholders of SHFC, except
such rights, if any, as they may have pursuant to the OGCL. Except as
provided below with respect to Dissenting Shares, until certificates
representing shares of SHFC Common are surrendered for exchange, each
such certificate shall, after the Effective Time, represent for all
purposes only the right to receive the Per Share Merger Consideration
for the number of shares represented by such certificate.
(ii) Each share of Acquisition Subsidiary capital stock issued
and outstanding or held in treasury immediately prior to the Effective
Time shall be and constitute the issued and outstanding shares of SHFC
Common at the Effective Time.
(b) Dissenting Shares. Any shares of SHFC Common held by a holder who
dissents from the Company Merger and who pursues and perfects the rights of a
dissenter in accordance with Section 1701.85 of the OGCL shall be herein
called "Dissenting Shares." Notwithstanding ally other provision of this
Agreement, any Dissenting Shared shall not, after the Effective Time of the
Company Merger, be entitled to vote for any purpose or receive any dividends
or other distributions and shall be entitled only to such rights as are
afforded in respect of Dissenting Shares pursuant to the OGCL. If, after the
Effective Time, such holder's rights shall terminate in accordance with
Section 1701.85(D) of the OGCL, such shares of SHFC Common shall be treated as
if they had been converted as of the Effective Time into a right to receive
the Per Share Merger Consideration.
(c) Exchange of SHFC Common
(i) As soon as practicable after the Effective Time of the
Company Merger, holders of record of certificates formerly
representing shares of SHFC Common (the "Certificates") shall be
instructed by Acquiror to tender such Certificates to Acquiror, or, at
the election of Acquiror, to an exchange agent designated by Acquiror
(the "Exchange Agent"), pursuant to a letter of transmittal that
Acquiror shall deliver or cause to be delivered to such holders. Such
letters of transmittal shall specify that risk of loss and title to
Certificates shall pass only upon delivery of such Certificates as
specified in the letter of transmittal.
(ii) After the Effective Time of the Company Merger, each
holder of a Certificate that surrenders such Certificate to Acquiror
or, at the election of Acquiror, to the Exchange Agent, will, upon
acceptance thereof by Acquiror or the Exchange Agent, be entitled to
the Per Share Merger Consideration for the number of shares
represented by such Certificate, which shall be paid promptly (but in
no event later than five business days) after acceptance of such
Certificate.
(iii) Acquiror or, at the election of Acquiror, the Exchange
Agent shall accept Certificates upon compliance with such reasonable
terms and conditions as Acquiror or the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with customary
exchange practices. Certificates shall be appropriately endorsed or
accompanied by such instruments of transfer as Acquiror or the
Exchange Agent may require.
(iv) Each outstanding Certificate shall, until duly surrendered
to Acquiror or the Exchange Agent, be deemed to evidence the right to
receive the Per Share Merger Consideration for the number of shares
represented by such Certificate.
(v) After the Effective Time of the Company Merger, holders of
Certificates shall cease to have rights with respect to the SHFC
Common previously represented by such Certificates, and their sole
rights shall be to exchange such Certificates for, and to receive, the
Per Share Merger Consideration for the number of shares represented by
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such Certificate. After the Effective Time of the Company Merger,
there shall be no further transfer on the records of SHFC of
Certificates, and if any Certificates are presented to SHFC for
transfer, they shall be canceled in exchange for the Per Share Merger
Consideration for the number of shares represented by such
Certificates. Acquiror shall not be obligated to deliver the Per Share
Merger Consideration to any former holder of SHFC Common until such
holder surrenders the Certificates as provided herein. Neither the
Exchange Agent nor any party to this Agreement nor any affiliate
thereof shall be liable to any holder of SHFC Common represented by
any Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar laws.
SHFC and the Exchange Agent shall be entitled to rely upon the stock
transfer books of SHFC to establish the identity of those persons
entitled to receive consideration specified in this Agreement, which
books shall be conclusive with respect thereto. In the event of a
dispute with respect to ownership of stock represented by any
Certificate, Acquiror and the Exchange Agent shall be entitled to
deposit any consideration in respect thereof in escrow with an
independent third party and thereafter be relieved with respect to any
claims thereto.
(vi) If the Per Share Merger Consideration is to be issued to a
person other than a person in whose name a surrendered Certificate is
registered, it shall be a condition of issuance that the surrendered
Certificate shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such issuance shall pay to
Acquiror or the Exchange Agent any required transfer or other taxes or
establish to the satisfaction of Acquiror or the Exchange Agent that
such tax has been paid or is not applicable.
(vii) In the event any Certificate shall have been lost, stolen
or destroyed, the owner of such lost, stolen or destroyed Certificate
shall deliver to Acquiror or the Exchange Agent an affidavit stating
such fact, in form satisfactory to Acquiror, and, at Acquiror's
discretion, a bond in such reasonable sum as Acquiror or the Exchange
Agent may direct as indemnity against any claim that may be made
against Acquiror or the Association or its successor or any other
party with respect to the Certificate alleged to have been lost,
stolen or destroyed. Upon such delivery, the owner shall have the
right to receive the Per Share Merger Consideration with respect to
the shares represented by the lost, stolen or destroyed Certificate.
(d) Stock Options.
Acquiror shall assume the obligations of SHFC under the SHFC
Stock Option Plan in the following manner:
(i) At the Effective Time of the Company Merger by virtue of
the Company Merger and without any action on the part of any holder of
any option, each option granted by SHFC to purchase shares of SHFC
Common Stock which is outstanding prior to the date of this Agreement
and unexercised immediately prior to the Effective Time of the Company
Merger (each an "SHFC Option") shall continue outstanding as an option
(a "Substitute Option") to purchase shares of Acquiror Common (as
defined in Section 3.01(c) hereof) in an amount and at an exercise
price determined as provided below and otherwise subject to the terms
of the SHFC Stock Option Plan under which they were issued and the
agreements evidencing grants thereunder:
(A) The number of shares of Acquiror Common to be
subject to a Substitute Option shall be equal to the product of
the number of shares of SHFC Common Stock subject to the
original option and the Exchange Ratio (as defined below),
provided that any fractional shares of Acquiror Common
resulting from such multiplication shall be rounded down to the
nearest whole share; and
(B) The exercise price per share of Acquiror Common
under the Substitute Option shall be equal to the exercise
price per share of SHFC Common Stock under the original option
divided by the Exchange Ratio, provided that such exercise
price shall be rounded down to the nearest whole cent.
(ii) The term "Exchange Ratio" shall mean the Per Share Merger
Consideration divided by the Average Price (as defined below) for
Acquiror Common.
(iii) The term "Average Price" shall mean the average closing
prices for a share of Acquiror Common on the NASDAQ National Market
System reported for the five (5) consecutive trading days ending on
the first trading day immediately prior to the date of this Agreement.
(iv) No exercise of options for Acquiror Common will be
permitted until the shareholders of Acquiror approve the assumption of
the obligations of SHFC under the SHFC Stock Option Plan as
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contemplated by Section 5.09 hereof. Acquiror shall seek approval of
its shareholders at its April 1997 annual meeting of shareholders
("Annual Meeting") to reserve for issuance sufficient shares of
Acquiror Common, from authorized and unissued shares or treasury
shares of Acquiror, to effect the substitution of Acquiror Common for
SHFC Common Stock under the SHFC Stock Option Plan. At all times after
receipt of such shareholder approval, Acquiror shall reserve for
issuance such number of shares of Acquiror Common s is necessary to
permit the exercise of options granted under the SHFC Stock Option
Plan in the manner contemplated by this Agreement and the instruments
pursuant to which such options were granted. Notwithstanding the
foregoing, in the event that Acquiror does not receive the shareholder
approval contemplated by Section 5.09 hereof, then the outstanding
options under the SHFC Stock Option Plan shall be converted to a right
to receive the Per Share Merger Consideration, less the exercise price
per share for each share of SHFC Common Stock subject to an option. As
a condition to receipt of the cash payment pursuant to the preceding
sentence, each holder of an outstanding option to acquire SHFC Common
Stock shall be required to execute a stock option cancellation
agreement in form and substance reasonably satisfactory to Acquiror.
No interest shall be paid or payable with respect to the cash amount
to be paid for the cancellation of SHFC stock options.
(e) Articles of Incorporation and Code of Regulations of SHFC
as the Surviving Corporation. The Articles of Incorporation and Code
of Regulations of SHFC, as in effect immediately prior to the
Effective Time of the Company Merger, shall be the Articles of
Incorporation and Code of Regulations of the surviving corporation of
the Company Merger, until either is thereafter amended in accordance
with applicable law.
(f) Directors and Officers of SHFC as the Surviving
Corporation. The directors and officers of Acquisition Subsidiary
immediately prior to the Effective Time of the Company Merger shall be
and become the directors and officers of SHFC immediately following
the Effective Time of the Company Merger.
Section 1.05. Closing. Subject to the provisions of this Agreement,
the closing of the Company Merger (the "Closing") shall take place as soon as
practicable after satisfaction or waiver of all of the conditions to Closing.
Subject to the preceding sentence, the date, time and location of the Closing
shall be as designated in writing by Acquiror to SHFC but shall be no sooner
than the first business day after receipt of all necessary regulatory and
shareholder approvals and the expiration of any applicable waiting periods.
The date on which the Closing actually occurs is herein referred to as the
"Closing Date." Time is of the essence for Closing.
Section 1.06. Actions At Closing.
(a) At the Closing, SHFC shall deliver to Acquiror:
(i) a certificate signed by an appropriate officer of SHFC
stating that all of the conditions set forth in Sections 6.01(a),
(b), (c), (d), (f), (g) and (h) of this Agreement (but, as to
Section 6.01(d), relating only to approvals which SHFC is required
by law to obtain) have been satisfied or waived as provided therein;
(ii) a certified copy of the resolutions of SHFC's Board of
Directors and shareholders, as required for valid approval of the
execution of this Agreement and the Plan of Merger (which
certification shall be signed by the Secretary or Assistant
Secretary of SHFC, shall specify that such resolutions remain in
effect a- of the Effective Time of the Company Merger and have not
been modified or rescinded, and which shall be in a form reasonable;
acceptable to counsel to Acquiror); the Plan of Merger, executed by
SHFC; and a Certificate of Merger for the Company Merger, executed
by SHFC and in proper form for filing with the Ohio Secretary of
State;
(iii) certificates of the Ohio Secretary of State, each dated
a recent date, as to the good standing of SHFC and of the
Association, and a certificate of the Federal Deposit Insurance
Corporation ("FDIC"), dated a recent date, as to the existence of
deposit insurance of the Association;
(iv) a legal opinion from counsel for SHFC and the Asso-
ciation, in the form attached he re to as Exhibit E hereto;
(v) the Subsequent Disclosure Schedule required by Section
4.08 hereof; if the Subsequent Disclosure Schedule was previously
delivered, a statement signed by an appropriate officer of SHFC to
that effect; or, if no Subsequent Disclosure Schedule is necessary,
a statement signed by an appropriate officer of SHFC and dated as of
the Closing Date to such effect; and
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(vi) resignations of the Board of Directors of the
Association, effective as of the Effective Time of the Company
Merger, pursuant to Section 5.07 of this Agreement.
(b) At the Closing, Acquiror shall deliver to SHFC:
(i) a certificate signed by an appropriate officer of
Acquiror stating that all of the conditions set forth in Sections
6.02(a), (b), (c) and (d) of this Agreement (but, as to Section
6.02(d), excluding the approval of SHFC's Board of Directors and
shareholders) have been satisfied;
(ii) a certified copy of the resolutions of Acquiror's Board
of Directors authorizing the execution of this Agreement and the
consummation of the transactions contemplated hereby;
(iii) a certified copy of the resolutions of Acquisition
Subsidiary's Board of Directors and sole shareholder, authorizing
the execution of the Plan of Merger and the consummation of the
transactions contemplated hereby and thereby; the Plan of Merger,
executed by Acquisition Subsidiary; and a Certificate of Merger for
the Company Merger, executed by Acquisition Subsidiary and in proper
form for filing with the Ohio Secretary of State; and
(iv) a legal opinion from counsel for Acquiror, in the form
attached hereto as Exhibit F hereto.
ARTICLE TWO
REPRESENTATIONS AND WARRANTEES OF SHFC AND THE ASSOCIATION
SHFC and the Association hereby make the following representations and
warranties:
Section 2.01. Organization and Capital Stock.
(a) SHFC is a corporation organized under the OGCL and the Association
is a stock-form savings and loan association, organized under Chapter 1151 of
the Ohio Revised Code, and each is duly organized, validly existing and in
good standing under the laws of the State of Ohio with full corporate power
and all necessary governmental authorizations to own all of its properties and
assets, to incur all of its liabilities and to carry on its business as
presently conducted. The minute books of each contain complete and accurate
records of all meetings and other corporate actions of their respective Boards
of Directors and shareholders, as well as actions by committees of their
respective Boards of Directors, either in committee minutes or in the minutes
of the meetings of the Boards of Directors, except for minutes of meetings
within the preceding month for which draft minutes have not been reviewed and
approved by the Board. Attached as Section 2.01(a) of that certain
confidential writing delivered by SHFC to Acquiror concurrently with the
delivery and execution of this Agreement (the "Disclosure Schedule") are
copies of the Articles of Incorporation of SHFC and the Association certified
by the Secretary of State of the State of Ohio, a copy of the Code of
Regulations of SHFC certified by the Secretary of SHFC and copies of the
Constitution and Bylaws of the Association certified by the Ohio Division of
Financial Institutions (the "Division"), including all amendments.
(b) The authorized capital stock of SHFC consists of one million
(1,000,000) common shares of SHFC, no par value, of which, as of the date
hereof, five hundred thirty-six thousand four hundred seventy-two (536,472)
shares are issued and outstanding, of which two thousand one hundred fifteen
(2,115) shares are unallocated shares in the Seven Hills Savings Association
Recognition and Retention Plan). All of the issued and outstanding shares of
SHFC Common are duly and validly issued and outstanding and are fully paid and
non-assessable, except for the shares of SHFC Common which are held by the
Association ESOP (as defined in Section 5.06) and which are not allocated to
the accounts of the participants, but as to which the Association ESOP has all
of the rights of a shareholder. None of the outstanding shares of SHFC Common
has been issued in violation of any preemptive rights of the current or past
shareholders of SHFC. Each Certificate representing shares of SHFC Common
issued by SHFC in replacement of any certificate theretofore issued by it
which was claimed by the record holder thereof to have been lost, stolen or
destroyed, if any, was issued by SHFC only upon receipt of an affidavit of
lost stock certificate and a bond sufficient to indemnify SHFC against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such replacement
Certificate.
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The authorized capital stock of the Association consists of five
million (5,000,000) shares of the Association Common, par value One Dollar ($
1.00) per share, of which five hundred sixty- four thousand seven hundred
seven (564,707) shares are issued and outstanding and held by SHFC. Such
shares are held by SHFC free and clear of all liens, encumbrances, rights of
first refusal, options or other restrictions of any nature whatsoever. The
deposits of the Association are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation (the "FDIC"). The Association is a member of the Federal Home Loan
Bank of Cincinnati ("FHLB Cincinnati"). The Association is a "domestic
building and loan association" as defined in Section 7701(a)(19) of the Code
and a "qualified thrift lender" as defined in 12 U.S.C. ss. 1467a(m) and the
Thrift Regulations.
(c) Except as set forth in Section 2.01(b) of this Agreement, and
except for the forty- nine thousand four hundred six (49,406) shares of SHFC
Common subject to options granted under the SHFC Stock Option Plan, there are
no shares of capital stock or other equity securities of SHFC or the
Association outstanding and no outstanding options, warrants, rights to
subscribe for, calls, or commitments of any character whatsoever relating to,
or securities or rights convertible in or exchangeable for, shares of the
capital stock of SHFC or the Association, or contracts, commitments,
understandings or arrangements by which SHFC or the Association is or may be
obligated to issue additional shares of its capital stock or options, warrants
or rights to purchase or acquire any additional shares of its capital stock.
Section 2.02. Authorization; No Defaults.
(a) The Board of Directors of SHFC and the Board of Directors of the
Association each has, by all appropriate action, approved this Agreement and
authorized the execution and delivery hereof on its behalf by its duly
authorized officers and the performance by SHFC and the Association of its
respective obligations here under.
(b) This Agreement has been duly and validly executed and delivered by
SHFC and the Association and, subject to (i) the approval of the SHFC
shareholders of an amendment to Article EIGHTH of the SHFC Articles of
Incorporation and approval of SHFC of an amendment to Article NINTH of the
Association's Articles of Incorporation to permit Acquiror to offer to acquire
and to acquire all of the outstanding shares of SHFC (the "Amendment"), (ii)
the approval of the OTS of the offer to acquire SHFC, as evidenced by this
Agreement, and (iii) the approval of the Division of such amendment to Article
NINTH of the Association's Articles of Association, constitutes a legal, valid
and binding obligation of SHFC and the Association, enforceable against each
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium or other laws affecting creditors' rights generally or the rights
of creditors of savings institutions the accounts of which are insured by the
FDIC or laws relating to the safety and soundness of insured financial
institutions and by judicial discretion in applying principles of equity.
Neither SHFC nor the Association is in default under or in violation of any
provision of their respective articles of incorporation, constitution, code of
regulations or bylaws, or any promissory note, indenture or any evidence of
indebtedness or security therefor, lease, contract, purchase or other
commitment or any other agreement of SHFC or the Association, except for
defaults and violations which will not have a material adverse effect on the
operations, business or financial condition of SHFC and the Association, taken
as a whole, and except to the extent that this Agreement may be deemed by a
court to be a default under or violation of Article EIGHTH of the SHFC
Articles of Incorporation or Article NINTH of the Association's Articles of
Incorporation. No other corporate proceeding of SHFC or the Association is
required for approval of this Agreement and the Company Merger or the
performance of SHFC's or the Association's obligations under this Agreement
other than adoption of the Amendment, this Agreement and the Plan of Merger by
the holders of at least the minimum portion of the outstanding shares of SHFC
Common required under the OGCL for approval of the Merger (the "Minimum
Portion"). Except for the requisite approvals of the Division and the OTS
("Regulatory Approvals"), and filings with the OTS, the Division and the
Secretaries of State of Ohio and Delaware, no notice to, filing with',
authorization by, or consent or approval of, any federal or state regulatory
authority or other third party is necessary for the execution and delivery of
this Agreement or consummation of the Merger by SHFC or the Association.
(c) Neither the execution and delivery of this Agreement nor the
consummation of the Company Merger, nor compliance by SHFC and the Association
with the provisions of this Agreement will (i) conflict with or result in a
breach of the articles of incorporation or constitution, or bylaws or code of
regulations, of SHFC or the Association, except to the extent that this
Agreement may be deemed by a court to be a default under or violation of
Article EIGHTH of the SHFC Articles of Incorporation or Article NINTH of the
Association's Articles of Incorporation; (ii) result in a breach or
termination of or accelerate the performance required by, any note, bond,
mortgage, lease, agreement or other instrument to which SHFC or the
Association is a party or may be bound; or (iii) violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
SHFC or the Association.
Section 2.03. No Subsidiaries Equity Interests. The term "subsidiary"
means an organization or entity which is consolidated with a party to this
Agreement for financial reporting purposes. Except for the Association, SHFC
has no subsidiaries. The Association has no subsidiaries. Except as set forth
in Section 2.03 of the Disclosure Schedule, and except for shares of the
Association Common owned by SHFC and shares of stock of the FHLB Cincinnati
owned by the Association, neither SHFC nor the Association owns, beneficially
or otherwise, any shares of Equity Securities (as defined below) or similar
interests of any corporation, bank, business trust, association or similar
organization. "Equity Securities" of an issuer means capital stock or other
equity securities of such issuer, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, shares of any capital stock or other
equity securities of such issuer, or contracts, commitments, understandings or
arrangements by which such issuer is or may become bound to issue additional
shares of its capital stock or other equity securities of such issuer, or
options, warrants, scrip or rights to purchase, acquire, subscribe to, calls
on or commitments for any shares of its capital stock or other equity
securities.
Neither SHFC nor the Association is a party to any partnership or joint
venture.
Section 2.04. Financial Information. The consolidated balance sheets
of SHFC and its subsidiary as of June 30, 1995 and 1994, and the consolidated
statements of earnings, changes in shareholders' equity and cash flows for
each of the three (3) fiscal years ended as of June 30, 1995, 1994 and 1993,
together with the notes thereto, and the unaudited consolidated balance sheet
of SHFC as of March 31, 1996, and the related unaudited consolidated income
statement and statement of changes in shareholders' equity and cash flows for
the nine (9) months then ended, all of which are included in Section 2.04 of
the Disclosure Schedule (together, the "SHFC Financial Statements"), have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis ("GAAP"), except as disclosed therein, and fairly
present in all material respects the consolidated financial position and the
consolidated results of operations, changes in shareholders' equity and cash
flows of SHFC as of the dates and for the periods indicated (subject, in the
case of interim financial statements, to normal recurring year-end
adjustments, none of which are material, and the absence of footnotes). The
books and records of SHFC and the Association have been and are being
maintained in accordance with applicable legal and accounting requirements.
Neither SHFC nor the Association is aware of any event or circumstances, or
series of events or circumstances, which is reasonably likely to result in a
Material Adverse Change (as defined in Section 2.05 of this Agreement) to SHFC
or the Association.
Section 2.05. Absence of Changes.
(a) The term "Material Adverse Change" shall mean a material adverse
change in the consolidated financial condition, results of operations, assets,
deposit liabilities (except for decreases in deposit liabilities due to the
withdrawal of funds owned by SHFC held on deposit with the Association for
purposes of paying permitted dividends and expenses) or business (including
its future prospects) of an entity, other than changes resulting from or
attributable to expenses incurred in connection with the transactions
contemplated by this Agreement and the Merger; provided that the term
"Material Adverse Change" shall exclude any reduction in the net income or
shareholders' equity of SHFC attributable to (i) any special assessment levied
against the Association as part of an assessment against financial
institutions which are insured by the SAIF, (ii) any recapture of bad debt
reserves of the Association attributable to any federal legislation
eliminating or altering the exclusion from taxable federal income of bad debt
reserves of thrift institutions or (iii) any accounting adjustment required
pursuant to Section 4.05 hereof. Since March 31, 1996, to the date hereof,
SHFC on a consolidated basis has not experienced or suffered a Material
Adverse Change.
(b) Since March 31, 1996, neither SHFC nor the Association has, except
as set forth in Section 2.05 of the Disclosure Schedule, (i) issued or sold
any corporate debt securities; (ii) declared or set aside or paid any dividend
or other distribution in respect of its capital stock (or other ownership
interests) other than its regular quarterly dividend of $.09 per share; (iii)
incurred any material obligation or liability (absolute or contingent), except
obligations or liabilities incurred in the ordinary course of business; (iv)
mortgaged, pledged or subjected to lien or encumbrance (other than statutory
liens for taxes not yet delinquent and landlord liens) any of its assets or
properties except pledges to secure government deposits, FHLB advances and in
connection with repurchase or reverse repurchase agreements; (v) discharged or
satisfied any lien or encumbrance or paid any obligation or liability
(absolute or contingent), other than current liabilities included in SHFC's
balance sheet as of March 31, 1996, and current liabilities incurred since the
date thereof in the ordinary course of business; (vi) sold, exchanged or
otherwise disposed of any of its assets other than in the ordinary course of
business; (vii) made or modified any general wage or salary increase other
than in the ordinary course of business consistent with past practices,
entered into or modified any employment contract with any officer or salaried
employee or instituted, modified or changed the contribution level to, any
employee welfare, bonus, stock option, profit sharing, retirement or similar
plan or arrangement; (viii) suffered any damage, destruction or loss, whether
or not covered by insurance, materially and adversely affecting its business,
property or assets or waived any rights of value that are material in the
aggregate, considering its business taken as a whole; (ix) entered, or agreed
to enter, into any agreement or arrangement granting any preferential right to
purchase any of its assets, properties or rights or requiring the consent of
any party to the transfer and assignment of any such assets, properties or
rights; or (x) entered into any transaction outside the ordinary course of
business, or sold or otherwise disposed of any of its securities.
Section 2.06. Regulatory Enforcement Matters. Except as disclosed in
Section 2.06 of the Disclosure Schedule, neither SHFC nor the Association is
subject to, or has received any notice or advice that it is not in substantial
compliance with any statute or regulation, or that it is or may become subject
to any order, agreement or memorandum of understanding with any federal or
state agency charged with the supervision or regulation of savings banks or
savings associations or engaged in the insurance of deposits or any other
governmental agency having supervisory or regulatory authority with respect to
SHFC or the Association, and SHFC and the Association have received no notice
from any governmental authority threatening to revoke any license, franchise,
permit or governmental authorization.
Section 2.07. Tax Matters.
(a) SHFC and the Association have filed all federal, state and local
tax returns and reports due with respect to any of their employees,
depositors, borrowers, operations, businesses or properties in a timely
fashion and have paid or made provision for all amounts due or claimed to be
due. All such returns and reports fairly reflect the information required to
be presented therein. All provisions for accrued but unpaid taxes contained in
the SHFC Financial Statements were made in accordance with GAAP and provide
for anticipated tax liabilities including interest and penalties. Except as
disclosed in Section 2.07(a) of the Disclosure Schedule, there are no federal,
state or local tax returns or reports not filed which would be due but for an
extension of time for filing having been granted.
(b) Neither SHFC nor the Association has executed or filed with the
Internal Revenue Service ("IRS") or any state or local tax authority any
agreement extending the period for assessment and collection of any tax, nor
is SHFC or the Association a party to any action or proceeding by any
governmental authority for assessment or collection of taxes, except tax liens
or levies against customers of the Association. There is no outstanding
assessment or claim for collection of taxes against SHFC or the Association.
Neither SHFC nor the Association has, except as disclosed in Section 2.07(b)
of the Disclosure Schedule, received any notice of deficiency, proposed
deficiency or assessment from the IRS or any other governmental agency, with
respect to any federal, state or local taxes. No tax return of SHFC or the
Association is currently the subject of any audit by the IRS or any other
governmental agency. No material deficiencies have been asserted in connection
with the tax returns of SHFC or the Association and SHFC and the Association
have no reason to believe that any deficiency would be asserted relating
thereto. Neither SHFC nor the Association is required to include in income any
adjustment pursuant to Section 481(a) of the Code, by reason of a voluntary
change in accounting method (nor to the best knowledge of SHFC and the
Association has the IRS proposed any such adjustment or change of accounting
method). Neither SHFC nor the Association have filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply. Except as disclosed in Section 2.07(b) of the Disclosure Schedule, (i)
neither SHFC nor the Association has ever been a member of an "affiliated
group of corporations" (within the meaning of Section 1504(a) of the Code)
filing consolidated returns, other than the affiliated group of which SHFC is
the parent; and (ii) neither SHFC nor the Association is a party to any
tax-sharing agreement.
Section 2.08. Litigation. Except as disclosed in Section 2.08 of the
Disclosure Schedule, there is no litigation, claim or other proceeding pending
or, to the knowledge of SHFC or the Association, threatened, against SHFC or
the Association, or any of their respective directors or officers, or to which
the property of SHFC or the Association is or would be subject. Each of SHFC
and the Association has taken all requisite action (including without
limitation the making of claims and the giving of notices) pursuant to its
directors and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other than matters
arising in connection with this Agreement and the transactions contemplated
hereby) occurring prior to the Effective Time of the Company Merger that are
known to either. Each matter as to which SHFC or the Association has given
notice to the insurer under a directors and officers liability policy is
described in Section 2.08 of the Disclosure Schedule.
Section 2.09. Employment and Severance Agreements. Except as disclosed
in Section 2.09 of the Disclosure Schedule, neither SHFC nor the Association
is a party to or bound by any agreement or policy for the employment,
retention or engagement of any officer, employee, agent, consultant or other
person or entity, any employment or severance agreement or policy, or
agreement, policy or arrangement to provide post-retirement, post-termination
or change-of-control benefits, by acceleration or otherwise, to any current or
former officer, employee or director. A true, accurate and complete copy of
each such agreement, policy and arrangement is included in Section 2.09 of the
Disclosure Schedule.
Section 2.10. Reports. SHFC and the Association each has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with (i) the OTS, (ii) the FDIC,
(iii) any applicable state securities or banking or savings and loan
authorities, and (iv) any other governmental authority with jurisdiction over
SHFC or the Association, except as may be disclosed in Section 2. 10 of the
Disclosure schedule or, to the extent that any report or statement has not
been filed, such failure will not have a material adverse effect on SHFC's or
the Association's regulatory compliance status. As of their respective dates,
each of such reports and documents, including the financial statements,
exhibits and schedules thereto, complied in all material respects with the
relevant statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed, and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 2.1l. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of states and political subdivisions of the United
States and other investment securities held by SHFC or the Association are
carried in the aggregate at no more than cost adjusted for amortization of
premiums and accretion of discounts, except as otherwise required by FAS No.
115 and which adjustments are disclosed in Section 2. 11 of the Disclosure
Schedule.
Section 2.12. Loan Portfolio. Except as may be disclosed in Section
2.12 of the Disclosure Schedule, (i) all loans shown on the SHFC Financial
Statements at March 31, 1996, or which were entered into after March 31, 1996,
but before the Effective Time of the Company Merger, were and will be made for
good, valuable and adequate consideration in the ordinary course of the
business of the Association and its subsidiaries, in accordance with sound
banking practices, and are not subject to any known defenses, set-offs or
counterclaims, including without limitation any such as are afforded by usury
or truth in lending laws, except as may be provided by bankruptcy, insolvency
or similar laws or by general principles of equity; (ii) to the knowledge of
SHFC and the Association, the notes or other evidences of indebtedness
evidencing such loans and all forms of pledges, mortgages and other collateral
documents and security agreements are and will be what they purport to be and
enforceable in all material respects in accordance with their terms, subject
to bankruptcy, insolvency fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles; and (iii) SHFC and the Association have complied with all laws and
regulations relating to such loans, or to the extent there has not been such
compliance, such failure to comply will not materially interfere with the
collection of any such loan.
Section 2.13. Employee Matters and ERISA.
(a) Neither SHFC nor the Association has entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of SHFC or the Association and, to the knowledge of SHFC and the
Association, there is no present effort nor existing proposal to attempt to
unionize any group of employees of SHFC or the Association.
(b) Except as may be disclosed in Section 2.13(b) of the Disclosure
Schedule, (i) SHFC and the Association are and have been in material
compliance with all applicable laws respecting employment and employment
practices, teams and conditions of employment and wages and hours, including,
without limitation, any such laws respecting employment discrimination and
occupational safety and health requirements, and neither SHFC nor the
Association is engaged in any unfair labor practice; (ii) there are no unfair
labor practice charges or other complaints by any employee or former employee
of either SHFC or the Association pending before any governmental agency and
there are no administrative charges or court complaints against SHFC or the
Association concerning alleged employment discrimination or other employment
related matters pending or threatened before the U.S. Equal Employment
Opportunity Commission or any state or federal court or agency; (iii) there is
no labor dispute, strike, slowdown or stoppage actually pending or, to the
knowledge of SHFC and the Association, threatened against or directly
affecting SHFC or the Association; and (iv) neither SHFC nor the Association
has experienced any work stoppage or other labor difficulty.
(c) Except as may be disclosed in Section 2.13(c) of the Disclosure
Schedule, neither SHFC nor the Association maintains, contributes to or
participates in or has any liability under any employee benefit plans, as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or any nonqualified employee benefit plans or
deferred compensation, bonus, stock or incentive plans, or other employee
benefit or fringe benefit programs for the benefit of former or current
directors or employees of SHFC or the Association (the "Employee Plans"). No
present or former director, employee or fiduciary of SHFC or the Association
has been charged with breaching or, to the knowledge of SHFC, has breached a
fiduciary duty under any of the Employee Plans. Except as may be disclosed in
Section 2.13(c) of the Disclosure Schedule, neither the Association nor any of
its subsidiaries participates in, nor has it participated in, nor has it any
present or future obligation or liability under, any multi-employer plan (as
defined at Section 3(37) of ERISA). Except as may be disclosed in Section
2.13(c) of the Disclosure Schedule, neither the Association nor any of its
subsidiaries maintains, contributes to, or participates in, any plan that
provides health, major medical, disability or life insurance benefits to
former employees of SHFC or the Association except as provided in Section
4980B of the Code.
(d) Except as set forth in Section 2.13(d) of the Disclosure Schedule,
neither SHFC nor the Association maintains, or has maintained during the past
ten (10) years, any Employee Plans subject to Title IV of ERISA or Section 412
of the Code. No reportable event (as defined in Section 4043 of ERISA) has
occurred with respect to any Employee Plans as to which a notice would be
required to be filed with the Pension Benefit Guaranty Corporation. No claim
is pending, and SHFC and the Association have not received notice of any
threatened or imminent claim with respect to any Employee Plan (other than a
routine claim for benefits for which plan administrative review procedures
have not been exhausted) for which the Association or any of its subsidiaries
would be liable after June 30, 1995, except as set forth in Section 2.13(d) of
the Disclosure Schedule. SHFC and the Association do not have any liabilities
for excise taxes under Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the
Code or for a fine under Section 502 of ERISA with respect to any Employee
Plan. All Employee Plans have been operated, administered and maintained in
all material respects in accordance with the terms thereof and in compliance
with the requirements of all applicable laws, including, without limitation,
ERISA and the Code to the extent applicable.
Section 2.14. Title to Properties; Insurance; Personal Property.
(a) Except as disclosed in Section 2.14(a) of the Disclosure Schedule,
SHFC and the Association have marketable title, insurable at standard rates,
free and clear of all liens, charges and encumbrances (except taxes which are
a lien but not yet payable, liens, charges or encumbrances explicitly
reflected in the SHFC Financial Statements and easements, rights-of way, and
other restrictions which do not materially and adversely affect the current
use, value or marketability of the property and further excepting in the case
of Real Estate Owned as such real estate is internally classified on the books
of the Association, rights of redemption under applicable law) to all real
properties reflected on the SHFC Financial Statements or acquired subsequent
to the date thereof. All leasehold interests held by SHFC or the Association
in real estate are held pursuant to lease agreements which are valid add
enforceable in accordance with their terms subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles. All such owned
real properties comply in all material respects with all applicable private
agreements and, to the knowledge of SHFC, all zoning requirements and other
governmental laws and regulations relating thereto and there are no
condemnation proceedings pending or, to the knowledge of either SHFC or the
Association, threatened with respect to such properties. SHFC and the
Association each have valid title or other rights under licenses to all
material intangible personal or intellectual property used in their respective
businesses, free and clear of any claim, defense or right of any other person
or entity which is material to such property, subject only to rights of the
licensors pursuant to applicable license agreements, which rights do not
materially adversely interfere with the use of such property.
(b) All material insurable properties owned or held by SHFC or the
Association are insured in amounts deemed adequate by the senior management of
the Association and against fire and other risks insured against by extended
coverage and public liability insurance, as is customary with thrift
institutions of similar size. SHFC and the Association have delivered to
Acquiror as part of Section 2.14(b) of the Disclosure Schedule true, accurate
and complete copies of all insurance policies and fidelity bonds of SHFC and
the Association. Except as disclosed in Section 2.14(b) of the Disclosure
Schedule, there are no outstanding claims alone or in the aggregate in excess
of Ten Thousand Dollars ($ 10,000) with respect to SHFC or the Association
under such bonds and insurance policies, and neither SHFC nor the Association
is aware of any acts of dishonesty or losses which would form the basis of a
material claim under such bonds or insurance coverage. Each such policy is in
full force and effect, with all premiums due thereon on or prior to the
Closing Date having been paid as and when due. Neither SHFC nor the
Association have been notified that its fidelity or insurance coverage will
not be renewed by the carrier on substantially the same terms as the existing
coverage.
(c) Except as set forth in Section 2. 14(c) of the Disclosure
Schedule, all of the personal property reflected in the SHFC Financial
Statements as being owned by SHFC or the Association is owned free and clear
of any lien, encumbrance, right of first refusal, options or other
restrictions, and all such personal property other than items with nominal
book value, is in good condition and repair (ordinary wear and tear excepted)
and is sufficient to carry on the business of SHFC or the Association as it is
presently conducted.
Section 2.15. Environmental Matters.
(a) As used in this Agreement, "Environmental Laws" means all local,
state and federal environmental, health and safety laws and regulations as in
effect from time to time in all jurisdictions in which SHFC and the
Association have done business or owned or leased property, including, without
limitation, the Federal Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act.
For purposes of this Agreement, "Hazardous Substances" means (i) any
"hazardous substance" as defined in Section 101(14) of CERCLA or regulations
promulgated thereunder; (ii) any "solid waste," "hazardous waste" or
"infectious waste," as such terms are defined in any Environmental Law; (iii)
asbestos, urea formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel
or material, chemical waste, radioactive material, explosives, known
carcinogens, petroleum products and by-products and other dangerous, toxic or
hazardous pollutants, contaminants, chemicals, materials or substances listed
or identified in, or regulated by, any Environmental Law; and (iv) any
additional substances or materials which are classified or considered to be
hazardous or toxic under any Environmental Law.
(b) Except as disclosed in Section 2.15(b) of the Disclosure Schedule,
to the knowledge of SHFC and the Association neither the conduct nor operation
of SHFC or the Association nor any condition of any property ever owned
(including, without limitation, REO), leased or operated by either of them
("Real Property") materially violates or materially violated any Environmental
Laws and no condition or event has occurred with respect to any of them or any
such property that, with notice or the passage of time, or both, would
constitute a material violation of Environmental Laws or obligate (or
potentially obligate) SHFC or the Association to remedy, stabilize, neutralize
or otherwise alter the environmental condition of any such property. Except as
disclosed in Section 2. 15(b) of the Disclosure Schedule, neither SHFC nor the
Association has received any notice from any person or entity that SHFC or the
Association or the operation of any facilities or any property ever owned
(including, without limitation, REO), leased or operated by either of them are
or were in violation of any Environmental Laws or that any of them are
responsible (or potentially responsible) for the cleanup of any pollutants,
contaminants or hazardous or toxic wastes, substances or materials at, on or
beneath any such property.
(c) Except as disclosed in Section 2.15(c) of the Disclosure Schedule,
neither SHFC nor the Association has received notice or has knowledge that any
property in which SHFC or the Association has a security interest, lien or
other encumbrance violates or violated Environmental Laws in any material
respect.
(d) To the knowledge of SHFC and the Association, neither SHFC nor the
Association has caused any Hazardous Substances to be integrated into the Real
Properties or any component thereof in such manner or quantity as may
reasonably be expected to or in fact would pose an unlawful threat to human
health or materially and adversely affect the value of any such Real
Properties. To the knowledge of SHFC and the Association, none of the Real
Properties has been used by SHFC or the Association for the storage or
disposal of Hazardous Substances, except as disclosed in Section 2.15(d) of
the Disclosure Schedule or as permitted under Environmental Laws. To the
knowledge of SHFC and the Association, neither SHFC nor the Association has
any interest, direct or indirect, in property owned by a third party which is
or has been contaminated by Hazardous Substances, except as permitted under
Environmental Laws. To the knowledge of SHFC and the Association, no property
which is subject to such a security interest is or has been so contaminated
except for the properties listed in Section 2.15(d) of the Disclosure
Schedule, except as permitted under Environmental Laws. To the knowledge of
SHFC and the Association, no Real Property contains or formerly contained
underground storage tanks, except as disclosed in Section 2. 15(d) of the
Disclosure Schedule.
(e) With respect to each of the nonresidential Real Properties in
which SHFC or the Association has held or currently holds indicia of ownership
to protect a security interest in the facility (as such terms are defined in
42 U.S.C. ss. 9601 et seq.), SHFC and the Association have not, to their
knowledge, "participated in the management of the facility" or otherwise acted
in a manner such that SHFC or the Association would lose its statutory
exemption from liability under Section 101 (20)(A) of CERCLA and as further
defined in the currently vacated Environmental Protection Agency's Final Rule
on Lender Liability, 40 C.F.R. Part 300 Subpart L, ss. 300.1100, 57 FR 18343,
April 29, 1992.
Section 2.16. Compliance with Laws. Except as disclosed in Section
2.16 of the Disclosure Schedule, SHFC and the Association each have all
licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses in all
material respects and such businesses have been and are being conducted in
compliance in all material respects with all applicable laws and regulations.
Section 2.17. Brokerage. Except for the amounts payable to Charles Webb &
Co., as disclosed in Section 2. 17 of the Disclosure Schedule, there are no
claims or agreements for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this
Agreement payable by SHFC or the Association.
Section 2.18. Undisclosed Liabilities. Except for (i) liabilities and
obligations fully reflected, disclosed or provided for in the SHFC Financial
Statements as of June 30, 1995, (including related notes), (ii) liabilities
and obligations incurred since June 30, 1995 in the ordinary course of
business or related to the transaction contemplated by this Agreement, and
(iii) liabilities and obligations fully disclosed in Section 2.18 of the
Disclosure Schedule, neither SHFC nor the Association has any material
liabilities or obligations, whether absolute, known or unknown, accrued or
unaccrued, contingent or otherwise, (and there is no asserted or unasserted
claim against SHFC or the Association giving rise to any such liabilities or
obligations). For purposes of this Section 2.18, the term "liabilities"
includes without limitation liabilities as a guarantor and liabilities for
taxes in each case material to the condition of either SHFC or the
Association.
Section 2.19. Statements True and Correct. None of the information
supplied or to be supplied by SHFC or the Association for inclusion in (i) the
Proxy Statement (as defined in Section 4.03 hereof) and (ii) any document to
be filed with any regulatory authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed,
and, with respect to the Proxy Statement, when first mailed to the
shareholders of SHFC, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the Shareholders'
Meeting (as defined in Section 4.03 hereof), be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Shareholders' Meeting. All documents that
SHFC or the Association is responsible for filing with any regulatory
authority in connection with the transactions contemplated hereby will comply
as to form in all material respects with the provisions of applicable law and
the applicable rules and regulations thereunder.
Section 2.20. Material Contracts.
(a) Section 2.20 of the Disclosure Schedule contains a complete and
correct list of all written or oral agreements, leases, and other obligations
and commitments of the following types, to which either SHFC or the
Association is a party, or by which any of their respective property is bound,
or which has been authorized by SHFC or the Association:
(i) Promissory note, guaranty, mortgage, security agreement or
other evidence of indebtedness owed by SHFC or the Association in an
amount in excess of Twenty Five Thousand Dollars ($25,000);
(ii) Partnership or joint venture agreements;
(iii) Employee Plans;
(iv) Insurance contracts or policies;
(v) Agreement or commitment for sale or purchase of any asset or
assets for more than Twenty Five Thousand Dollars ($25,000);
(vi) Agreements or commitments for any single capital expenditure
in excess of Five Thousand Dollars ($5,000) or capital expenditures in
excess of Ten Thousand Dollars ($ 10,000) in the aggregate;
(vii) Agreement or other document creating a monetary lien or
security interest in excess of Twenty Five Thousand Dollars ($25,000) or
other encumbrance relating to any real or personal property owned, rented
or leased by SHFC or the Association;
(viii) Lease of, commitment to lease and any other agreements
relating to the lease or rental of, real or personal property by SHFC or
the Association involving an annual payment in excess of Ten Thousand
Dollars ($10,000);
(ix) Any direct or indirect loan or guaranty of a loan to any
director, officer, or 5 % shareholder of SHFC or the Association or any
director or officer of any of its subsidiaries or a spouse or child of
such person, or any partnership, corporation, or other entity in which
any such director, officer or shareholder or a spouse or child of such
person holds (directly or indirectly) an interest of ten percent (10%) or
more;
(x) Any contract or agreement (A) that has a remaining term as of
the date of this Agreement in excess of six (6) months, (B) is not
terminable by SHFC or the Association on thirty (30) or fewer days'
notice without penalty or premium and (C) involves a monetary obligation
on the part of SHFC or the Association in excess of Ten Thousand Dollars
($ 10,000); and
(xi) All other material contracts and commitments not made in the
ordinary course of business.
(b) Concurrently with its delivery of the Disclosure Schedule, SHFC
and the Association will deliver complete and correct copies of all written
agreements, leases, policies and commitments listed in the Disclosure
Schedule, together with all amendments thereto, and a complete and correct
written description of all oral agreements listed in Section 2.20 of the
Disclosure Schedule.
Section 2.21. No Sensitive Transactions. Neither SHFC nor the
Association nor, to the knowledge of SHFC or the Association, any employee or
agent of either, nor any shareholder (beneficial or otherwise) of SHFC or the
Association has used funds or other assets of SHFC or the Association directly
or indirectly for (a) illegal contributions, gifts, entertainment or other
expenses related to political activities, (b) payments to or for the benefit
of any governmental official or employee, other than payments required or
permitted by law, (c) illegal payments to or for the benefit of any person,
firm, corporation or other entity, or any officer, employee , agent or
representative thereof or (d) the establishment or maintenance of a secret or
unrecorded fund. In addition, to the knowledge of SHFC and the Association, no
employee or agent of SHFC or the Association has taken any act or omitted to
take any act that would cause a violation of federal currency reporting laws.
Section 2.22. Certain Payments.
Neither the execution nor delivery of this Agreement, nor the
consummation of any of the transactions contemplated hereby, will (i) result
in any material payment (including, without limitation, severance,
unemployment compensation or golden parachute payment) becoming due to any
director or employee of SHFC or the Association from any of such entities,
(ii) materially increase any benefit otherwise payable under any of the SHFC
employee benefit plans or (iii), except for the acceleration of certain
benefits under the RRP (as defined in Section 4.09) and the termination of the
Association ESOP pursuant to Section 5.06, result in the acceleration of the
time of payment of any such benefit. In addition, the transactions
contemplated by this Agreement would constitute a change in control for
purposes of Section 4(a) of each of the employment agreements referred to in
Section 2.09 of the Disclosure Schedule, as a result of which, a termination
other than for cause during the earlier of the one-year period following such
change in control or the expiration of the term of such agreements would give
rise to severance benefits. No holder of an option to acquire stock of SHFC
has or will have at any time through the Effective Time the right to receive
any cash or other payment (other than as contemplated by Section I.04(d)(iv)
hereof) in exchange for or with respect to all or any portion of such option.
No amounts paid or payable by SHFC, the Association or Acquiror to or with
respect to any employee or former employee of SHFC or the Association will
fail to be deductible for federal income tax purposes by reason of Section
280G of the Code or otherwise.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby makes the following representations and warranties:
Section 3.01. Organization and Capital Stock.
(a) Acquiror is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware with full corporate
power and authority to carry on its business as it is now being conducted.
(b) Acquiror is duly licensed, as a foreign corporation, to transact
business in the State of Ohio.
(c) The authorized capital stock of Acquiror consists of (i) 7,250,000
shares of common stock, par value One Cent ($.01) per share ("Acquiror
Common"), of which, as of the date of this Agreement, 2,367,310 shares were
issued and outstanding, and (ii) 250,000 shares of preferred stock, par value
One Cent ($0.01) per share, none of which have been issued or are outstanding.
All of the issued and outstanding shares of Acquiror Common are duly and
validly issued and outstanding and are fully paid and non-assessable.
(d) At the Effective Time of the Company Merger, Acquisition Subsidiary
shall be a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Ohio with full corporate power and
authority to carry on its business and perform its obligations under this
Agreement and the Plan of Merger.
Section 3.02. Authorization. (a) The Board of Directors of Acquiror has,
by all appropriate action, approved this Agreement and the Merger and
authorized the execution and delivery hereof on its behalf by its duly
authorized officers and the performance of its obligations hereunder. Except
for approval of the Merger and the Plan of Merger by the Board of Directors
and the sole shareholder of Acquisition Subsidiary (which shall be obtained
upon the formation of Acquisition Subsidiary as provided herein), no other
corporate proceeding is required for the approval by Acquiror of this
Agreement or the Merger or the performance by Acquiror or Acquisition
Subsidiary of their obligations under this Agreement or the Plan of Merger.
(b) This Agreement has been duly and validly executed and delivered by
Acquiror and constitutes a legal, valid and binding obligation of Acquiror,
enforceable against Acquiror in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, conservatorship, moratorium or other laws affecting creditors'
rights generally or the rights of creditors of savings institutions, the
accounts of which savings institutions are insured by the SAIF or laws
relating to the safety and soundness of insured financial institutions and by
judicial discretion in applying principles of equity. Acquiror and each of its
significant subsidiaries (as defined in Section 3.03 of this Agreement) are
not in default under or in violation of any provision of its respective
certificate or articles of incorporation, charter, bylaws or any promissory
note, indenture or any evidence of indebtedness or security there for, lease,
contract, purchase or other commitment or any other agreement of any of them
which is material to Acquiror, except for defaults and violations which will
not have a material adverse effect on the ability of Acquiror to consummate
the transaction contemplated by this Agreement. Except for the Regulatory
Approvals and related filings, no notice to, filing with, authorization by, or
consent or approval of, any federal or state regulatory authority is necessary
for the execution and delivery of this Agreement by Acquiror or consummation
of the Merger by Acquiror or Acquisition Subsidiary.
(c) Neither the execution and delivery of this Agreement or the Plan of
Merger nor the consummation of the Merger, nor compliance by Acquiror with the
provisions of this Agreement and the Plan of Merger, will (i) conflict with or
result in a breach of Acquiror's certificate of incorporation or bylaws; or
(ii) violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Acquiror.
(d) Prior to the Effective Time of the Company Merger, (i) the Board of
Directors of Acquisition Subsidiary shall have, by all appropriate action,
approved the Plan of Merger and the Company Merger and authorized the
execution and delivery thereof on its behalf by its duly authorized officers
and the performance of its obligations thereunder; (ii) Acquiror, as the sole
shareholder of Acquisition Subsidiary, shall have adopted the Plan of Merger;
and (iii) the Plan of Merger shall have been duly and validly executed and
delivered by Acquisition Subsidiary and shall constitute a legal, valid and
binding obligation of Acquisition Subsidiary, enforceable against Acquisition
Subsidiary in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium or other laws affecting creditors' rights
generally.
(e) Neither the execution and delivery of the Plan of Merger nor the
consummation of the Merger, nor compliance by Acquisition Subsidiary with the
provisions of this Agreement and the Plan of Merger, will (i) conflict with or
result in a breach of Acquisition Subsidiary's articles of incorporation, code
of regulations or bylaws; or (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Acquisition
Subsidiary.
Section 3.03. Subsidiaries. Each of Acquiror's significant subsidiaries
(as such term is defined under regulations promulgated by the Securities and
Exchange Commission ("SEC")) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
corporate power to own its respective properties and assets, to incur its
respective liabilities and to carry on its business as now being conducted.
All of the outstanding shares of capital stock of each significant subsidiary
of Acquiror are owned by Acquiror, directly or indirectly, free and clear of
any material liens, encumbrances or security interests of third parties. All
of the issued and outstanding shares of each significant subsidiary are duly
and validly issued and outstanding and are fully paid and nonassessable.
Section 3.04. Financial Information. The consolidated balance sheets of
Acquiror and its subsidiaries as of December 31, 1995 and 1994 and the
consolidated statements of earnings, changes in shareholders' equity and cash
flows for each of the three (3) fiscal years ended June 30, 1995, 1994 and
1993, together with the notes thereto and the unaudited consolidated balance
sheet of Acquiror as of March 31, 1996, and the related unaudited consolidated
income statement and statement of changes in shareholders' equity and cash
flows for the three (3) months then ended included in Acquiror's Quarterly
Report on Form 10-Q for the quarter then ended, as currently on file with the
SEC (together, the "Acquiror Financial Statements"), have been prepared in
accordance with GAAP except as disclosed therein and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations, changes in shareholders' equity and cash flows of
Acquiror and its consolidated subsidiaries as of the dates and for the periods
indicated therein (subject to normal, recurring yearend adjustments, none of
which are material, and the absence of footnotes).
Section 3.05. Absence of Changes. Since December 31, 1995 to the date
hereof, Acquiror, on a consolidated basis, has not experienced or suffered a
Material Adverse Change or entered into any contract, agreement or
understanding which would adversely affect its ability to perform its
obligations under this Agreement.
Section 3.06. Litigation. There is no litigation, claim or other
proceeding pending or, to the knowledge of Acquiror, threatened, against
Acquiror or any of its significant subsidiaries, or to which the property of
Acquiror or any of its significant subsidiaries is or would be subject which,
if adversely determined, would have a material adverse effect on the business
of Acquiror and its subsidiaries taken as a whole.
Section 3.07. Reports. Since, January 1, 1993, Acquiror has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with (i) the OTS, (ii) the FDIC,
(iii) any applicable state or federal securities or banking or savings and
loan authorities and (iv) any other governmental authority with jurisdiction
over Acquiror. As of their respective dates, each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with the relevant statutes, rules and
regulations enforced or promulgated by the regulatory authority with which
they were filed, and did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section 3.08. Compliance With Laws. Acquiror and its significant
subsidiaries have all licenses, franchises, permits and other government
authorizations that are legally required to enable them to conduct their
respective businesses in all material respects and are in compliance in all
material respects with all applicable laws and regulations.
Section 3.09. Statements True and Correct. None of the information
supplied or to be supplied by Acquiror for inclusion in (i) the Proxy
Statement and (ii) any document to be filed with any regulatory authority in
connection with the transactions contemplated hereby, will, at the respective
times such documents are filed, and, with respect to the Proxy Statement, when
first mailed to the shareholders of SHFC, be false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein not misleading, or, in the case of the Proxy
Statement or any amendment thereof or supplement thereto, at the time of the
Shareholders' Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for
the Shareholders' Meeting. All documents that Acquiror is responsible for
filing with the OTS or any other regulatory authority in connection with the
transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable law and any rules and regulations
thereunder.
Section 3.10. Undisclosed Liabilities. Acquiror has no liabilities or
obligations, whether absolute, known or unknown, accrued or unaccrued,
contingent or otherwise (and there is no asserted or unasserted claim against
Acquiror giving rise to any such liabilities or obligations) that could
adversely affect its ability to consummate the transactions contemplated by
this Agreement. For purposes of this Section 3. 10, the term "liabilities"
includes without limitation liabilities as guarantor and liabilities for taxes
in each case material to the condition of Acquiror.
Section 3.11. Regulatory Enforcement Matters. Acquiror is not subject to,
nor has it received any notice or advice that it is not in substantial
compliance with any statute or regulation, or that it is or may become subject
to any order, agreement or memorandum of understanding with any federal or
state agency charged with the supervision or regulation of savings banks,
savings associations or holding companies of savings banks or savings
associations or engaged in the insurance of deposits or any other governmental
agency having supervisory or regulatory authority with respect to Acquiror,
and Acquiror has received no notice from any governmental authority
threatening to revoke any license, franchise, permit or governmental
authorization.
Section 3.12. Tax Matters.
(a) Acquiror has filed all federal, state and local tax returns and
reports due with respect to any of its employees, depositors, borrowers,
operations, businesses or properties in a timely fashion and has paid or made
provision for all amounts due or claimed to be due. All such returns and
reports fairly reflect the information required to be presented therein. All
provisions for accrued but unpaid taxes contained in Acquiror's Financial
Statements were made in accordance with GAAP and do not fail to provide for
anticipated tax liabilities including interest and penalties. There are no
federal, state or local tax returns or reports not filed which would be due
but for an extension of time for filing having been granted.
(b) Acquiror has neither executed nor filed with the IRS or any state
or local tax authority any agreement extending the period for assessment and
collection of any tax, nor is Acquiror a party to any action or proceeding by
any governmental authority for assessment or collection of taxes, except tax
liens or levies against customers of Acquiror. There is no outstanding
assessment or claim for collection of taxes against Acquiror. Acquiror has
received no notice of deficiency, proposed deficiency or assessment from the
IRS or any other governmental agency, with respect to any federal, state or
local taxes. No tax return of Acquiror is currently the subject of any audit
by the IRS or any other governmental agency. No material deficiencies have
been asserted in connection with the tax return of Acquiror and Acquiror has
no reason to believe that any deficiency would be asserted relating thereto.
Section 3.13. Investment Portfolio. All United States Treasury
securities, obligations of other United States Government agencies and
corporations, obligations of States and political subdivisions of the United
States and other investment securities held by Acquiror are carried in the
aggregate at no more than cost adjusted for amortization of premiums and
accretion of discounts, except as otherwise required by FAS No. 115.
Section 3.14. Stock Ownership. Neither Acquiror nor any of its
"affiliates" or "associates," as such terms are defined in Section
1704.01(C)(l) of the Ohio Revised Code, are "beneficial owners," as such term
is defined in Section 1704.0I(C)(4) of the Ohio Revised Code, of any of the
outstanding shares of any class of stock of SHFC.
Section 3.15. Availability of Funds. Acquiror has on the date hereof, and
will have at the Effective Time, the financial capacity to consummate the
transactions contemplated hereby.
ARTICLE FOUR
AGREEMENTS OF SHFC AND THE ASSOCIATION
Section 4.01. Business in Ordinary Course.
(a) SHFC and the Association shall not declare or pay any dividend or
make any other distribution with respect to their capital stock or ownership
interests whether in cash, stock or other property, after the date of this
Agreement except (i) payment by SHFC of its regular quarterly cash dividend
for the quarter ended June 30, 1996 in the amount of $.09 (or less) per share
of SHFC Common and (ii) if Closing does not occur by the respective following
quarter ends, then, for the quarters ended September 30, 1996 and December 31,
1996, SHFC may declare and pay an additional regular quarterly dividend in the
amount of $.09 per share of SHFC Common for each such quarter. Notwithstanding
the previous sentence, no dividend will be permitted if it would exceed the
net income of SHFC (excluding any net income arising from any liquidating
distribution received from the ODGF) in the calendar quarter for which such
dividend is declared.
(b) SHFC and the Association shall continue to carry on, after the
date hereof, their respective businesses and the discharge or incurrence of
obligations and liabilities, only in the usual, regular and ordinary course of
business, as heretofore conducted, and by way of amplification and not
limitation, SHFC and the Association will not, without the prior written
consent of Acquiror acting through its Chief Executive Officer or such other
officer as Acquiror may specify in a written notice to the Association,
provided in the case of subsections (vi), (vii), (viii), (ix), (xi), (xiii)
and (xviii) below such consent shall not be unreasonably withheld or delayed:
(i) issue any SHFC Common or the Association Common or other
capital stock or any options, warrants or other rights to subscribe for
or purchase SHFC Common or the Association Common or any other capital
stock or any securities convertible into or exchangeable for any capital
stock;
(ii) directly or indirectly redeem, purchase or otherwise acquire
any SHFC Common or the Association Common or any other capital stock or
ownership interests of SHFC or the Association;
(iii) effect a reclassification, recapitalization split-up,
exchange of shares, readjustment or other similar change in or to any
capital stock or otherwise reorganize or recapitalize;
(iv) change its Articles of Incorporation or Constitution or
Bylaws or Code of Regulations except in respect of the Amendment;
(v) enter into, modify or renew any employment agreement or
severance agreement or plan; or grant any increase in the compensation
payable or to become payable to any director, officer or employee, except
for increases in salaries consistent with SHFC's and the Association's
past practices; grant any stock options; or, except as required by law,
pay or agree to pay any bonus, adopt or make any change in any bonus,
insurance, pension, or other Employee Plan, payment or arrangement made
to, for or with any director, officer or employees, except for payments
of and changes in salaries and bonuses consistent with SHFC's and the
Association's past practices, or promote any persons employed as of the
date hereof or hire any new employees;
(vi) except for FHLB of Cincinnati advances having a maturity of
one year or less (or a longer period if such advances may be prepaid
without penalty or premium) the aggregate amount of which at any time
shall not exceed One Million Dollars ($1,000,000) and deposit-taking in
the ordinary course of its business, borrow or agree to borrow any funds,
including but not limited to repurchase transactions, or indirectly
guarantee or agree to guarantee any obligations of others;
(vii) except pursuant to the Association's outstanding commitment
to the Cincinnati Development Fund, make or commit to make any new loan
or letter of credit or any new or additional discretionary advance under
any existing line of credit, in a principal amount in excess of One
Hundred Thousand Dollars ($100,000) or that would increase the aggregate
credit outstanding to any one borrower (or group of affiliated borrowers)
to more than One Hundred Thousand Dollars ($100,000) (excluding for this
purpose any accrued interest or overdrafts); provided, however, that the
Association may make one-to-four family residential mortgage loans that
conform to the Association's mortgage lending policies as of the date
hereof in principal amounts of up to Two Hundred Seven Thousand Dollars
($207,000);
(viii) establish any new lending programs or make any changes in its
policies concerning which persons may approve loans;
(ix) enter into any securities transaction for its own account or
purchase or otherwise acquire any investment security for its own account
other than U.S. Treasury obligations and deposits in an overnight account
at the FHLB of Cincinnati or securities issued or guaranteed by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation;
(x) increase or decrease the rate of interest paid on time
deposits or on certificates of deposit, except in a manner and pursuant
to policies consistent with past practices in relation to rates
prevailing in the Association's market;
(xi) enter into any agreement, contract or commitment out of the
ordinary course of business or having a term in excess of three (3)
months and involving an expenditure in excess of Five Thousand Dollars
($5,000) other than letters of credit, loan agreements, deposit
agreements, and other lending, credit and deposit agreements and
documents made in the ordinary course of business;
(xii) except in the ordinary' course of business, place on any of
its assets or properties any mortgage, pledge, lien, charge, or other
encumbrance;
(xiii) cancel or accelerate any material indebtedness owing to SHFC
or the Association or any claims which SHFC or the Association may
possess or waive any rights of material value;
(xiv) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property other
than, (a) properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness owed to the Association, (b) student loans, or
(c) fixed rate loans which are held for sale upon origination and sold
within sixty (60) days thereafter;
(xv) foreclose upon or otherwise take title to or possession or
control of any real property without first obtaining a Phase One
environmental report thereon which indicates that the property is free of
pollutants, contaminants or hazardous or toxic waste materials; provided,
however, that the Association shall not be required to obtain such a
report with respect to single family, non-agricultural residential
property of one acre or less to be foreclosed upon unless it has reason
to believe that such property might contain any such pollutants,
contamination, or waste materials;
(xvi) voluntarily commit any act or omission which will cause a
breach of any material agreement, contract or commitment;
(xvii) violate any law, statute, rule, governmental regulation, or
order, which violation might have a material adverse effect on- SHFC's or
the Association's business, financial condition, or earnings, taken as a
whole; or
(xviii) purchase any real or personal property or make any other
capital expenditure where the amount paid or committed therefor is in
excess of Five Thousand Dollars ($5,000).
(c) SHFC and the Association shall promptly notify Acquiror in writing
of the occurrence of any matter or event known to and directly involving SHFC
or the Association (except matters or events that affect the thrift industry
generally) that is materially adverse to the business, operations, properties,
assets, or condition (financial or otherwise) of SHFC or the Association.
(d) Unless and until this Agreement shall have been properly
terminated by a party pursuant to Article Seven hereof and except as provided
below in this Section 4.01(d) hereof, each of SHFC and the Association shall
(i) not, directly or indirectly, through any of their respective officers,
directors, agents, shareholders, or affiliates, solicit, encourage or initiate
any negotiations or discussions with respect to inquiries, offers, or
proposals relating to the possible sale or other disposition of shares of its
capital stock by its shareholders or the possible sale or other disposition
(except in the ordinary course of business) of a substantial portion of its
assets to, or merger or consolidation with, any other person, (ii) not
disclose to any person any information not customarily disclosed publicly or
provide access to its properties, books, or records or otherwise assist or
encourage any person in connection with any of the foregoing, and (iii) give
Acquiror prompt notice of any such inquiries, offers, or proposals. The
foregoing shall not apply, however, to the consideration and facilitation of
an inquiry, offer, or proposal not solicited by SHFC or the Association or any
of their respective officers, directors, shareholders, agents or affiliates
which relates to the possible sale or other disposition of SHFC Common or the
Association Common by shareholders or the possible sale or other disposition
of all or substantially all of SHFC's or the Association's assets to, or
merger or consolidation with, another corporation or association (an
"Unsolicited Acquisition Proposal") if and to the extent that the Board of
Directors of SHFC reasonably determines in good faith after consultation with
its financial advisor and counsel to SHFC that failure to consider such
Unsolicited Acquisition Proposal could reasonably be expected to constitute a
breach of its fiduciary duties to the shareholders of SHFC; provided, however,
that SHFC shall give Acquiror prompt notice of such Unsolicited Acquisition
Proposal and keep Acquiror promptly informed regarding the substance thereof
and the response of the Board of Directors of SHFC thereto.
(e) SHFC and the Association shall permit representatives of Acquiror
to attend each meeting of its respective board of directors and executive
committee, and shall give reasonable prior notice of all such meetings to
Acquiror; provided, however, that the representatives of Acquiror may be
excluded from portions of such meetings where sensitive matters (including but
not limited to an Unsolicited Acquisition Proposal and discussions with legal
counsel with respect to the transactions contemplated by this Agreement) are
being discussed or voted upon.
(f) SHFC shall provide to Acquiror such reports on litigation
involving SHFC or the Association as Acquiror shall reasonably request,
provided that SHFC shall not be required to divulge information to the extent
that, in the good faith opinion of its counsel, by doing so, it would waive
the attorney-client privilege.
(g) the Association will use reasonable efforts to prevent the decline
in its level of deposits (except for declines due to withdrawals of deposits
of SHFC held by the Association for payment of permitted dividends and
expenses) and in its mortgage loan portfolio in a manner consistent with the
safe and sound operations of the Association and the terms of this Agreement.
Section 4.02. Breaches. In the event that SHFC or the Association has
knowledge of the occurrence, or impending or threatened occurrence, of any
event or condition which would cause or constitute a breach by either (or
would have caused or constituted a breach had such event occurred or been
known prior to the date hereof) of any representations or agreements contained
or referred to herein, it shall give prompt written notice thereof to Acquiror
and use its reasonable efforts to prevent or promptly remedy the same.
Section 4.03. Submission to Shareholders. SHFC shall cause to be duly
called and held, on a timely basis, a special meeting of its shareholders for
submission of the Amendment, this Agreement and the Plan of Merger for
adoption by such shareholders as required by applicable law (the
"Shareholders' Meeting"). Subject to receipt by SHFC of all information
concerning Acquiror and its significant subsidiaries as SHFC may reasonably
request, SHFC shall prepare a Proxy Statement (the "Proxy Statement"), and,
after providing Acquiror and Acquirors counsel reasonable opportunity to
comment on the Proxy Statement, SHFC shall, within forty-five (45) days of the
date of this Agreement, provided that Acquiror shall not have caused any
unreasonable delay, file a draft Proxy Statement with the SEC. As soon as
practicable thereafter, SHFC shall deliver the Proxy Statement to its
shareholders. The Board of Directors of SHFC shall recommend to its
shareholders the adoption of the Amendment, this Agreement and the Plan of
Merger and, subject to the terms of this Agreement, use its best efforts to
obtain such shareholder approval; provided, however, that if the Board of
Directors of SHFC, based (i) solely on an Unsolicited Acquisition Proposal or
(ii) on a refusal by Charles Webb & Company to deliver the Fairness Opinion
required by Section 6.02(f) on or about the dissemination date of the Proxy
Statement, based in whole or in part on an Unsolicited Acquisition Proposal,
shall have reasonably determined in good faith (after consultation with its
counsel) that such recommendation is reasonably likely to constitute a breach
of its fiduciary duties to the shareholders of SHFC, then the Board of
Directors of SHFC shall not be obligated to recommend to its shareholders
adoption of the Amendment, this Agreement and the Plan of Merger, or to
present the Amendment, this Agreement and the Plan of Merger to the
shareholders of SHFC for their adoption at the Shareholders' Meeting or to
hold the Shareholders' Meeting for such purpose, but SHFC shall be subject to
Section 7.08 below.
Section 4.04. Consents to Contracts and Leases. SHFC and the
Association shall, subject to the consent of Acquiror, use reasonable efforts
to obtain all necessary consents with respect to all interests of SHFC and the
Association in any material leases, licenses, contracts, instruments and
rights which require the consent of another person for their transfer or
assumption pursuant to the Merger.
Section 4.05. Conforming Accounting and Reserve Policies;
Restructuring Expenses. After the receipt of all approvals set forth in
Section 6.01(d) of this Agreement, and provided that at such time all of the
conditions to closing set forth in Sections 6.01(a), (b), (c), (f), (g) and
(h) of this Agreement have been satisfied, to the extent they are capable of
being satisfied as of such time, and further provided that no basis for
termination of this Agreement by either party pursuant to Article Seven of
this Agreement is then extant, at the request of Acquiror, the Association
shall, on or before or effective as of the date specified by Acquiror,
establish and take such reserves and accruals as Acquiror reasonably shall
request to conform the Association's loan, accrual, reserve and other
accounting policies to Acquiror's policies. Notwithstanding the foregoing, the
Association shall not be required to take any action under this Section 4.05
which it believes, based upon a written opinion of independent counsel, that
will constitute a breach of its fiduciary duties, or, based upon a written
opinion of its independent public accountants, will constitute violation of
GAAP.
Section 4.06. Consummation of Agreement. SHFC and the Association
shall use their best efforts to perform and fulfill all conditions and
obligations to be performed or fulfilled under this Agreement by it and each
of its subsidiaries and to effect the Merger in accordance with the terms and
provisions hereof. The Association shall furnish to Acquiror in a timely
manner all information, data and documents in the possession of SHFC or the
Association requested by Acquiror as may be required to obtain the Regulatory
Approvals or other necessary approvals of the Merger and-shall otherwise
cooperate fully with Acquiror to carry out the purpose and intent of this
Agreement.
Section 4.07. Access to Information. SHFC and the Association shall
permit Acquiror reasonable access to their properties in a manner which will
avoid undue disruption or interference with normal operations and shall
disclose and make available to Acquiror all books, documents, papers and
records relating to assets, stock, ownership, properties, operations,
obligations and liabilities, including but not limited to all books of account
(including the general ledger), tax records, minute books of directors' and
shareholders' meetings, organizational documents, material contracts and
agreements, loan files, filings with any regulatory authority, accountants'
workpapers, litigation files, plans affecting employees, and any other
business activities or prospects in which Acquiror may have a reasonable and
legitimate interest in furtherance of the transactions contemplated by this
Agreement. Acquiror will hold any such information which is nonpublic in
confidence in accordance with the provisions of Section 8.01 hereof.
Section 4.08. Subsequent Disclosure Schedule. If subsequent to the
date of this Agreement and prior to the Effective Time, an event occurs which
renders untrue any representation or warranty of SHFC or the Association made
at the date of this Agreement (a "Trigger Event"), SHFC or the Association
shall deliver to Acquiror in accordance with the following sentence a
supplement to the Disclosure Schedule (a "Subsequent Disclosure Schedule"),
which shall contain a detailed description of any and all such matters. A
Subsequent Disclosure Schedule (if any) shall be delivered by SHFC or the
Association to Acquiror within two (2) business days after SHFC or the
Association learns of the Trigger Event, but in no event later than two (2)
business days before the Closing. If there is no subsequent Disclosure
Schedule, SHFC shall deliver a statement to such effect to Acquiror no later
than two (2) business days before the Closing. The delivery of a Subsequent
Disclosure Schedule and the matters therein contained shall not constitute a
default or breach by SHFC or the Association of any of its representations and
warranties under this Agreement with respect to events occurring subsequent to
the date of this Agreement; provided, however, that all matters therein
disclosed, together with all other events, circumstances and occurrences, may
be taken into account by Acquiror in determining whether SHFC or the
Association has experienced a Material Adverse Change; provided, further,
however, that this Section 4.08 is not intended to permit SHFC or the
Association to alter or amend its representations and warranties as made
herein (including the Disclosure Schedule) as of the date of this Agreement,
and any Subsequent Disclosure Schedule shall not cure the inaccuracy thereof
as of the date of this Agreement for any purpose under this Agreement.
Section 4.09. Unallocated Recognition and Retention Plan Shares. SHFC
shall cause the unallocated shares in its Recognition and Retention Plan
("RRP") as of the date of the Agreement to be cancel led, retired or returned
to treasury prior to the Effective Time without payment of any consideration
therefor. No such unallocated shares of SHFC Common shall be allocated or
awarded to any person.
Section 4. 10 Delivery of Reports. SHFC shall deliver to Acquiror,
upon request, a copy of each report, statement or other filing or document
filed with SEC since the date hereof not previously delivered to Acquiror.
Section 4. 11 Report of Funds Received from ODGF. In the event that
the Association receives any payment from the ODGF, the Association shall
promptly, but in no event later than the business day prior to the Closing
Date, give to Acquiror a statement setting forth the date and amount of the
payment, the estimated federal, state and local tax liability of the
Association or SHFC attributable thereto and any out-of-pocket expenses
incurred after the date of this Agreement, including any accounting fees,
attributable thereto.
Section 4.12 Amendment of Association Articles of Incorporation.
Within sixty (60) days after the date of this Agreement, SHFC shall seek
approval of the Division for an amendment of Article NINTH of the Articles of
Incorporation of the Association to permit Acquiror to offer to acquire and to
acquire all of the outstanding shares of the Association, and immediately upon
receipt of such approval, SHFC, as the sole shareholder of the Association,
shall cause Article NINTH of the Articles of Incorporation of the Association
to be so amended.
ARTICLE FIVE
AGREEMENTS OF ACQUIROR
Section 5.01. Regulatory Approvals and Proxy Statement. Acquiror shall
use its best efforts to file within sixty (60) days after the date hereof all
applications for the Regulatory Approvals required in order to consummate the
Merger. Acquiror shall keep SHFC reasonably informed as to the status of such
applications and make available to SHFC copies of such applications as filed
and any supplementally filed materials. Acquiror shall timely provide all
information reasonably requested by SHFC for inclusion in the Proxy Statement
and shall fully cooperate with SHFC in the preparation of the Proxy Statement.
Section 5 02. Breach. In the event that Acquiror has knowledge of the
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted
a breach had such event occurred or been known prior to the date hereof) of
any of its representations or agreements contained or referred to herein, it
shall give prompt written notice thereof to SHFC and use its best efforts to
prevent or promptly remedy the same.
Section 5.03. Consummation of Agreement. Acquiror shall use its best
efforts to perform and fulfill all conditions and obligations to be performed
or fulfilled by it under this Agreement and to effect the Merger in accordance
with the terms and conditions of this Agreement.
Section 5.04. Directors and Officers' Liability Insurance and Indemni-
fication.
(a) From the Effective Time of the Company Merger and continuing for a
period of three years thereafter, the current officers and directors of SHFC
shall be indemnified by Acquiror from their acts and omissions occurring prior
to the Effective Time of the Company Merger to the maximum extent permitted by
the Certificate of Incorporation and Bylaws of Acquiror but subject to any
applicable limitations of Delaware law. From the Effective Time of the Company
Merger and continuing for a period of three years thereafter, the current
officers and directors of the Association shall be indemnified by the
Association for their acts and omissions occurring prior to the Effective Time
to the extent permitted by the Thrift Regulations.
(b) Subject to SHFC and the Association providing all requested
information and representations to Acquiror's directors' and officers'
liability insurance carrier, Acquiror shall use its best efforts to add a
rider, at standard rates, to its existing directors' and officers' liability
insurance policy covering the acts and omissions of the officers and directors
of SHFC and the Association occurring prior to the Effective Time and to
continue such rider for a period of three years.
Section 5.05. Employee Benefit and Related Matters. All employees of
the Association immediately prior to the Effective Time of the Company Merger
shall remain employees of the Association at the Effective Time of the Company
Merger and, with respect to employees who are not currently covered by a
written employment agreement with the Association, shall be employed by the
Association as at-will employees at the same salary they are receiving from
the Association. Any employee who is currently covered by a written employment
agreement will continue his or her employment in accordance with the terms of
such written agreement. Acquiror does not intend to impose job eliminations at
the Association as a result of the Merger. All employees of the Association
shall become participants in a medical plan, a life insurance plan, a short
term disability insurance plan and a long term disability insurance plan, each
to be maintained by the Association and each of which shall be the same plans,
or substantially equivalent to the plans, maintained by Acquiror or its
subsidiary for the benefit of the employees of Acquiror's subsidiary,
Mayflower Federal Savings Bank ("Mayflower Federal"). Employees of the
Association shall be given credit for years of service to the Association for
the calculation of vacation and sick time. Upon termination of the
Association's employee stock ownership trust (the "Association ESOP Trust"),
the employees of the Association shall become eligible to participate in the
Acquiror's 401(k) plan on the next entry date and they shall be given credit
for their past service with the Association for purposes of vesting under such
plan. Except as specifically provided herein, no employee of the Association
shall be entitled to be eligible for or participate in any other qualified or
non-qualified employee benefit program or plan maintained by Acquiror or
Mayflower Federal.
Section 5.06. The Association's Employee Stock Ownership Plan. Prior
to the Effective Time and without any requirement to make application to the
Key District Office of the IRS in Cincinnati (the "Key District Office"), the
Association may amend the Association's employee stock ownership plan (the
"Association ESOP") to provide for (i) full vesting of benefits by
participants and (ii) elimination of any requirement for a participant to be
employed as of the last day of the year to receive an employer contribution,
other annual additions or allocations, in each case effective as of the
Effective Time. From and after the date of this Agreement, the Association
shall make no further contributions to the Association ESOP, except in an
amount to pay any required installment payment on the Association ESOP loan.
From and after the date of this Agreement and prior to the Effective Time,
Acquiror and its representatives, with the full cooperation of the
Association, shall use their best efforts to (i) submit to the Key District
Office an Application for Determination upon Termination relating to the
Association ESOP which discloses the proposed allocation of the cash remaining
in the suspense account (after the repayment of the Association ESOP Loan)
without regard to Section 415 of the Code; and (ii) maintain the status of the
Association ESOP as a plan qualified under Section 401(a) and 4975 of the
Code. At the Effective Time or as soon thereafter as is practicable and
permissible under the Code, the Association and Acquiror shall cause the
Association ESOP loan to be repaid with cash proceeds from the sale of SHFC
Common received by the Association ESOP with respect to unallocated shares of
SHFC Common. If the Key District Office issues a favorable determination
letter with respect to the repayment of the Association ESOP loan and proposed
allocation of the remaining suspense account to participants, Acquiror and
SHFC shall, as soon thereafter as practicable, (a) cause the Association ESOP
to repay the Association ESOP loan and make the proposed allocation to
participants in accordance with such favorable determination letter, (b)
terminate the Association ESOP and (c) distribute the Association ESOP
benefits to the Association ESOP participants pursuant to the terms of the
Association ESOP. If the Key District Office determines that it will not issue
a favorable determination letter with respect to the proposed allocation, then
the Association ESOP loan shall nevertheless be repaid and such remaining cash
received by the Association ESOP attributable to unallocated shares of SHFC
Common shall remain in the suspense account and, to the extent that such cash
can be allocated to the accounts of participants without violating the
limitations of Section 415 of the Code, the cash shall be allocated in the
current Plan Year in which the Effective Time occurs and during the next
ensuing Plan Year to those participants in the Association ESOP as of the
Effective Time to the maximum extent permitted by Section 415 of the Code and
provided that the continued maintenance of the Association ESOP shall not
adversely affect the tax-qualified status of the Association ESOP. At the
expiration of said subsequent Plan Year, the Association ESOP Trust shall be
terminated with any amounts then remaining in the suspense account, if any,
being transferred to another qualified plan of Acquiror.
Section 5.07. Board of Directors of the Association.
(a) At the Closing, the members of the Board of Directors of the
Association shall submit letters of resignation, effective as of the Effective
Time, to the Acquiror. The Acquiror shall elect the persons listed on Exhibit
G hereto to be Directors of the Association for the terms set forth therein
and shall appoint the person listed on Exhibit H hereto as Director Emeritus.
(b) The Director Emeritus Plan of the Association shall be terminated
as of the Effective Time as to all directors of the Association and shall
thereafter be replaced with a director emeritus plan having identical terms
and conditions to the director emeritus plan of Acquiror.
(c) The director's Death Benefit Plan of the Association shall cease
to accrue any additional benefits on or after the Effective Time, but any
previously accrued benefits shall be payable as and when they would otherwise
have been payable under such plan.
Section 5.08. Managing Officer of the Association. It is the intention
of Acquiror that Diana Bowman D'Amico, the Vice President of the Association,
shall be appointed as President and Managing Officer of the Association on or
before the Closing Date.
Section 5.09 Shareholder Approval for Conversion of SHFC Stock
Options; Registration. At the Annual Meeting, Acquiror shall seek approval
from its shareholders, with the favorable recommendation of its Board of
Directors, of the assumption of the obligations of SHFC under the SHFC Stock
Option Plan consistent with the provisions of Section 1.04(d) hereof. Within
ten (l0) business days after the Annual Meeting, unless the shareholders of
Acquiror fail to approve the assumption by Acquiror of the SHFC Stock Option
Plan, Acquiror shall file with the SEC and any required state agency an
appropriate registration statement with respect to the shares of Acquiror
common to be subject to the SHFC Stock Option Plan and shall use reasonable
efforts to maintain the effectiveness of such registration statement or
statements for so long as such options remain outstanding.
Section 5. 10 Delivery of Reports. Acquiror shall deliver to SHFC,
upon request, a copy of each report, statement or other filing or document
filed with the SEC since the date hereof not previously provided to SHFC.
Section 5. 11 Distribution of RRP Proceeds. All amounts held in the
RRP representing Per Share Merger Consideration for, dividends paid on and
earnings on dividends paid on, allocated SHFC Common shall be distributed to
the participants therein immediately after the Closing.
ARTICLE SIX
CONDITIONS PRECEDENT TO THE MERGER
Section 6.0l. Conditions to Acquiror's Obligations. Acquiror's
obligations under this Agreement are conditioned upon Acquiror's receiving,
concurrently with the execution and delivery of this Agreement by SHFC and the
Association, (i) a Shareholder Agreement in the form attached as Exhibit A
executed by each of the directors of SHFC who is a shareholder of SHFC and
(ii) an Optionholder Agreement in the form attached hereto as Exhibit B
executed by each holder of SHFC Options. Each such agreement and each such
consent shall be dated as of the date of this Agreement and delivered at the
time of execution hereof. Acquiror's obligations to effect the Company Merger
shall be subject to the satisfaction (or waiver by Acquiror) prior to or on
the Closing Date of the following conditions:
(a) The representations and warranties made by SHFC and the
Association in this Agreement shall be true in all material respects on and as
of the Closing Date but as updated by any Subsequent Disclosure Schedule with
the same effect as though such representations and warranties had been made or
given on and as of the Closing Date, and for purposes of satisfying this
closing condition relative to the truth as of the date of this Agreement of
any representations of SHFC or the Association that contains a knowledge
qualification, such knowledge qualification may be disregarded by Acquiror;
(b) SHFC and the Association shall have performed and complied in all
material respects with all obligations and agreements required to be performed
by them prior to the Closing Date under this Agreement;
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger shall be in effect, nor shall there be pending any
proceeding by any governmental agency or other person seeking any of the
foregoing; and there shall not be any action taken, or any statute, rule,
regulation or order enacted, promulgated, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal;
(d) All Regulatory Approvals and other necessary consents,
authorizations and other approvals required by law for consummation of the
Merger shall have been obtained without the imposition of any conditions that
Acquiror determines to be unduly burdensome, and all waiting periods required
by law shall have expired;
(e) Acquiror shall have received all documents reasonably required to
be received from SHFC and the Association on or prior to the Closing Date, all
in form and substance reasonably satisfactory to Acquiror;
(f) SHFC and the Association shall not have experienced a Material
Adverse Change, including but not limited to items contained in any Subsequent
Disclosure Schedule;
(g) Immediately prior to the Effective Time of the Company Merger, the
holders of no more than ten percent (10%) of the outstanding SHFC Common shall
qualify as Dissenting Shareholders;
(h) Immediately prior to the Effective Time of the Company Merger, the
amount of the total equity capital of the Association shall not be less than
the total equity capital of the Association as reported in its Thrift
Financial Report as of March 31, 1996 and the shareholders' equity of SHFC
shall not be less than its shareholders' equity as of March 31, 1996;
provided, however, that for purposes of such calculations, any special
exclusions contemplated by the definition of Material Adverse Change and
conforming reserves and accruals contemplated by Section 4.05 shall not be
taken into account; and
(i) Immediately prior to the Effective Time the number of issued and
outstanding shares of SHFC shall be no greater than Five Hundred Thirty-Four
Thousand Three Hundred Fifty-Seven (534,357).
Section 6.02. Conditions to SHFC's Obligations. SHFC's obligations
under this Agreement are conditioned upon its receipt, concurrently with the
execution and delivery of this Agreement by SHFC and the Association, of a
written opinion from Charles Webb & Company that the Per Share Merger
Consideration to be received by the holders of SHFC Common in the Company
Merger is fair to such holders from a financial point of view (the "Fairness
Opinion"). SHFC's obligation to effect the Company Merger shall be subject to
the satisfaction (or waiver by SHFC) prior to or on the Closing Date of the
following conditions:
(a) The representations and warranties made by Acquiror in this
Agreement shall be true in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been
made or given on the Closing Date;
(b) Acquiror shall have performed and complied in all material
respects with all of its obligations and agreements hereunder required to be
performed prior to the Closing Date under this Agreement;
(c) No Injunction preventing the consummation of the Merger shall be
in effect, nor shall there be pending any proceeding by any thrift regulatory
authority or other governmental agency seeking to prevent or delay the merger;
and there shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger which
makes the consummation of the Merger illegal;
(d) All Regulatory Approvals and other necessary consents,
authorizations and other approvals, including the requisite approval of the
Amendment, this Agreement and the Plan of Merger by the shareholders of SHFC,
required by law for consummation of the Merger shall have been obtained and
all waiting periods required by law shall have expired;
(e) SHFC shall have received all documents required to be received
from Acquiror on or prior to the Closing Date, all in form and substance
reasonably satisfactory to SHFC.
(f) Charles Webb and Company shall not have refused to deliver to SHFC
a Fairness Opinion dated on or about the date of dissemination of the Proxy
Statement (or a reiteration of the previous Fairness Opinion or a letter that
the previous Fairness Opinion has not been withdrawn), provided that no such
refusal shall be deemed to have been made for purposes of this Section 6.02(f)
unless it is in writing and gives all of the specific reasons therefor.
ARTICLE SEVEN
TERMINATION OR ABANDONMENT
Section 7.01. Mutual Agreement. This Agreement may be terminated by
the mutual written agreement of the parties at any time prior to the Closing
Date, regardless of whether approval of this Agreement and the Plan of Merger
by the shareholders of SHFC shall have been previously obtained.
Section 7.02. Breach of Agreement. In the event that there is a
material breach of any of the representations and warranties or agreements of
Acquiror on the one hand, or SHFC or the Association on the other hand, and
such breach is not cured within ten (10) days after notice to cure such breach
is given by the non-breaching party or, if such breach is not capable of being
cured within ten (10) days, steps are not initiated within ten (10) days to
effect a cure, then the nonbreaching party, regardless of whether shareholder
approval of this Agreement and the Plan of Merger shall have been previously
obtained by SHFC, may terminate and cancel this Agreement by providing written
notice of such action to the other party hereto.
Section 7.03. Failure of Conditions. In the event any of the
conditions to the obligations of (i) Acquiror set forth in Sections 6.01 or
(ii) SHFC set forth in Section 6.02 are not satisfied or waived on or prior to
the Closing Date, and if any applicable cure period provided in Section 7.02
has lapsed, then Acquiror (in the case of conditions to its obligations) or
SHFC (in the case of conditions to its obligations) may, regardless of whether
approval of the Amendment, this Agreement and the Plan of Merger by the
shareholders of SHFC shall have been previously obtained, terminate and cancel
this Agreement by delivery of written notice of such action to the other party
on such date.
Section 7.04. Denial of Regulatory Approval. If any regulatory
application filed pursuant to Section 5.01 should be finally denied or
disapproved by the respective regulatory authority, then this Agreement may be
terminated by any party to this Agreement. It is understood, however, that a
reasonable request for additional information from or undertaking by Acquiror,
as a condition for approval, shall not be deemed to be a denial or disapproval
so long as Acquiror diligently provides the requested information or
undertaking. Notwithstanding the foregoing, Acquiror agrees to promptly and
diligently pursue any appeals available with respect to any such denial if
SHFC shall request the pursuit of such appeals based on advice of counsel to
SHFC that such appeal has a reasonable chance of success.
Section 7.05. Failure of Shareholders to Adopt.
(a) If SHFC's Board of Directors is excused, pursuant to Section 4.03
of this Agreement, from its obligation to recommend that SHFC's shareholders
vote in favor of the adoption of the Amendment and this Agreement and the Plan
of Merger, to present this Agreement and the Plan of Merger to them for
adoption or to hold the Shareholders' Meeting for such purpose, Acquiror or
SHFC may terminate this Agreement.
(b) In the event that (i) at the Shareholders' Meeting, the holders of
at least the Minimum Portion of the outstanding shares of SHFC Common do not
adopt the Amendment, this Agreement and the Plan of Merger and SHFC's Board of
Directors has recommended that SHFC's shareholders vote in favor of the
adoption of the Amendment and this Agreement and the Plan of Merger or (ii) no
Unsolicited Acquisition Proposal has been received by SHFC and Charles Webb &
Company has refused to issue the Fairness Opinion as required by Section
6.02(f) on or about the date of dissemination of the Proxy Materials, Acquiror
or SHFC may terminate this Agreement.
Section 7.06. Regulatory Enforcement Matters. In the event that the
Association shall become a party or subject to any written agreement,
memorandum of understanding, cease and desist order, imposition of civil money
penalties or other regulatory enforcement action or proceeding with or by any
federal or state agency charged with the supervision or regulation of savings
banks or savings associations after the date of this Agreement, which is
reasonably determined by Acquiror to be significant to the Association's
business, operations or financial condition, then Acquiror may terminate this
Agreement.
Section 7.07. Automatic Termination. If the Closing Date does not
occur on or prior to March 31, 1997, then this Agreement may be terminated by
either party by giving written notice to the other; provided, however, that a
party who is then in breach of any of its representations, warranties,
covenants or agreements under this Agreement in any material respect may not
exercise such right of termination if it has received notice from the
non-breaching party that the non-breaching party is seeking specific
performance of the breaching party's obligations under this Agreement;
provided, further, however, that no such termination shall relieve the
breaching party from liability for a breach which occurs prior to such
termination.
Section 7.08. Termination Fee. In the event of termination of this
Agreement pursuant to Section 7.05(a), in consideration of Acquiror's costs
and expenses in connection with this Agreement and the transactions
contemplated hereby, its agreements hereunder, its expenditure of significant
management time and staff resources, its forbearance from consideration and
pursuit of other business alternatives, its loss of a unique and valuable
business opportunity, and the added value to any person acquiring assets or
securities of SHFC or combining with SHFC or the Association resulting from
SHFC's dealings with Acquiror and Acquiror's agreement to proceed with the
Company Merger on the terms and conditions set forth herein, SHFC and the
Association shall be jointly and severably liable to pay Five Hundred
Thirty-Five Thousand Dollars ($535,000) to Acquiror as an agreed-upon
termination fee, in immediately available funds within two (2) business days
after the occurrence of such event. If SHFC timely satisfies its obligations
under this Section 7.08, it shall have no liability under Section 8.06 of this
Agreement, nor shall it be liable for specific performance or injunctive
relief under Section 8.15 of this Agreement.
ARTICLE EIGHT
GENERAL
Section 8.01. Confidential Information. The parties acknowledge the
confidential and proprietary nature of the information as hereinafter
described which has heretofore been exchanged and which will be received from
each other hereunder ("Information") and agree to hold and keel the same
confidential. Such Information will include any and all financial, technical,
commercial, marketing, customer or other information concerning the business,
operations and affairs of a party that may be provided to the other,
irrespective of the form of the communications, by such party's employees or
agents. Such Information shall not include information which is or becomes
generally available to the public other than as a result of a disclosure by a
party or its representatives in violation of this Agreement. The parties agree
that the Information will be used solely for the purposes contemplated by this
Agreement and that such Information will not be disclosed to any person other
than employees and agents of a party who are directly involved in evaluating
the transaction. The Information shall not be used in any way detrimental to a
party, including use directly or indirectly in the conduct of the other
party's business or any business or enterprise in which such party may have an
interest, now or in the future, and whether or not now in competition with
such other party.
Section 8.02. Publicity. Acquiror and SHFC shall cooperate with each
other in the development and distribution of all news releases and other
public disclosures concerning this Agreement and the Merger and shall not
issue any news release or make any other public disclosure without prior
review by the other, unless such may be required by law or upon the written
advice of counsel.
Section 8.03. Return of Documents. Upon termination of this Agreement
prior to the Effective Time of the Company Merger, each party shall deliver to
the other originals and all copies of all Information made available to such
party and will not retain any copies, extracts or other reproductions in whole
or in part of such Information.
Section 8.04. Notice. Any notice or other communication shall be in
writing and shall be deemed to have been given or made on the date of
delivery, in the case of hand delivery, or three (3) business days after
deposit in the United States Registered Mail, postage prepaid, or upon receipt
if transmitted by facsimile telecopy or any other means, addressed (in any
case) as follows:
(a) if to Acquiror:
C. William Clark, President and
Chief Executive Officer
Western Ohio Financial Corporation
28 E. Main St.
Springfield, Ohio 45502-1205
with a copy to:
Jeffrey M. Werthan, P.C.
Silver, Freedman & Taff, L.L.P.
1100 New York Ave., N.W.
Washington, D.C. 20005
and
(b) if to SHFC or the Association:
Arthur W. Wendel, Jr., President and
Diana Bowman D'Amico, Vice President
Seven Hills Financial Corporation
1440 Main Street
Cincinnati, Ohio 45210
with a copy to:
Cynthia Shafer, Esq.
Vorys, Sater, Seymour and Pease
221 E. Fourth Street
Cincinnati, Ohio 45201-0236
or to such other address as any party may from time to time designate by
notice to the others.
Section 8.05. Liabilities. In the event that this Agreement is terminated
pursuant to the provisions of Article Seven hereof, no party hereto shall have
any liability to any other party for costs, expenses, damages or otherwise,
except (i) as provided in Section 7.08 in the event Section 7.08 is applicable
to such termination and (ii) liability of a breaching party to the
non-breaching party for damages arising from a breach of a party's
representations, warranties, covenants or agreements herein. The termination
fee provided for in Section 7.08 shall be the exclusive fee and remedy for a
proper termination of this Agreement pursuant to Section 7.05(a). SHFC shall
have no obligation to Acquiror under this Section 8.05 with respect to a
proper termination pursuant to Section 7.05(a). Except as provided in the
preceding sentence, nothing contained in this Section 8.05 is intended to
diminish or restrict a party's right to specific performance under Section
8.15.
Section 8.06. Expenses. Each of the parties shall bear its own costs,
fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby.
Section 8.07. Nonsurvival of Representations and Warranties. Except as
provided in this Section 8.07, no representation, warranty, covenant or
agreement contained in this Agreement shall survive the Effective Time or the
earlier termination of this Agreement. The agreements set forth in Sections
1.04(c), (d), (e) and (f) and 5.04, 5.05, 5.06, 5.07 and 5.09 shall survive
the Effective Time of the Company Merger and the agreements set forth in
Sections 7.08, 8.01, 8.03, 8.05, 8.06 and 8.15 hereof shall survive the
earlier termination of this Agreement.
Section 8.08. Entire Agreement. This Agreement constitutes the entire
agreement among the parties and supersedes and cancels any and all prior
discussions, negotiations, undertakings and agreement between the parties
relating to the subject matter hereof.
Section 8.09. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 8. 10. Waiver Amendment or Modification. The conditions of this
Agreement which may be waived may be waived only by written notice by the
party waiving such condition to the other party or parties. The failure of any
party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. This
Agreement may be amended or modified by a written document duly approved by
the boards of directors of the parties, whether before or after approval of
this Agreement by the shareholders of SHFC, provided that any amendment or
modification after such shareholder approval shall not decrease the Per Share
Merger Consideration without the approval thereof of the shareholders of SHFC
by at least the Minimum Portion.
Section 8.11. Rules of Construction. Unless the context otherwise
requires: (a) a term has the meaning assigned to it; (b) an accounting term
not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) "or" is not exclusive; and (d) words in the singular may include the
plural and in the plural include the singular.
Section 8.12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument.
Section 8.13. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Except as provided in Sections 5.04, 5.05 and 5.07,
there shall be no-third party beneficiaries hereof.
Section 8.14. Governing Law; Assignment. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Ohio and
applicable federal laws and regulations. This Agreement may not be assigned by
either of the parties hereto.
Section 8. 15. Specific Performance and Injunctive Relief. Each party to
this Agreement recognizes that, if it fails to perform, observe or discharge
any of its obligations under this Agreement, remedies at law may not provide
adequate relief to the other party or parties. Therefore, each party is hereby
authorized to demand specific performance of this Agreement, and is entitled
to temporary and permanent injunctive relief, in a court of competent
jurisdiction at any time when any other party fails to comply with any of the
provisions of this Agreement applicable to it, in addition to any other remedy
which may be available in law or equity. To the extent permitted by applicable
law, each party hereby irrevocably waives any defense that it might have based
on the adequacy of a remedy at law which might be asserted as a bar to such
remedy of specific performance or injunctive relief. For purposes of this
Section 8. 15, SHFC and the Association shall constitute a single party and
either may bind both as a party.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
WESTERN OHIO FINANCIAL CORPORATION
Attest:
Susan M. Inskeep, Secretary By: David L. Dillahunt, Chairman
Susan M. Inskeep, Secretary By: C. William Clark
President and Chief Executive Officer
<PAGE>
SEVEN HILLS FINANCIAL CORPORATION
Henry C. Gessing, Secretary By: Arthur W. Wendel, Jr., President
SEVEN HILLS SAVINGS ASSOCIATION
Henry C. Gessing, Secretary By: Arthur W. Wendel, Jr., President
<PAGE>
EXHIBITS A AND B HAVE BEEN OMITTED
AGREEMENT AND PLAN OF MERGER OF
WESTERN OHIO ACQUISITION II CORPORATION
WITH AND INTO SEVEN HILLS FINANCIAL CORPORATION
This AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of 1996,
sets forth the terms of a merger by and between Western Ohio Acquisition II
Corporation ("Acquisition Subsidiary"), an Ohio corporation having its
principal office at 28 East Main Street, Springfield, Ohio 45502, and Seven
Hills Financial Corporation ("Seven Hills"), an Ohio corporation having its
principal office at 1440 Main Street, Cincinnati, Ohio 45210.
W I T N E S S E T H
WHEREAS, Acquisition Subsidiary is a corporation organized under the
laws of the State of Ohio, the authorized capital stock of which consists of
______ shares of common stock, par value _____- per share ("Acquisition
Subsidiary Common Stock") all of which, as of the date hereof, are issued and
outstanding and owned by Western Ohio Financial Corporation, a Delaware
corporation ("Acquiring"); and
WHEREAS, Seven Hills is an Ohio corporation, the authorized capital
stock of which consists of 1,000,000 shares of common stock, no par value
("Seven Hills Common"), ______ shares of which are issued and outstanding as
of the date hereof; and
WHEREAS, the respective Boards of Directors of Acquisition Subsidiary
and Seven Hills deem the merger of Acquisition Subsidiary with and into Seven
Hills, under and pursuant to the terms and conditions herein set forth or
referred to, desirable and in the best interests of the respective
corporations and their respective shareholders, and have adopted resolutions
approving this Plan of Merger; and
WHEREAS, Acquiring, Seven Hills and Seven Hills Savings Association
have entered into an Agreement and Plan of Merger and Reorganization dated
June 14, 1996 ("Reorganization Agreement") relating to the transaction
contemplated by this Plan of the Merger; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree that the Plan
of Merger shall be as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
Subject to the terms and conditions of this Plan of Merger, at the
Effective Time (as hereinafter defined), Acquisition Subsidiary shall be
merged with and into Seven Hills pursuant to the provisions of, and with the
effect provided under, Ohio law (the "Merger"). At the Effective Time, the
separate existence of Acquisition Subsidiary shall cease and Seven Hills, as
the surviving entity, shall continue unaffected and unimpaired by the Merger.
Seven Hills as existing on and after the Effective Time is hereinafter
sometimes referred to as the "Surviving Corporation." The name of the
Surviving Corporation shall remain "Seven Hills Financial Corporation."
ARTICLE II
ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
The Articles of Incorporation and the Code of Regulations of
Acquisition Subsidiary in effect immediately prior to the Effective Date shall
be the Articles of Incorporation and the Code of Regulations of the Surviving
Corporation, in each case until amended in accordance with applicable law.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
At the Effective Time, the Board of Directors of the Surviving
Corporation shall consist of those persons serving as directors of Acquisition
Subsidiary immediately prior to the Effective Time and the officers of the
Surviving Corporation shall be those persons serving as officers of
Acquisition Subsidiary immediately prior to the Effective Time, in each case
subject to the provisions of the Surviving Corporation's Code of Regulations.
ARTICLE IV
CONVERSION AND EXCHANGE OF
ACQUISITION SUBSIDIARY COMMON STOCK
Each share of Acquisition Subsidiary Common Stock issued and
outstanding immediately prior to the Effective Time shall, at the Effective
Time, be converted into one share of the common stock of the Surviving
Corporation.
ARTICLE V
CONVERSION, EXCHANGE AND PAYMENT OF SEVEN HILLS COMMON
1. At the Effective Time, except as provided in paragraphs 2 and 4 of
this Article V, each outstanding share of Seven Hills Common shall, without
any action on the part of the holder thereof, be converted into the right to
receive the Per Share Merger Consideration.
2. At the Effective Time, all shares of Seven Hills Common owned
beneficially by Seven Hills or any Seven Hills Subsidiary (other than in a
fiduciary capacity or in connection with a debt previously contracted) and all
shares of Seven Hills Common owned by Acquiring or owned beneficially by any
subsidiary of Acquiring (other than in a fiduciary capacity or in connection
with a debt previously contracted) shall be cancelled and no cash, stock or
other property shall be delivered in exchange therefor.
3. At the Effective Time, the stock transfer books of Seven Hills
shall be closed and no transfer of Seven Hills Common by any such holder shall
thereafter be made or recognized.
4. Promptly after the Effective Time, shares of Seven Hills Common
held by holders who did not vote in favor of the Company Merger and who
otherwise are entitled to and do perfect their dissenters' rights under the
OGCL, shall not be converted into the right to receive the Per Share Merger
Consideration in accordance with Section 1 of this Article V, but such shares
of Seven Hills Common shall represent only the right to receive the "fair cash
value" of such shares as provided in the OGCL. If any such holder shall have
failed to perfect or shall have effectively withdrawn or lost such dissenters'
rights, such shares of Seven Hills Common shall thereupon be deemed to have
been converted into the right to receive the Per Share Merger Consideration in
accordance with Section l of this Article V as of the Effective Time without
any interest thereon.
5. Promptly after the Effective Time, Acquiring shall cause to be
mailed to each registered holder of record of outstanding Seven Hills Common a
letter of transmittal and instructions for use in surrendering their share
certificates ("Certificate(s)") and receiving payment pursuant hereto.
Promptly following surrender to Acquiring or its agent of such Certificates,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, Acquiring or its agent shall cause
to be paid to the persons entitled thereto a check in the amount to which such
persons are entitled under Article V, Section 1 hereof, after giving effect to
required tax withholdings, if any. No interest shall accrue or be payable with
respect to the consideration to be paid herein. Until so presented and
surrendered in exchange for the Per Share Merger Consideration for the shares
represented thereby, each Certificate shall be deemed for all purposes to
evidence ownership of the right to receive the Per Share Merger Consideration
for the shares represented thereby. Acquiring shall make available all funds
necessary to satisfy the obligations, if any, owed to dissenters. If payment
is to be made to a person other than the registered holder of the Certificates
surrendered, it shall be a condition of such payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer and that the person requesting such payment shall pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the Certificate surrendered, or establish to the
satisfaction of Acquiring that such tax has been paid or is not applicable.
6. Any other provision of this Plan of Merger notwithstanding, no
party hereto or agent thereof shall be liable to a holder of Seven Hills
Common for any amount paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property, escheat, or similar
law.
ARTICLE VI
EFFECTIVE TIME OF THE COMPANY MERGER
A Certificate of Merger evidencing the transactions contemplated
herein shall be delivered for filing to the Secretary of State of Ohio. Such
filing shall be made by the parties prior to, on or promptly after the Closing
described in the Reorganization Agreement. The Merger shall be effective at
the time and on the date specified in such Certificate of Merger (the
"Effective Time").
ARTICLE VII
FURTHER ASSURANCES
If at any time the Surviving Corporation shall consider or be advised
that any further assignments, conveyances or assurances are necessary or
desirable to vest, perfect or confirm in the Surviving Corporation title to
any property or rights of Acquisition Subsidiary or Seven Hills, or otherwise
carry out the provisions hereof, the proper officers and directors of
Acquisition Subsidiary or Seven Hills, as of the Effective Time, and
thereafter the officers of the Surviving Corporation, acting on behalf of the
Surviving Corporation, shall execute and deliver any and all property or
assignments, conveyances and assurances, and do all things necessary or
desirable to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise carry out the provisions hereof.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of Acquisition Subsidiary and Seven Hills to effect
the Merger as herein provided shall be subject to satisfaction, unless duly
waived, of the conditions set forth in the Reorganization Agreement.
ARTICLE IX
ABANDONMENT AND TERMINATION
Anything contained in this Plan of Merger to the contrary
notwithstanding, and notwithstanding adoption hereof by the shareholders of
Seven Hills or Acquisition Subsidiary, this Plan of Merger may be terminated
and the Merger abandoned as provided in the Reorganization Agreement.
ARTICLE X
MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time by
Acquisition Subsidiary and Seven Hills. Any such amendment or supplement must
be in writing and approved by their respective Boards of Directors and shall
be subject to the proviso in Section 8.10 of the Reorganization Agreement.
2. Any notice or other communication required or permitted under this
Plan of Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3, The headings of the several Articles herein are inserted for
convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance
with the laws of the State of Ohio applicable to agreements made and entirely
to be performed in such jurisdiction.
5. The provisions of Article V and VII hereof shall survive the Effective
Time.
6. Capitalized terms used but not defined herein shall have the same
meanings as in the Reorganization Agreement.
Attest WESTERN OHIO ACQUISITION II
CORPORATION
- - - ----------------------------------------- ----------------------------------
C. William Clark, President
, Secretary
Attest SEVEN HILLS FINANCIAL CORPORATION
- - - ----------------------------------------- ----------------------------------
, Secretary , President
<PAGE>
For purposes of Article V, Section 5 hereof this Plan is joined in and
agreed to by Western Ohio Financial Corporation.
Attest WESTERN OHIO FINANCIAL CORPORATION
- - - -------------------------------------- --------------------------------------
C. William Clark, President and
, Secretary Chief Executive Officer
<PAGE>
EXHIBITS D, E, F, G AND H HAVE BEEN OMITTED
ANNEX B
Charles Webb & Company
Investment Bankers and Financial Advisors
June 14, 1996
Board of Directors
Seven Hills Financial Corporation
1440 Main Street
Cincinnati, Ohio 45210
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the shareholders of
Seven Hills Financial Corporation. ("SHFC"), of the consideration to be
received by such shareholders in the merger (the "Merger") between SHFC and
Western Ohio Financial Corporation, a Delaware corporation ("WOFC"). We have
not been requested to opine as to, and our opinion does not in any matter
address, SHFC's underlying business decision to proceed with or effect the
Merger.
Pursuant to the terms and conditions of the Agreement and Plan of Merger and
Reorganization, dated June 14, 1996, by and between SHFC and its wholly owned
subsidiary, Seven Hills Savings Association ("Seven Hills"), and WOFC, (the
"Agreement"), at the effective time of the Merger, WOFC will acquire all of
SHFC's issued and outstanding shares of common stock (536,472 shares as of the
date of the Agreement) and the holders of such shares of common stock will
receive $19.65 in cash in exchange for each share of SHFC common stock. In
addition, the holders of unexercised and outstanding options awarded pursuant
to the SHFC Stock Option Plan, will receive, for each share subject to such
option, an option to purchase shares of WOFC common stock in an amount and at
an exercise price determined pursuant to Section 1.04(d) of the Agreement. The
complete terms of the proposed transaction are described in the Agreement, and
this summary is qualified in its entirety by reference thereto.
Charles Webb & Company, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, thrifts and bank and thrift holding
companies.
221 Bradenton o Dublin, Ohio 43017-3541 o 614-766-8400 o Fax: 614-766-8406
<PAGE>
In January, 1996, you engaged us to advise you in connection with alternative
strategies for enhancing shareholder value and to assist in the implementation
of any such strategy pursued by SHFC, including the provision of a fairness
opinion to be delivered upon execution of an agreement for the acquisition of
SHFC. Prior to your execution of the Agreement with WOFC, we reviewed certain
financial and other business data supplied to us by SHFC including audited
financial statements for the years ended June 30, 1995 and 1994, subsequent
financial statements (unaudited) for the quarters ended September 30, 1995,
December 31, 1995 and March 31, 1996 and certain other information we deemed
relevant. We discussed with senior management and the boards of directors of
SHFC and Seven Hills, the current position and prospective outlook for SHFC.
We considered historical quotations and the prices of recorded transactions in
SHFC's common stock since its public offering and conversion to a stock
holding company on December 30, 1993. We reviewed financial and stock market
data of other thrifts, particularly in the Midwest region, and the financial
and structural terms of several other recent transactions involving savings
and loan mergers and acquisitions or proposed changes of control of comparably
situated companies.
For WOFC, we reviewed the audited financial statements for the fiscal years
ended December 31, 1994 and 1995 and quarterly financial statements
(unaudited) for the quarter ending March 31, 1996 and certain other
information deemed relevant.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by SHFC and
WOFC and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including forecasts and
asset valuations we received from SHFC, we assumed (with your consent) that
they had been reasonably prepared reflecting the best currently available
estimates and judgment of SHFC's management. In addition, we have not made or
obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of SHFC or WOFC. We
have further relied on the assurances of management of SHFC and WOFC that they
are not aware of any facts that would make such information inaccurate or
misleading. We express no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger, as set forth in the Agreement,
to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to SHFC or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to SHFC in connection with the Merger and will receive a fee for such
services, a majority of which is contingent upon the consummation of the
Merger. In addition, SHFC has agreed to indemnify us for certain liabilities
arising out of our engagement by SHFC in connection with the Merger. We have
also performed various investment banking services for SHFC in the past and
have received customary fees for such services.
Based upon and subject to the foregoing, as outlined in the foregoing
paragraphs and based on such other matters as we considered relevant, it is
our opinion that as of the date hereof, the consideration to be received by
the shareholders of SHFC in the Merger is fair, from a financial point of
view, to the shareholders of SHFC.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statements of SHFC used to
solicit shareholder approval of the Merger. It is understood that this letter
is directed to the Board of Directors of SHFC in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation
to any shareholder as to how such shareholder should vote with respect to the
Merger.
Very truly yours,
Charles Webb & Company
ANNEX C
Section 1701.85
Dissenting shareholder's demand for fair cash value of shares.
(A)(1) A shareholder of a domestic corporation is entitled to relief
as a dissenting shareholder in respect of the proposals in sections 1701.74,
1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of
the shares of the corporation as to which he seeks relief as of the date fixed
for the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall
not have been voted in favor of the proposal. Not later than ten days after
the date on which the vote on the proposal was taken at the meeting of the
shareholders, the dissenting shareholder shall deliver to the corporation a
written demand for payment to him of the fair cash value of the shares as to
which he seeks relief, which demand shall state his address, the number and
class of such shares, and the amount claimed by him as the fair cash value of
the shares.
(3) The dissenting shareholder entitled to relief under division
(C) of section 1701.84 of the Revised Code in the case of a merger pursuant to
section 1701.80 of the Revised Code and a dissenting shareholder entitled to
relief under division (E) of section 1701.84 of the Revised Code in the case
of a merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall
be a record holder of the shares of the corporation as to which he seeks
relief as of the date on which the agreement of merger was adopted by the
directors of that corporation. Within twenty days after he has been sent the
notice provided in section 1701.80 or 1701.801 [1701.80.1] of the Revised
Code, the shareholder shall deliver to the corporation a written demand for
payment with the same information as that provided for in division (A)(2) of
this section.
(4) In the case of a merger or consolidation, a demand served on
the constituent corporation involved constitutes service on the surviving or
the new entity, whether the demand is served before, on, or after the
effective date of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing
the shares as to which he seeks relief, the dissenting shareholder, within
fifteen days from the date of the sending of such request, shall deliver to
the corporation the certificates requested so that the corporation may
forthwith endorse on them a legend to the effect that demand for the fair cash
value of such shares has been made. The corporation promptly shall return such
endorsed certificates to the dissenting shareholder. A dissenting
shareholder's failure to deliver such certificates terminates his rights as a
dissenting shareholder, at the option of the corporation, exercised by written
notice sent to the dissenting shareholder within twenty days after the lapse
of the fifteen-day period, unless a court for good cause shown otherwise
directs. If shares represented by a certificate on which such a legend has
been endorsed are transferred, each new certificate issued for them shall bear
a similar legend, together with the name of the original dissenting holder of
such shares. Upon receiving a demand for payment from a dissenting shareholder
who is the record holder of uncertificated securities, the corporation shall
make an appropriate notation of the demand for payment in its shareholder
records. If uncertificated shares for which payment has been demanded are to
be transferred, any new certificate issued for the shares shall bear the
legend required for certificated securities as provided in this paragraph. A
transferee of the shares so endorsed, or of uncertificated securities where
such notation has been made, acquires only such rights in the corporation as
the original dissenting holder of such shares had immediately after the
service of a demand for payment of the fair cash value of the shares. A
request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving
or new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of
the county in which the principal office of the corporation that issued the
shares is located, or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and
requiring that a copy of the complaint and a notice of the filing and of the
date for hearing be given to the respondent or defendant in the manner in
which summons is required to be served or substituted service is required to
be made in other cases. On the day fixed for the hearing on the complaint or
any adjournment of it, the court shall determine from the complaint and from
such evidence as is submitted by either party whether the dissenting
shareholder is entitled to be paid the fair cash value of any shares and, if
so, the number and class of such shares. If the court finds that the
dissenting shareholder is so entitled, the court may appoint one or more
persons as appraisers to receive evidence and to recommend a decision on the
amount of the fair cash value. The appraisers have such power and authority as
is specified in the order of their appointment. The court thereupon shall make
a finding as to the fair cash value of a share, and shall render judgment
against the corporation for the payment of it, with interest at such rate and
from such date as the court considers equitable. The costs of the proceeding,
including reasonable compensation to the appraisers to be fixed by the court,
shall be assessed or apportioned as the court considers equitable. The
proceeding is a special proceeding, and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision
in division (D) of this section is applicable, the fair cash value of the
shares that is agreed upon by the parties or fixed under this section shall be
paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or
the consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a
holder of uncertificated securities entitled to such payment. In the case of
holders of shares represented by certificates, payment shall be made only upon
and simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders
of the corporation, fair cash value as to those shareholders shall be
determined as of the day prior to the day on which the vote by the
shareholders was taken and, in the case of a merger pursuant to section
1701.80 or 1701.801 [1701.80.1] of the Revised Code, fair cash value as to
shareholders of a constituent subsidiary corporation shall be determined as of
the day before the adoption of the agreement of merger by the directors of the
particular subsidiary corporation. The fair cash value of a share for the
purposes of this section is the amount that a willing seller who is under no
compulsion to sell would be willing to accept and that a willing buyer who is
under no compulsion to purchase would be willing to pay, but in no event shall
the fair cash value of a share exceed the amount specified in the demand of
the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such
failure;
(b) The corporation abandons the action involved or is
finally enjoined or prevented from carrying it out, or the
shareholders rescind their adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with
the consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and
neither the shareholder nor the corporation has filed or joined in a
complaint under division (B) of this section within the period
provided in that division.
(2) For purposes of division (D)(1) of this section, if the
merger or consolidation has become effective and the surviving or new entity
is not a corporation, action required to be taken by the directors of the
corporation shall be taken by the general partners of a surviving or new
partnership or the comparable representatives of any other surviving or new
entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in
substitution for such shares, an amount equal to the dividend, distribution,
or interest which, except for the suspension, would have been payable upon
such shares or securities, shall be paid to the holder of record as a credit
upon the fair cash value of the shares. If the right to receive fair cash
value is terminated other than by the purchase of the shares by the
corporation, all rights of the holder shall be restored and all distributions
which, except for the suspension, would have been made shall be made to the
holder of record of the shares at the time of termination.
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SEVEN HILLS FINANCIAL CORPORATION
SEVEN HILLS FINANCIAL CORPORATION SPECIAL MEETING OF SHAREHOLDERS
_________________, 1996
The undersigned shareholder of Seven Hills Financial Corporation
("SHFC") hereby constitutes and appoints ___________ and ____________, or
either one of them, as proxy or proxies for the undersigned, each with full
power of substitution and resubstitution, to vote all of the votes which the
undersigned is entitled to cast at the Special Meeting of the shareholders of
SHFC to be held at ________ _.m., local time, on _____________, 1996, at 1440
Main Street, Cincinnati, Ohio 45210, and at any adjournments thereof (the
"Special Meeting"), in the manner specified below on the following matters,
which are described in the accompanying Proxy Statement:
1. The adoption of an Amendment to the amended Articles of Incorporation of
SHFC to delete Article EIGHTH, which prohibits an offer to acquire or the
acquisition of more than 10% of the outstanding common shares of SHFC (the
"Amendment").
FOR |___| AGAINST |___| ABSTAIN |___|
2. The adoption of the Agreement and Plan of Merger and Reorganization dated
June 14, 1996, by and among Western Ohio Financial Corporation ("WOFC"), SHFC
and Seven Hills Savings Association (the "Agreement"), pursuant to which a
wholly-owned subsidiary of WOFC will, upon the satisfaction of certain
conditions, merge with and into SHFC in a transaction in which each
outstanding SHFC common share will be canceled and extinguished in
consideration and exchange for the right to receive a minimum of $19.65 cash
and a maximum of $19.71 cash;
FOR AGAINST ABSTAIN
3. The adjournment of the Special Meeting in the event that a sufficient
number of votes necessary to adopt the foregoing proposals is not received.
FOR AGAINST ABSTAIN
4. In their discretion, upon such other matters as may properly come before
the Special Meeting.
This Revocable Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder. If no direction is
given, this Revocable Proxy will be voted FOR the adoption of the Amendment,
FOR the adoption of the Agreement and FOR the adjournment of the Special
Meeting, if necessary.
<PAGE>
Without affecting any vote previously taken, this Revocable Proxy may be
revoked by the undersigned at any time before it is exercised by giving notice
to SHFC in a writing received by Henry C. Gessing, Secretary of SHFC, at
SHFC's offices, by executing a subsequent proxy received by SHFC or by
attending the Special Meeting and giving notice of such revocation in person
to the inspector of election. All proxies previously given by the undersigned
are hereby revoked.
The receipt of the Notice of Special
Meeting of Shareholders and the Proxy
Statement of SHFC dated ____________, 1996,
is hereby acknowledged by the undersigned.
Signature
Print or Type Name
Dated:
NOTE: Please sign your name exactly as
it appears on this Proxy. Jointly held
shares require only one signature. If you
are signing this Proxy as an attorney,
administrator, agent, corporation, officer,
executor, trustee or guardian, etc., please
add your full title to your signature.
IMPORTANT: IF YOU RECEIVE MORE THAN
ONE CARD, PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
