SCHEDULE 14a
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 [X ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LCS Bancorp, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a(6)(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $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 14(a)(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common
(2) Aggregate number of securities to which transaction applies:
107,640
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
$17.75
(4) Proposed maximum aggregate value of transaction:
$1,910,610.00
(5) Total fee paid:
$382.12
[ ] Fee previously paid with proxy materials.
[ ] 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
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:
(4) Date Filed:
LCS BANCORP, INC.
REVOCABLE PROXY
Special Meeting of Shareholders
_________________, 1996
The undersigned hereby appoints the Board of Directors of LCS Bancorp,
Inc. ("LCS" or the "Company"), with full powers of substitution, as attorneys
and proxies for the undersigned, to vote all shares of LCS common stock, which
the undersigned is entitled to vote at the Special Meeting of Shareholders, to
be held at the _______________________,__________________, Illinois, on
_____________, _________________, 1996, at _______ __.m., Central
Time, and at any and all adjournments thereof, as follows:
I. The approval of the Agreement and Plan FOR AGAINST ABSTAIN
of Merger, including other related
agreements, pursuant to which Litchfield [ ] [ ] [ ]
Community Savings, S.B. will be merged
into Jacksonville Savings Bank, LCS will
be liquidated into Jacksonville, and each
of the outstanding shares of LCS common
stock will be converted into the right to
receive $17.75 in cash.
II. The adjournment of the Special Meeting to FOR AGAINST ABSTAIN
solicit additional proxies in the event
there are not sufficient votes to approve [ ] [ ] [ ]
the foregoing proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSALS.
This Proxy will be voted as directed but if no instructions are specified,
this Proxy will be voted for the proposals stated. If any other business is
presented at such meeting, this Proxy will be voted by those named in this
Proxy in their best judgment. At the present time, the Board of Directors
knows of no other business to be presented at the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournments thereof and after notification to the Secretary of the
Company at the Meeting of the shareholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from the Company, prior to the
execution of this Proxy, of Notice of the Special Meeting and a Proxy Statement
dated ______________________, 1996.
Dated: _____________________, 1996
__________________________________
Signature of Shareholder
__________________________________
Signature of Shareholder
PLEASE COMPLETE, DATE Please sign exactly as your name
SIGN AND MAIL THIS PROXY appears on this proxy. When signing
PROMPTLY IN THE ENCLOSED as attorney, executor, administrator,
POSTAGE-PAID ENVELOPE. trustee, or guardian, please give your
full title; if shares are held jointly
each holder should sign.
[Date]
Dear Shareholders:
We cordially invite you to attend the special meeting of shareholders of
LCS Bancorp, Inc. ("LCS") to be held at the ____________, _________________,
_______________, __________, Illinois, on ___________, 199_, at ____ _.m.
for the purpose of considering the proposal by which LCS and its wholly-owned
subsidiary, Litchfield Community Savings, S.B. ("Litchfield") will be merged
with and into Jacksonville Savings Bank, an Illinois savings bank, and the
shareholders of LCS will become entitled to receive cash in an amount equal
to $17.75 per share of LCS common stock, subject to the rights of dissenting
stockholders which have been asserted and duly perfected in accordance with
the provisions of Section 262 of the General Corporation Law of the State of
Delaware.
The terms of the proposed merger are explained in detail in the
accompanying Proxy Statement that we urge you to read carefully.
Regardless of the number of shares you own and whether or not you plan
to attend, it is important that your shares be represented and voted at the
meeting. Accordingly, you are requested to sign, date and mail the enclosed
proxy at your earliest convenience. In the event you execute a proxy and
subsequently find you can attend the meeting, you may revoke your proxy and
vote at the meeting if you wish. Only shareholders of record as of __________,
199_, are entitled to notice of and to vote on matters to be transacted at the
special meeting. If you are a shareholder whose shares are not registered in
your own name, you will need additional documentation from your record holder
to vote personally at the special meeting. PLEASE DO NOT SEND IN ANY STOCK
CERTIFICATES AT THIS TIME.
Your Board of Directors has determined that the merger is in the best
interest of shareholders and has unanimously approved the Reorganization
Agreement. The Board of Directors of LCS unanimously recommends that you to
vote FOR the merger described in the accompanying Proxy Statement.
Sincerely,
s/Wayne Brauer
Wayne Brauer
Chairman of the Board,
LCS Bancorp, Inc.
LCS BANCORP, INC.
501 N. State Street
Litchfield, Illinois 62056
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held _________, 199_
TO THE SHAREHOLDERS OF LCS BANCORP, INC.
Notice is hereby given that, pursuant to call of its Board of Directors, a
special meeting of shareholders of LCS Bancorp, Inc. ("LCS" or the "Company")
will be held at the _______________________, ________________________,
_______, Illinois, on ____________, 199_, at ____ _.m. for the following
purposes:
(1) To consider and vote upon the Agreement and Plan of Merger, dated as
of August 13, 1996, (the "Reorganization Agreement") pursuant to which
Litchfield Community Savings, S.B. ("Litchfield" or the "Bank"), the wholly-
owned subsidiary of LCS, will be merged into Jacksonville Savings Bank, an
Illinois savings bank ("Jacksonville") and LCS will be liquidated into
Jacksonville, and shares of LCS' common stock, par value $.01 per share, will
be converted into the right to receive $17.75 per share, in cash, subject to
the rights of dissenting stockholders which have been asserted and duly
perfected in accordance with the provisions of Section 262 of the General
Corporation Law of the State of Delaware, all in accordance with the terms of
the Reorganization Agreement. The Reorganization Agreement is attached to
the accompanying Proxy Statement as Annex I.
(2) To vote on adjournment of the special meeting, if necessary, to
permit further solicitation of proxies in the event that there are not
sufficient votes at the time of the special meeting to approve the Agreement.
(3) The transaction of such other business as may properly come before
the Special Meeting or any adjournments. The Board of Directors is not
currently aware of any other business to come before the Special Meeting.
Only those LCS shareholders of record at the close of business on
____________, 199_, shall be entitled to notice of and to vote at the special
meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF LCS RECOMMENDS THAT THE HOLDERS OF LCS COMMON
STOCK VOTE TO APPROVE THE ABOVE PROPOSAL.
By Order of the Board of Directors,
s/Rhonda L. Reener
Rhonda L. Reener
Secretary
_____________, 199_
Litchfield, Illinois
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. IN ORDER FOR
THE MERGER TO BE CONSUMMATED, PROPOSAL I MUST BE APPROVED BY AT LEAST A
MAJORITY OF THE OUTSTANDING SHARES ENTITLED TO VOTE. CONSEQUENTLY, A FAILURE
TO VOTE OR A VOTE TO ABSTAIN WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
PROPOSAL I.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING POSTAGE-
PAID ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED. SHAREHOLDERS ATTENDING
THE MEETING MAY PERSONALLY VOTE ON ALL MATTERS WHICH ARE CONSIDERED, IN WHICH
EVENT THE SIGNED PROXIES ARE REVOKED.
YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING WRITTEN
NOTICE TO LCS AT THE COMPANY'S OFFICE OR BY EXECUTING A LATER DATED PROXY OR
VOTING IN PERSON AT THE SPECIAL MEETING.
TABLE OF CONTENTS
Page
INTRODUCTION
SUMMARY ......................................................... 3
JACKSONVILLE CONSOLIDATED BALANCE SHEETS......................... 8
THE SHAREHOLDER MEETING.......................................... 9
The Meeting................................................. 9
Vote Required............................................... 9
Recommendation.............................................. 10
THE MERGER....................................................... 11
Background and Reasons for The Merger....................... 11
Purchase Price and Conversion of Shares..................... 12
Opinion of Financial Advisor................................ 12
Effective Time.............................................. 15
Business of LCS Pending The Merger.......................... 15
Conditions to Consummation of The Merger.................... 16
Waiver and Amendment; Termination........................... 17
Interests of Certain Persons in The Merger.................. 18
Certain Federal Income Tax Considerations................... 19
DISSENTERS' RIGHTS............................................... 20
OWNERSHIP OF EQUITY SECURITIES................................... 21
MARKET PRICE AND DIVIDEND INFORMATION............................ 22
ADJOURNMENT OF SPECIAL MEETING................................... 22
SELECTED FINANCIAL DATA.......................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 24
General..................................................... 24
Financial Condition......................................... 24
Results of Operations....................................... 24
Asset/Liability Management.................................. 30
Liquidity and Capital Resources............................. 32
Impact of New Accounting Standards.......................... 33
Effect of Inflation and Changing Prices..................... 34
(i)
Page
BUSINESS OF LCS BANCORP, INC.................................... 34
BUSINESS OF LITCHFIELD COMMUNITY SAVINGS, S.B................... 34
General.................................................... 34
Lending Activities......................................... 35
Allowance For Losses on Loans.............................. 45
Investment Activities...................................... 49
Sources of Funds........................................... 52
Subsidiaries............................................... 54
Employees.................................................. 54
Offices and Other Material Properties...................... 55
Competition................................................ 55
LEGAL PROCEEDINGS............................................... 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 55
EXPERTS......................................................... 55
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............... 55
SHAREHOLDER PROPOSALS........................................... 56
OTHER MATERIALS................................................. 56
ANNEXES
I. Agreement and Plan of Merger by and among
Jacksonville Savings Bank and LCS Bancorp, Inc.
and Litchfield Community Savings, S.B.
II. Fairness Opinion of RP Financial, L.P.
III. Excerpts from Delaware General Corporation Law
Relating to Dissenter's Rights of Appraisal
(ii)
PROXY STATEMENT
LCS Bancorp, Inc.
Special Meeting
to be Held on
_____________, 199_
This Proxy Statement is being furnished to the holders of common stock,
$.01 par value (the "LCS Common Stock"), of LCS Bancorp, Inc., a Delaware
corporation ("LCS" or the "Company"), in connection with the solicitation of
proxies by the Board of Directors of LCS for use at the special meeting of
LCS shareholders to be held at ____ _.m., on ___________, 199_, at the
_______________________, _____________________, ____________, Illinois,
(the "LCS Special Meeting").
At the LCS Special Meeting, the holders of record of LCS Common Stock as
of the close of business on ___________, 199_, will consider and vote upon a
proposal to approve the Agreement and Plan of Merger dated as of August 13,
1996 (the "Agreement"), by and among Jacksonville Savings Bank, an Illinois
chartered savings bank ("Jacksonville"), LCS, and Litchfield Community
Savings, S.B. ("Litchfield" or the "Bank") and the Agreement of Company Merger,
the Plan of Merger and the Plan of Complete Liquidation and Dissolution of LCS
Bancorp, Inc. (together the "Reorganization Agreement"), pursuant to which
Litchfield will be merged with and into Jacksonville, LCS will be liquidated
into Jacksonville, and the holders of shares of LCS Common Stock will receive
cash in an amount equal to $17.75 per share of LCS Common Stock (the
"Purchase Price"). All references in this Proxy Statement to approval of the
Reorganization Agreement shall be deemed to refer also to the approval of the
transactions contemplated thereby. Upon consummation of the Merger, which is
expected to occur during the first quarter of calendar 1997. Each
outstanding share of LCS Common Stock (other than certain shares owned by LCS
and shares as to which dissenters' rights have been asserted and duly
perfected in accordance with Delaware law ("Dissenting Shares") shall be
converted into the right to receive the Purchase Price. Each outstanding
option to purchase LCS Common Stock issued pursuant to LCS' Stock Option Plan
shall be cancelled and each holder of any such option shall be entitled to
receive an amount determined by multiplying (i) the difference obtained by
subtracting (x) the per share exercise price applicable to such option, from
(y) $17.75 per share, by (ii) the number of shares of LCS Common Stock
subject to such option. For a description of the Reorganization Agreement,
which is included herein in its entirety as Annex I to this Proxy Statement,
see "THE MERGER."
This Proxy Statement and the accompanying Proxy are first being mailed to
shareholders of LCS on or about ____________, 199_.
1
[THIS PAGE INTENTIONALLY LEFT BLANK]
2
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere or incorporated by reference in this Proxy Statement.
Parties to the Merger
LCS Bancorp, Inc. LCS Bancorp, Inc. ("LCS" or the "Company"), a
Delaware corporation, was incorporated on August 25, 1994, for the purpose of
becoming the holding company for Litchfield upon the Bank's conversion from a
state-chartered mutual savings bank to a state-chartered stock savings bank
("Conversion"). The Conversion was completed on January 27, 1995. At
December 31, 1995, the Company had total assets of $19,180,787, total
deposits of $17,067,827, and shareholders' equity of $1,948,780. Subsequent
to the Conversion, the Company has not engaged in any significant activity
other than holding the stock of the Bank.
The Company, on an unconsolidated basis, has used the proceeds of the
Conversion to fund the loan to the Employee Stock Ownership Plan of $51,750,
which was used to acquire 5% of the shares issued in the conversion. The loan
is being repaid in equal quarterly principal installments plus interest. The
Company also invests in U. S. Treasury and agency obligations and short-term
liquid assets. The funds for the Company's operations are provided principally
from repayment of the ESOP loan and investment revenue. The Company's expenses
consist primarily of postage and other office supply expenses, legal and filing
fees, and franchise taxes.
Litchfield Community Savings, S.B. Litchfield Community Savings, S.B.
("Litchfield" or the "Bank") was organized in 1883 as an Illinois-chartered
mutual savings and loan association named "Oil City Savings and Loan Associa-
tion." In 1972, Oil City Savings and Loan Association merged with Cooperative
Savings and Loan Company, and the merged entity took the name "Litchfield
Community Savings and Loan Association". In 1993, the Bank converted to an
Illinois-chartered savings bank and changed its name to "Litchfield Community
Savings, S.B." In 1995, Litchfield converted from an Illinois-chartered mutual
savings bank to an Illinois-chartered stock savings bank. The Bank is reg-
ulated by the Commissioner of Banks and Real Estate ("OBRE") of the State of
Illinoisand its deposits are insured up to the applicable limits under the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a member of the Federal Home Loan Bank
("FHLB") System.
The Bank's principal business consists of attracting deposits from the
general public through a variety of deposit programs and originating loans
secured by owner-occupied, single family (one-to-four units) residential
properties located in its primary market area. The Bank also, to a lesser
extent, has been active in the origination and purchase of commercial and
agricultural real estate loans. The Bank also originates consumer loans
(primarily loans secured by deposits in the Bank, automobiles, and home
improvement loans) and commercial business loans. The Bank also purchases
U.S. Government and agency securities, and invests in mortgage-backed
securities, investment grade investment securities and short-term liquid
assets. Funds for these activities are provided principally by deposit growth,
repayments of outstanding loans, and operating revenues. The Bank has not
used borrowed funds in the last five years.
The Bank derives its income principally from interest earned on loans,
mortgage-backed securities, and investments. To a lesser extent, loan and
other fees, and gains on investment securities provide income for the Bank.
The Bank's principal expenses are interest expense on deposits and other
expenses, such as salaries and employee benefits, FDIC insurance premiums,
computer service bureau expense, and occupancy and equipment expense.
Jacksonville. Jacksonville Savings Bank ("Jacksonville") is an Illinois
chartered stock savings bank and a subsidiary of Jacksonville Bancorp, M.H.C.,
an Illinois chartered mutual holding company. Jacksonville operated four
banking offices as of December 31, 1995, is a member of the Federal Home Loan
Bank system, and its deposits are insured under the SAIF of the FDIC to the
extent provided by law.
3
Jacksonville Acquisition Corporation. Jacksonville Acquisition Corpora-
tion is a to be formed Illinois corporation, which will be a wholly-owned sub-
sidiary of Jacksonville for the purpose of facilitating the contemplated trans-
action a tax-free reorganization of LCS. Pursuant to the transactions contem-
plated by the Reorganization Agreement, Jacksonville Acquisition Corporation
will be merged into LCS with the result that LCS will become a subsidiary of
Jacksonville. LCS will thereafter be liquidated into Jacksonville.
Shareholder Meeting
The LCS Special Meeting will be held on __________, 199_, at _____
_.m., at the ______________, ____________________, __________________,
Illinois. The purpose of the LCS Special Meeting is to consider and vote upon
a proposal to approve the Reorganization Agreement. See "THE SHAREHOLDER
MEETING."
In addition to approval of the Reorganization Agreement, the share-
holders of LCS are being asked to approve a proposal to adjourn the LCS Special
Meeting if necessary to permit further solicitation of proxies in the event
that there are not sufficient votes at the time of the LCS Special Meeting to
approve the Reorganization Agreement.
Vote Required; Record Date
Only LCS shareholders of record at the close of business on
__________, 199_ (the "LCS Record Date"), will be entitled to vote at the LCS
Special Meeting. Under the LCS Articles of Incorporation, the affirmative vote
of a majority of the votes entitled to be cast by the holders of LCS Common
Stock is required to approve the Reorganization Agreement.
As of the LCS Record Date, there were 107,640 shares of LCS Common
Stock entitled to be voted. Consequently, 53,821 shares of LCS Common Stock
must vote for the approval of the Reorganization Agreement in order for it to
be adopted. The directors and executive officers of LCS and their affiliates
owned, as of the LCS Record Date, 15,215 shares, or approximately 14.14% of the
outstanding shares, of LCS Common Stock, and they have agreed to vote their
shares for approval of the Reorganization Agreement. See "THE SHAREHOLDER
MEETING -Vote Required."
The Bank Merger
Pursuant to the Plan of Merger, Litchfield will merge with and into
Jacksonville and the separate corporate existence of Litchfield shall thereupon
cease and Jacksonville shall be the surviving institution. Under Illinois Law,
Jacksonville shareholders must vote upon and approve the Bank Merger.
Jacksonville intends to hold a shareholders' meeting to vote on the Plan of
Merger in December, 1996.
The Company Merger.
Upon consummation of the Company Merger, each outstanding share of LCS
Common Stock (other than certain shares owned by LCS and Dissenting Shares)
will be converted into the right to receive the Purchase Price.
The Purchase Price was determined as a result of arm's length
negotiations between LCS and Jacksonville. This value was determined based
upon an evaluation of LCS' historical deposits, assets and earnings growth and
potential growth and business opportunities as well as the book value per share
and current sales prices for LCS Common Stock. The $17.75 per share valuation
represents the estimated fully diluted book value per share of the LCS Common
Stock at December 31, 1996.
4
Effective Time
Assuming satisfaction of all conditions to consummation of the Merger,
the Merger is expected to become effective during the first quarter of 1997.
LCS and Jacksonville each has the right, acting unilaterally, to terminate the
Agreement should the Merger not be consummated by June 30, 1997 . See "THE
MERGER - Conditions to Consummation of the Merger, - Waiver and Amendment;
Termination."
Opinion of Financial Advisor
LCS has received the opinion of RP Financial, Inc. ("RP") dated
the date hereof, that, as of such date, the Purchase Price is fair,
from a financial point of view, to the holders of LCS Common Stock.
The full text of RP's opinion, which describes the procedures followed,
assumptions made, limitations on the review taken, and other matters in
connection with rendering such opinion, is set forth in Annex II to this Proxy
Statement, is incorporated herein by reference, and should be read in its
entirety by LCS shareholders. For additional information regarding the opinion
of RP and a discussion of the qualifications of RP, see "THE MERGER - Opinion
of Financial Advisor."
RP, as part of its investment banking business, regularly is engaged
in the valuation of assets, securities and companies in connection with various
types of asset and security transactions, including mergers, acquisitions,
private placements and valuations for various other purposes, and in the
determination of adequate consideration in such transactions.
Dissenters' Rights
Pursuant to Section 262 of the Delaware General Corporation Law (the
"DGCL"), LCS shareholders will have dissenters' rights if the Reorganization is
consummated. If any holder of LCS Common Stock does not fully and precisely
satisfy the statutory requirements for dissenting shareholders, such holder's
right to have the fair value of such holder's shares judicially determined and
paid in cash will be waived or forfeited. A shareholder who votes in favor of
Proposal I or the return of a signed Proxy which does not specify a vote
against Proposal I will constitute a waiver of such shareholder's right of
appraisal and will nullify any previously written demand for appraisal. See
"THE SHAREHOLDER MEETING," "DISSENTERS' RIGHTS" and Annex III.
Conduct of Business Pending the Merger
LCS has agreed in the Reorganization Agreement to operate its
business in the ordinary course and to refrain from taking certain actions re-
lating to the operation of its business pending consummation of the Merger
without the prior approval of Jacksonville, except as otherwise permitted by
the Reorganization Agreement. See "THE MERGER - Conduct of Business Pending
the Merger."
Conditions to Consummation; Termination
Consummation of the Merger is contingent on, among other things, (i)
the receipt of approvals from the OBRE and the FDIC; (ii) approval by the LCS
shareholders, and (iii) compliance by LCS, Litchfield and Jacksonville in all
material respects with all covenants and agreements required by the
Reorganization Agreement. In addition, Jacksonville's shareholders must
approve the Plan of Merger, which is Exhibit B to the Agreement. A shareholder
meeting to consider the Plan of Merger is scheduled to be held in December
1996. All applications required for approval of the OBRE and the FDIC have
been made and such approvals are expected to be received.
5
The Reorganization Agreement may be terminated prior to the Effective
Time, either before or after approval by LCS shareholders, under the circum-
stances specified therein, including (i) by mutual written consent of the
Boards of Directors of Jacksonville and LCS; (ii) by written notice from Jack-
sonville to LCS if certain conditions set forth in the Reorganization Agreement
shall have become impossible to substantially satisfy and have not been waived
by LCS or if any warranty or representation of LCS shall be discovered to be or
to have become untrue in any material respect, or LCS shall have materially
breached one or more provisions in the Reorganization Agreement and such breach
is not cured within 30 days of receipt of notice of such breach; (iii) by
written notice from LCS to Jacksonville if certain conditions set forth in the
Reorganization Agreement have not been substantially satisfied or have not been
waived by Jacksonville, or if any warranty or representation of Jacksonville
shall be discovered to be or to have become untrue in any material respect, or
Jacksonville shall have materially breached one or more provisions of the
Reorganization Agreement and such breach is not cured within 30 days of receipt
of notice of such breach; (iv) by either Jacksonville or LCS after June 30,
1997, if the Merger has not been consummated; and (v) by either Jacksonville or
LCS if the approval of the shareholders of LCS required for the consummation of
the Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of shareholders, or at any adjournment
thereof. See "THE MERGER, - Conditions to Consummation of the Merger, - Waiver
and Amendment; Termination."
Interests of Certain Persons in the Merger
Certain members of LCS' management and Board of Directors have interests
in the Merger in addition to their interests as shareholders of LCS generally.
These include, among other things, provisions in the Reorganization Agreement
relating to eligibility for certain employee benefits and provisions in other
agreements between LCS and certain of LCS' directors, officers or employees
relating to employment terms and employment agreements. See "THE MERGER -
Interests Of Certain Persons In The Merger."
Federal Income Tax Consequences
The conversion of LCS Common Stock into the right to receive the
Purchase Price will be a taxable transaction in which LCS shareholders will
recognize gain or loss based upon the Purchase Price that they receive.
Assuming that the Merger occurs as planned, the taxable income will be
recognized in 1997. See "THE MERGER - Certain Federal Income Tax
Considerations."
Accounting Treatment of the Merger
The Merger will be accounted for as a business combination using the
purchase method of accounting. Under that method, the fair market value of
LCS' assets and liabilities will be recorded on the books of Jacksonville with
any differential between the aggregate Purchase Price and such fair market
value being accounted for as goodwill by Jacksonville.
Market Price Prior to Announcement of the Merger
The last reported sale of LCS Common Stock prior to the announcement of
the Company's intent to enter into the Merger occurred on May 24, 1996 and
involved 2,000 shares sold at a reported price of $18.00 per share.
Since the Conversion, there has been very little trading activity in the
LCS Common Stock. During 1996 there have been only two trades involving a
total of 2,010 shares; one of those trades involved a donation of shares to a
charity for auction at a fund-raising event. Because of the very limited
activity in the LCS Common Stock, management estimates the market price of the
LCS Common Stock to be $17.75 per share, taking into account earnings and
events that have occurred since the last trade. See "MARKET PRICE AND
DIVIDEND INFORMATION."
6
Comparative Per Share Data
The following table presents historical per share data for LCS. Such
data is based on historical financial statements for LCS. The per share data
included in the following table should be read in conjunction with the Audited
Financial Statements and Interim Financial Statements (unaudited) included
herein.
Six Months Ended Twelve Months Ended
6/30/96 6/30/95 12/31/95
Earnings Per Share-Primary $ 0.29 $ 0.38 $ 0.71
Earnings Per Share-Fully Diluted 0.26 0.35 $ 0.67
Book Value Per Share-Primary 18.03 17.21 17.96
Book Value Per Share-Fully Diluted 17.50 16.90 17.76
7
Jacksonville Consolidated Balance Sheets
The following are the historical consolidated balance sheets of Jacksonville
and Subsidiaries (unaudited) for each of June 30, 1996 and December 31,
1995.
June 30, December 31,
1996 1995
ASSETS
Cash and cash equivalents $ 4,904,764 $ 5,448,767
Investment securities 928,650 988,350
Investment securities available-for-sale 795,951 -
Mortgage-backed securities available-for-sale 14,980,629 14,303,714
Loans - net 112,444,253 110,110,834
Loans held for sale - net of unrealized losses 1,692,820 1,206,307
Premises and equipment - net 4,891,668 5,067,746
Accrued interest receivable:
Mortgage-backed securities 84,305 78,005
Loans 1,250,432 1,063,335
Other 9,953 5,325
Deferred tax benefits 272,362 217,597
Capitalized mortgage servicing rights 84,213 -
Other assets 703,688 187,742
TOTAL $143,043,688 $138,677,722
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $124,267,622 $120,115,408
Other borrowings 348,900 389,176
Advance payments by borrowers
for taxes and insurance 112,104 112,259
Income taxes payable 138,232 18,161
Accrued interest payable 840,428 812,608
Other liabilities 405,823 496,575
Total liabilities $126,113,109 $121,944,187
Commitments and contingencies
Preferred stock, $1.00 par value -
authorized 5,000,000 shares:
none issued and outstanding
Common stock $1.00 par value -
authorized 20,000,000 shares: issued and
outstanding, 1,272,300 and 1,250,000 shares,
respectively 1,272,300 1,250,000
Additional paid-in capital 4,714,058 4,429,304
Retained earnings - substantially restricted 11,433,154 11,312,457
Net unrealized gain on mortgage-backed securities
and investments available-for-sale 86,498 130,950
Unearned management recognition and
retention shares (226,531) -
Unearned ESOP shares (348,900) (389,176)
Total stockholders' equity 16,930,579 16,733,535
TOTAL $143,043,688 $138,677,722
8
THE SHAREHOLDER MEETING
The Meeting
Each copy of this Proxy Statement mailed to holders of LCS Common Stock is
accompanied by a Proxy furnished in connection with the solicitation of proxies
by the Board of Directors of LCS for use at the LCS Special Meeting. The LCS
Special Meeting is scheduled to be held on _________, 199_, at ____ _.m., at
the _______________, ________________________________, ________________,
Illinois. Only holders of record of LCS Common Stock at the close of business
on _____________, 199_ (the "LCS Record Date"), are entitled to receive notice
of and to vote at the LCS Special Meeting. At the LCS Special Meeting, share-
holders will consider and vote upon a proposal to approve the Reorganization
Agreement. See "THE MERGER.
HOLDERS OF LCS COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO LCS IN THE ENCLOSED, POSTAGE-
PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED PROXY OR TO VOTE
AT THE MEETING OR TO VOTE TO ABSTAIN WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE AGREEMENT.
Any holder of LCS Common Stock who has delivered a Proxy may revoke it at
any time before it is voted by attending and voting in person at the LCS
Special Meeting or by giving notice of revocation in writing or submitting a
signed Proxy bearing a later date to LCS Bancorp, Inc., 501 N. State Street,
Litchfield, Illinois 62056, Attention: Corporate Secretary, provided such
notice or Proxy is actually received by LCS before the vote of shareholders.
The shares of LCS Common Stock represented by properly executed Proxies
received at or prior to the LCS Special Meeting and not subsequently revoked
will be voted as directed by the shareholders submitting such Proxies. If
instructions are not given, Proxies received will be voted FOR approval of
the Reorganization Agreement. If necessary, and unless the shares represented
by the Proxy were voted against the proposal therein, the proxy holder may
also vote in favor of a proposal to adjourn the LCS Special Meeting to permit
further solicitation of Proxies in order to obtain sufficient votes to approve
the matter being considered at the LCS Special Meeting. Shareholders who do
not hold their shares in their own name will need additional documentation
from the record holder in order to vote personally at the LCS Special Meeting.
The cost of soliciting proxies from holders of LCS Common Stock will be
borne by LCS. Such solicitation will be made by mail but also may be made by
telephone or in person by the directors, officers and employees of LCS (who
will receive no additional compensation for doing so). LCS will make
arrangements with brokerage firms and other custodians, nominees and fidu-
ciaries to send proxy materials to their principals.
LCS SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY.
Vote Required
The holders of each share of LCS Common Stock outstanding will be entitled
to one vote for each share held of record as of the LCS Record Date. Under the
LCS Articles of Incorporation, the affirmative vote of a majority of the votes
entitled to be cast by the holders of the LCS Common Stock is required to
approve the Reorganization Agreement.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares of LCS Common Stock entitled to vote at
the LCS Special Meeting is necessary to constitute a quorum at the LCS Special
Meeting. Abstentions will be counted, but broker non-votes will not be
counted, as shares present for purposes of determining the presence of a
quorum. Neither abstentions nor broker non-votes will be counted as votes
cast for purposes of determining whether the proposal has received sufficient
votes for approval. A broker non-vote will occur when a broker who holds
shares in street name for a customer does not have the authority to cast a vote
on the matter because its customer has not furnished voting instructions on the
matter.
As of the LCS Record Date, there were 107,640 shares of LCS Common Stock
outstanding and entitled to vote at the LCS Special Meeting, with each share
being entitled to one vote. As of the LCS Record Date, the directors and
executive officers of LCS owned a total of 15,215 shares (representing
approximately 14.14% of the outstanding shares of LCS Common Stock), and they
have agreed to vote their shares in favor of the Reorganization Agreement. In
addition, it is anticipated that all 5,175 shares, or 4.81%, held by the
Litchfield Community Savings, S.B. Employee Stock Ownership Plan (the "ESOP")
will be voted for approval of the Reorganization Agreement. In order for the
transactions contemplated by the Reorganization Agreement to be consummated,
53,821 shares of LCS Common Stock must be voted for approval of the Reorganiza-
tion Agreement. Assuming that the shares held by directors and executive
officers of LCS who have agreed to vote in favor of the Reorganization Agree-
ment and by the ESOP are voted to approve the Reorganization Agreement, at
least 33,431 additional shares must be affirmatively voted at the LCS Special
Meeting to approve the Reorganization Agreement.
9
In accordance with the provisions of the LCS Certificate of Incorporation,
record holders of Common Stock who beneficially own in excess of 10% of the
outstanding shares of LCS Common Stock (the "Limit") are not entitled to any
vote with respect to the shares held in excess of the Limit. A person or
entity is deemed to beneficially own shares owned by an affiliate of, as well
as persons acting in concert with, such person or entity. The LCS Certificate
of Incorporation authorizes the Board of Directors (i) to make all determina-
tions necessary to implement and apply the Limit, including determining whether
persons or entities are acting in concert, and (ii) to demand that any person
who is reasonably believed to beneficially own stock in excess of the Limit
supply information to LCS to enable the Board to implement and apply the Limit.
Recommendation
For the reasons described herein, the Board of Directors of LCS has
adopted the Reorganization Agreement, believes the Merger is in the best
interests of LCS and its shareholders and recommends that shareholders of LCS
vote FOR approval of the Reorganization Agreement. In making its recommenda-
tion, the Board of Directors of LCS considered, among other things, the opinion
of RP that the Purchase Price is fair to LCS shareholders from a financial
point of view.
See "THE MERGER - Background and Reasons For the Merger" and
- Opinion of Financial Advisor."
10
PROPOSAL I
THE MERGER
The detailed terms of the Merger are contained in the Reorganization
Agreement attached as Annex I to this Proxy Statement. The following dis-
cussion describes the more important aspects of the Merger and the terms of the
Reorganization Agreement. This description is not complete and is qualified in
its entirety by reference to the Reorganization Agreement which is incorporated
by reference herein and which LCS shareholders are urged to read carefully.
Background and Reasons for the Merger
LCS was funded on January 27, 1995, as the result of the completion of the
Conversion of Litchfield. In the Conversion, additional capital of $802,000
was raised. The stock is publicly traded on the NASDAQ "Pink Sheet" listing.
Following the Conversion, the Company earned a 0.39% return on assets for
the year ended December 31, 1995. For the first six months of 1996, the
annualized return on assets has been 0.33%. The Company, at approximately
$19 million in assets at June 30, 1996, is a very small company in
relation to publicly traded companies. Yet, the costs of filing, registrar
and trustee fees, and other professional services required of a publicly
traded company are still very expensive. In addition, management believed that
many additional financial services must be offered by the Bank in order for
the Bank to remain competitive in the community.
In evaluating the future prospects of the Company, the Company's
Board of Directors met on April 30, 1996 and thereupon resolved to determine
the highest and best offer for the Company with a view towards possible sale of
the Company if an appropriate value could be achieved. To that end the Board
of Directors of the Company instructed management to solicit confidential
indications of interest for purchase of control of the Company. Between May
2, 1996 and May 20, 1996 management contacted three financial institutions and
two private investment groups which the Company's management believed to have
a strategic interest in the Company to determine whether they had an interest
in acquiring the Company. The Company received preliminary indications of
interest from the three financial institutions, including Jacksonville. On
June 18, 1996, the Company engaged RP to prepare a Market Value Assessment
of the Company to enable management and the Board of Directors to properly
evaluate the expressions of interest. After review of the RP Market Value
Assessment the Board of Directors of the Company believed that pursuing the
proposal received from Jacksonville was in the best interest of the Company.
On July 16, 1996, a representative of Jacksonville attended the Board of
Directors meeting of the Company to present and discuss its offer for the
acquisition of the Company. At that meeting the Board of Directors
authorized management, together with its legal advisors and consultants to
negotiate a definitive agreement with Jacksonville. On August 13, 1996 the
Board of Directors reviewed with the advice of counsel and RP, the
Reorganization Agreement and authorized execution of same.
The Jacksonville transaction offers the Bank the opportunity to better
compete in the community by being able to offer additional services, such as
ATM cards and access to the secondary market for fixed rate mortgage loans.
This would allow the combined companies to achieve economies of scale in the
areas of computer services, legal and supervisory fees, filing fees, as well
as many other areas.
Moreover, the merger with Jacksonville will keep the facility in place in
the community, as well as the same staff. While the Board's primary
responsibility is to maximize shareholder value, the directors were pleased
with Jacksonville's plans to continue to service the Litchfield area and retain
the continuity with the present customer base by retaining present employees.
The Board and management of Jacksonville feel the Litchfield area shows
tremendous potential and wish to expand their services in the area.
In the opinion of the Board of Directors of LCS, the Merger is in the
best interests of the shareholders of LCS, and the Board has unanimously
authorized consummation of the Merger, subject to the approval of
shareholders and certain other conditions set forth in the Agreement. The
terms of the Merger, including the Purchase Price, are the result of arm's
length negotiations between the representatives of LCS and Jacksonville.
11
In approving the Reorganization Agreement, the LCS Board of Directors
considered a number of factors including, but not limited to, the Purchase
Price to be received by the shareholders of LCS compared to both the
book value of LCS and the trading range of LCS Common Stock immediately
prior to the announcement of the Merger. The LCS Board of Directors also
considered the growth possibilities of LCS relative to asset size and income
and the probable future value of LCS, as well as the effect of the Merger on
the employees and customers of Litchfield and the compatibility of the
business, branches and operations of Litchfield and Jacksonville. In
addition, the LCS Board made a review of the business, operations, earnings,
financial condition and management of Jacksonville.
Purchase Price and Conversion of Shares
In arm's length negotiations, LCS and Jacksonville valued LCS Common Stock
at $17.75 per share. This value was determined based upon an evaluation of
LCS' historical deposits, assets, and earnings growth and potential growth, as
well as the book value and recent sales prices for LCS Common Stock. In view
of the variety of factors considered, the parties did not find it practicable
to assign relative weights to each of these factors. The $17.75 valuation
represents a multiple of approximately 1.02 times the fully-diluted book value
of LCS Common Stock at June 30, 1996.
At the Effective Time, Litchfield shall merge with and into Jacksonville
and the separate corporate existence of Litchfield shall thereupon cease and
Jacksonville shall be the surviving institution and shall continue to be
governed by the laws of the State of Illinois. The Articles of Incorporation
and By-laws of Jacksonville in effect immediately prior to the Effective Time
shall be the Articles of Incorporation and By-laws of the surviving institu-
tion. The directors of Jacksonville immediately prior to the Effective Time
shall be the directors of the surviving institution. At the Effective Time,
each issued and outstanding share of LCS Common Stock (other than Dissenting
Shares and shares of LCS Common Stock held by LCS in treasury) shall be con-
verted into the right to receive the Purchase Price. All such shares of LCS
Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist and each holder of any certifi-
cate(s) evidencing such shares shall cease to have any right with respect to
such shares, except for the right to receive, without interest, upon surrender
of the certificate(s) therefor representing such shares, the Purchase Price.
All shares of LCS Common Stock held by LCS as issued but not outstanding shares
shall be cancelled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefore. All shares of common stock of
Jacksonville and preferred stock of Jacksonville, if any, that are owned by
LCS (other than shares held in an agency or fiduciary capacity) shall become
issued but not outstanding shares of Jacksonville.
At the Effective Time, all rights with respect to the purchase of 10,350
shares of LCS Common Stock issued to directors, executive officers and employ-
ees of LCS pursuant to the LCS stock option plan, whether or not then exercis-
able, shall be converted into and become at the effective time only the right
to receive cash for each share covered by such LCS stock option in an amount
equal to the difference between the Purchase Price minus the exercise price of
such LCS stock option per share upon surrender by the holder of such LCS stock
option of the agreement or certificate evidencing the same. Pursuant to the
terms of the LCS stock option plan, the Board of Directors of LCS has made a
formal determination that it is not in the best interest of LCS and Jackson-
ville for the LCS stock option plan to be assumed by Jacksonville and such
stock options shall be terminated at the Effective Time.
Following the Effective Time, former shareholders of LCS will be mailed a
letter of transmittal which will set forth the procedures that should be
followed for exchange of LCS Common Stock for the Purchase Price. LCS
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Opinion of Financial Advisor
The Board of Directors of LCS retained RP in July 1996 as its financial
advisor to assist in evaluating merger opportunities. Upon reaching its
decision to pursue the Merger, the Board of Directors requested RP to render
its opinion with respect to the Purchase Price from a financial point of view
to the Company's shareholders. In requesting RP's advice and opinion, the
Board of Directors of LCS did not give any special instructions to, or impose
any limitations upon the scope of the investigation which RP might wish to
conduct to enable it to give its opinion. RP has delivered to the Company its
written opinion dated August 13, 1996, to the effect that, based upon and
subject to the matters set forth therein, as of the date thereof, the
Purchase Price to be received by the Company's shareholders as described in
the Reorganization Agreement, is fair to such shareholders from a financial
point of view. In connection with its opinion dated the date of this Proxy
Statement, RP also confirmed the appropriateness of its reliance on the
analysis used to render its August 13, 1996 opinion by performing procedures
to update certain of such analyses and by reviewing the assumptions on which
such analyses were based and the factors considered in connection therewith.
12
The full text of the opinion of RP, which sets forth the assumptions made,
matters considered and limitations undertaken is attached as Annex II to this
Proxy Statement. The Company's shareholders are urged to read the opinion in
its entirety.
THE OPINION OF RP IS DIRECTED TO THE BOARD OF DIRECTORS OF THE COMPANY
IN ITS CONSIDERATION OF THE PURCHASE PRICE AS DESCRIBED IN THE AGREEMENT, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF THE COMPANY
AS TO ANY ACTION THAT SUCH SHAREHOLDER SHOULD TAKE IN CONNECTION WITH THE
AGREEMENT, OR OTHERWISE. IT IS FURTHER UNDERSTOOD THAT THE OPINION OF RP
IS BASED ON MARKET CONDITIONS AND OTHER CIRCUMSTANCES EXISTING ON THE DATE
HEREOF.
RP was selected by the Company to act as its financial advisor because of
RP's expertise in the valuation of business and their securities for a variety
of purposes including its expertise in connection with mergers and acquisitions
of commercial banks, savings banks, savings and loan associations, and bank
holding companies. RP has previously acted as financial advisor to the Company
in a variety of planning and valuation matters and in connection with inquiries
from prospective acquirors. Pursuant to a letter dated July 17, 1996 (the
"Engagement Letter"), RP estimates that it will receive from the Company total
professional fees of $17,500 plus reimbursement of certain out-of-pocket
expenses, for its services in connection with the Merger. In addition,
the Company has agreed to indemnify and hold harmless RP, any affiliates of RP
and the directors, officers, agents and employees of RP who act for or on
behalf of RP from and against any and all losses, claims, damages and
liabilities caused by or arising out of any untrue statement of a material fact
contained in the information so provided that is required to be stated or
necessary to make the statements therein not misleading. Pursuant to its
agreement, the Company will not be required to indemnify RP for any losses,
claims, damages, and liabilities if RP is determined to be negligent or other-
wise at fault, or if RP is determined to have failed to exercise such due
diligence and to conduct such independent investigations, as the circumstances
indicate; provided, however, that RP will be entitled to indemnification for
any such losses, claims, damages and liabilities to the extent that RP
reasonably relied upon information furnished by the Company whether or not
the Company is determined to have been negligent or otherwise at fault. In
addition, if RP is entitled to indemnification from the Company under the
agreement and in connection therewith incurs legal expenses in defending any
legal action challenging the opinion of RP where RP is not negligent or other-
wise at fault or is found by a court of law to be not negligent or otherwise
at fault, the Company will indemnify RP for all reasonable expenses.
As set forth in the opinion, RP relied, without independent verification,
on the accuracy and completeness of the information concerning the Company
furnished to RP by the Company, as well as publicly-available information
regarding other financial institutions and economic data. RP did not perform or
obtain any independent appraisals or evaluations of the assets and liabilities
and potential and/or contingent liabilities of the Company. Moreover, RP
expressed no opinion on matters of a legal, accounting or tax nature or the
ability of the Merger to be consummated as set forth in the Reorganization
Agreement.
The opinion states that RP reviewed and analyzed the following materials in
conjunction with its valuation of the Company and the adequacy of the Purchase
Price: (1) the Reorganization Agreement, dated August 13, 1996, including
exhibits; (2) the following information for the Company - (a) audited financial
statements for the fiscal years ended December 31, 1993 through 1995, incorpor-
ated in Annual Reports to shareholders, shareholder and internal reports, and
quarterly reports on Form 10-Q for the quarters ended March 31, 1996 and June
30, 1996; (b) the most recent proxy statement, and (c) unaudited internal and
regulatory financial reports and analyses prepared by management regarding
various aspects of the Company's assets and liabilities, particularly rates,
volumes, maturities, market values, trends, credit risk, interest rate risk and
liquidity risk of assets, liabilities, off-balance sheet assets, commitments
and contingencies, including off-balance sheet tax benefits, of the Company;
and (3) for Jacksonville, historical financial information as of December 31,
1993 through 1995. In addition, RP conducted discussions with the Company's
management regarding past and current business operations, financial condition,
and future prospects.
The opinion further stated that RP reviewed the limited trading activity
for LCS Common Stock, and compared it to similar information for savings insti-
tutions with comparable resources, financial condition, earnings, operations
and markets as well as for publicly-traded savings institutions with comparable
financial condition, earnings, operations and markets. The opinion also stated
that RP reviewed the Company's financial, operational and market area
characteristics compared to similar information for comparable savings institu-
tions, evaluated the potential for growth and profitability for LCS in its
market, specifically regarding competition by other banks, savings institu-
tions, mortgage banking companies and other financial services companies,
economic projections in the local market area, and the impact of the regula-
tory, legislative and economic environments on operations and the public per-
ception of the savings institution and banking industries. The results of
these analyses and the other factors considered were evaluated as a whole, with
the aggregate results indicating a range of financial parameters utilized to
assess the amount of the Purchase Price.
13
In connection with rendering its opinion, dated August 13, 1996 and
updated as of ______________, 1996, RP performed a variety of
analyses, which are summarized below. The preparation of a fairness opinion
is a complex process involving subjective judgments and is not necessarily
susceptible to partial analyses or summary description. RP stated that its
analyses must be considered as a whole and that selecting portions of such
analyses and of the factors considered by RP without considering all such
analyses and factors could create an incomplete view of the process underlying
RP's opinion. In its analyses, RP made numerous assumptions with respect to
industry performance, business and economic conditions, applicable laws and
regulations, and other matters, many of which are beyond the control of the
Company. Any estimates contained in RP's analyses are not necessarily
indicative of future results or values, which may be significantly more or
less favorable than such estimates. No company or transaction utilized in RP's
analyses was identical to LCS, Jacksonville or the Merger. None of the
analyses performed by RP was assigned a greater significant by RP than any
other.
The following is a summary of the material financial analyses performed by
RP in connection with providing its opinion as of August 13, 1996
Transaction Summary. RP summarized the terms of the Merger, including the
conversion of each share of LCS Common Stock into the right to receive $17.75
in cash. RP also summarized the treatment of stock options, and the termina-
tion provisions. RP also summarized the pricing ratios indicated by the
Purchase Price relative to the Company's assets, book value, and earnings.
Control Premium Analysis. RP conducted an anlysis comparing the pricing
ratios indicated by the Purchase Price to the average pricing ratios indicated
for publicly-traded savings banks and savings bank holding companies
operating in the State of Illinois. Pricing ratios for the Company measured
the Purchase Price in relation to the Company's financial measures of book
value, earnings and assets. Pricing ratios for the State of Illinois
measured the average trading price of twenty-five (25) publicly-traded
institutions. The pricing ratios indicated by the Purchase Price represented
a premium of 6.3 percent, 91.9 percent, and a discount of 11.7 percent,
respectively, relative to the State of Illinois average pricing ratios of
price-to-tangible book value, price-to-earnings multiples, and price-to-
assets multiples.
Comparable Transactions Analysis. RP conducted an evaluation of the finan-
cial terms, financial and operating condition and market area of other recent
business combinations among comparable savings institutions both pending and
completed. In conjunction with its analysis, RP considered the multiples of
book value, earnings and assets implied by the terms in such completed and
pending comparable transactions involving selected companies considered
comparable to LCS in terms of geographic markets served and financial measures
(the "Comparable Transactions"). RP considered the pricing ratios indicated by
the Purchase Price relative to reported financial results of LCS and adjusted
financial results of LCS estimated through December 31, 1996. The average and
median price-to-book value ratios indicated by the Comparable Transactions were
139% and 142%, respectively, versus a price-to-book value ratio of approximate-
ly 102% indicated by the Purchase Price based on reported financials and
approximately 105% based on adjusted financials through December 31, 1996. The
average and median price-to-earnings multiples indicated by the Comparable
Transactions were 28.93 times and 26.29 times, respectively versus price-to-
earnings multiple of approximately 35.14 times estimated core earnings
indicated by the Purchase Price based on reported financials and approximately
30.27 times based on adjusted financials through December 31, 1996. The
average and median price-to-assets ratios indicated by the Comparable Trans-
actions were 17.35% and 19.30%, respectively, versus a price-to-assets ratio of
approximately 11.13% indicated by the Purchase Price based on reported finan-
cials and approximately 11.16% based on adjusted financials through December
31, 1996.
Discounted Cash Flow Analysis. RP prepared several discounted cash flow
analyses, all of which incorporated a five year financial projection and cash
flow analysis to shareholders. The discounted cash flow analyses incorporated
several specific factors regarding the operating environment of the Company,
including growth prospects in the local market, the level of competition from
other financial institutions, regulatory burdens faced by the Company, the
liquidity and distribution of the LCS Common Stock and the specific asset
and liability structures and future earning expectations for the Company under
the current business plan. The projections of future cash flows to share-
holders included the payment of no cash dividends during interim years and the
receipt of consideration at the end of five years, assuming at that time that
the Company determined to pursue a merger transaction and successfully nego-
tiated a merger price for its shareholders that reflected a control premium
("sale-of-control price"). The cash flow represented by the sale-of-control
price was discounted to present value using a range of risk-adjusted discount
rates ranging from 10% to 14%, and was utilized as a basis for evaluating the
adequacy of the Purchase Price. The projections of future cash flows assumed
payment of no cash dividends, asset growth of 0% annually, return on average
assets increasing to approximately 0.43% of average assets and realization of
a sale-of-control price at the end of five years of operations. The low end
valuation conclusion for each discount rate scenario was based on a sale-of-
control price assumed at year 5 calculated as 1.0 times projected fully
diluted book value per share, an assumption considered the most realistic
in relation to current acquisition prices and the Company's market area,
asset size and operations. The high end valuation conclusion for each
14
discount rate scenario was based on a sale-of-control price assumed at year
5 calculated as 1.4 times projected fully diluted book value per share,
an assumption considered optimistic in relation to current acquisition
prices and historical prices. Assuming a discount rate of 14%, the
discounted cash flow analyses suggested a purchase price ranging from $10.40 to
$14.35 per share. Assuming a discount rate of 12%, the discounted cash flow
analyses suggested a purchase price ranging from $11.37 to $15.68 per share.
Assuming a discount rate of 10%, the discounted cash flow analyses suggested a
purchase price ranging from $12.44 to $17.15 per share.
The results of RP's analyses and the other factors considered were evalu-
ated as a whole, with the aggregate results indicating a range of financial
parameters utilized to assess the adequacy of the Purchase Price. On the basis
of these analyses, RP concluded that the Purchase Price to be received by the
LCS shareholders as described in the Reorganization Agreement, is fair to
such shareholders from a financial point of view.
As described above, RP's opinion and presentation to the Board of Directors
of LCS was one of many factors taken into consideration by the Company's Board
in making its determination to approve the Reorganization Agreement. Although
the foregoing summary describes the material components of the analyses
presented by RP to the Company's Board, it does not purport to be a complete
description of all the analyses performed by RP and is qualified by reference
to the written opinion of RP set forth as Annex II hereto, which the LCS
shareholders are urged to read in its entirety.
Effective Time
The Merger shall become effective when the Certificate of Merger has been
issued by the OBRE and has been recorded in the counties in which either
Jacksonville or LCS has an office (the "Effective Time"). Assuming
satisfaction of all conditions to consummation of the Merger, the Merger is
expected to become effective during the first quarter of 1997. Either LCS or
Jacksonville may terminate the Agreement if the Merger has not been consummated
by June 30, 1997 . See "THE MERGER - Conditions to Consummation of the Merger
- - Waiver and Amendment; Termination.
Until the Effective Time occurs, LCS shareholders will generally retain
their rights as shareholders to vote on matters submitted to them by the LCS
Board of Directors.
Business of LCS Pending the Merger
LCS has agreed that until the Effective Time, LCS, except as expressly
permitted in the Agreement or to the extent that Jacksonville shall otherwise
consent in writing: (a) shall carry on its business in the ordinary course in
accordance with past business practices; (b) use its best efforts to preserve
intact its business organization and assets, maintain its rights and fran-
chises, retain the services of its officers and employees and maintain its
relationship with its customers; (c) maintain its corporate existence and good
standing and file all required regulatory reports; (d) use its best efforts to
maintain and keep its properties in good repair and condition, except for
ordinary wear and tear; (e) use its best efforts to keep in full force and
effect insurance and bonds comparable in amount and scope of coverage to that
in existence as of the date of the Reorganization Agreement; (f) perform all
obligations required to be performed by LCS under all material contracts,
leases, and documents relating to or effecting LCS' assets, properties, and
business; (g) use its best efforts to comply with and perform in all material
respects all obligations and duties imposed upon LCS by all applicable laws and
regulations; and (h) furnish Jacksonville with copies of all of LCS' financial
and regulatory reports subsequent to the date of the Reorganization Agreement.
LCS has also agreed that until the Effective Time, it shall not, without the
prior written consent of Jacksonville, do any of the following: (a) incur any
liabilities or material obligations (in an aggregate amount not exceeding
$5,000), except in the ordinary course of business consistent with prudent
business practices; (b) grant any bonus or material increase in compensation to
its directors or grant any bonus or any increase in compensation to its
officers and employees, or effect any change in retirement benefits to any
class of employees or officers that would increase its retirement benefit
liabilities, or adopt, enter into, amend or modify any LCS benefit plan, or
enter into any employment, severance or similar agreements or arrangements with
any director or officer; (c) declare or pay any dividend on, or make any other
distribution in respect of, its outstanding shares of capital stock;
(d) redeem, purchase or otherwise acquire any shares of its capital stock, or
merge with or into any other corporation, savings institution or bank (unless
the fiduciary duties of LCS' Board of Directors requires it to do so), or
purchase any assets, or shares of any class of stock, of any corporation,
savings institution, bank or other business, or liquidate, sell, dispose of,
or encumber any of its assets or acquire any assets, other than in the ordinary
course of business consistent with past practices, or split, combine or
reclassify any of its capital stock; (e) issue, deliver, award, grant or sell
any shares of its capital stock of any class or any debt instrument having a
right to vote or any securities convertible into any such shares or voting debt
or convertible securities; (f) initiate, solicit or encourage any inquiries or
the making of any proposal to acquire the entire equity interest in LCS or
substantially all of its assets; (g) propose to amend or amend its Articles of
Incorporation or Bylaws, except such amendments as may be required to
consummate the transactions contemplated by the Reorganization Agreement;
(h) enter into an agreement in principal with respect to any acquisition of a
15
material amount of assets or securities or release or relinquishment of any
material contract rights not in the ordinary course of business; (i) except in
its fiduciary capacity, purchase any shares of capital stock of Jacksonville;
(j) change any of its methods of accounting or tax reporting in effect at
December 31, 1995 except as may be required by law or generally accepted
accounting principles; (k) wilfully take any action which would or is
reasonably likely to (i) adversely effect the ability of Jacksonville or LCS
to obtain any necessary approvals of governmental authorities required for the
transactions contemplated by the Reorganization Agreement; (ii) adversely
effect LCS' ability to perform its covenants and agreements under the
Reorganization Agreement; or (iii) result in any of the conditions to the
Merger not being satisfied; (l) change in any material respect the lending,
investment, deposit, asset and liability management and other material
policies concerning the business of LCS, unless required by law or
regulation; (m) file any applications or make any contract with respect to
branching by LCS; (n) form any new subsidiary or enter into or invest in
partnership, joint venture or other business enterprise; (o) purchase any debt
securities or derivative securities; (p) purchase any equity securities other
than Federal Home Loan Bank Stock; (q) discharge or satisfy any lien or
encumbrance or pay any material obligation or liability other than at scheduled
maturity or in the ordinary course of business; (r) sell of otherwise dispose
of any loan, mortgage backed security or investment security except in the
ordinary course of business consistent with prudent banking practices and
policies; (s) modify or restructure the terms of any loans except in the
ordinary course of business consistent with prudent banking practices;
(t) make any capital expenditures in excess of $5,000 individually or $15,000
in the aggregate, other than pursuant to binding commitments existing on the
date of the Reorganization Agreement and other than expenditures necessary to
maintain existing assets in good repair; (u) change its method of accounting in
effect prior to the Effective Time, except as required by changes in laws or
regulations or generally accepted accounting principles; (v) acquire in any
manner whatsoever (other than to realize upon collateral for a defaulted
loan) any business or entity; (w) grant or agree to pay any bonus, severance
or termination payment to any of its directors, officers or employees except as
may be required pursuant to legally binding commitments in effect on the date
of the Reorganization Agreement; (x) enter into or, except as may be required
by law, modify any employee benefit plan or arrangement in respect of any of
the directors, officers or employees of LCS, or make any annual additions to
LCS' Employee Stock Ownership Plan in excess of those amounts permitted
pursuant to the Internal Revenue Code or make any annual additions to any other
defined contribution or defined benefit plan not in the ordinary course of
business and consistent with past practices and policies; or (y) agree in
writing or otherwise to do any of the foregoing. LCS shall also use its best
efforts to keep Jacksonville fully informed concerning all trends and develop-
ments of which LCS becomes aware that may have a material effect upon the
business, any properties or condition (either financial or otherwise) of LCS.
In addition to the foregoing, LCS and Litchfield have agreed that
Litchfield, at the request of Jacksonville and no earlier than five (5) days
prior to the Effective Time shall (a) establish and take such reserves and
accruals as Jacksonville shall reasonably request to conform, on a mutually
satisfactory basis, Litchfield's loan, real estate, accrual and reserve
policies to Jacksonville's policies and (b) establish and take such accruals,
reserves and charges in order to implement such policies and respective
severance costs, right-off or right-down of various assets and other
appropriate accounting adjustments, and to recognize for financial accounting
purposes such expenses incurred in connection with the Merger, provided,
however, that Litchfield shall not be obligated to take any such action unless
and until (i) Jacksonville specifies its request in writing delivered to
LCS, and acknowledges that all conditions to the obligations of Jacksonville
to consummate the Merger have been waived (if available) or satisfied and
(ii) LCS acknowledges that the conditions to its obligation to consummate the
Company Merger have been waived (if available) or satisfied. LCS shall not be
required to take any such action that is not consistent with generally accepted
accounting principles, as determined by LCS' independent auditors, or any
requirement applicable to LCS or Litchfield by any bank holding company, or
bank regulatory agency.
Conditions to Consummation of the Merger
Consummation of the Merger is conditioned upon the approval thereof by the
holders of a majority of the outstanding LCS Common Stock entitled to vote at
the LCS Special Meeting. The Merger must be approved by the OBRE and the FDIC,
which approvals have been applied for and are expected to be received. In
addition, Jacksonville will have a meeting of shareholders to vote on the Plan
of Merger.
There can be no assurance that such regulatory approvals will be obtained
or as to the timing of any such approval. There can also be no assurance that
any such approvals will not contain a condition or requirement which causes
such approvals to fail to satisfy the conditions set forth in the Agreement and
described below.
Jacksonville and LCS are not aware of any material governmental approvals
or actions that are required for consummation of the Merger, except as
described above. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought.
16
The obligations of Jacksonville, Litchfield and LCS to consummate the
Merger are further conditioned upon, among other things: (i) no temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction nor any other legal restraint or prohi-
bition preventing the consummation of the Merger shall be in effect nor shall
any proceedings by any person or governmental entity seeking any of the fore-
going be pending or overtly threatened; (ii) the accuracy of certain
representations and warranties contained in the Agreement; (iii) the
performance of all covenants and agreements contained in the Agreement;
(iv) the receipt of opinions of counsel with respect to certain legal matters,
including the organization and good standing of Jacksonville, Litchfield and
LCS, the due authorization of the Agreement by Jacksonville, Litchfield and
LCS and the enforceability of the Agreement; (v) receipt of a supplement to the
RP Opinion dated as of the closing date to the effect that the Purchase Price
is fair from a financial point of view to the shareholders of LCS; and (vi)
receipt of all governmental approvals, which approvals shall be in full force
and effect at the Effective Time.
It is anticipated that the foregoing conditions will be satisfied, but LCS
and Jacksonville may waive any condition to the consummation of the Merger
except requisite approvals of LCS shareholders and regulatory authorities.
The Board of Directors of LCS will not, however, waive any condition or agree
to any amendment to the Agreement which, in the opinion of the Board of
Directors, will have any material adverse effect on the shareholders of LCS.
Except as otherwise provided in the Reorganization Agreement, all expenses
incurred by Jacksonville and LCS in connection with or related to the
authorization, preparation and execution of the Reorganization Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transactions contemplated thereby are to be borne solely and
entirely by the party that has incurred the same. Jacksonville has agreed that
as of the Closing Date, it shall assume and pay the unpaid reasonable expenses
of LCS accrued in connection with the Company Merger.
LCS has agreed to pay Jacksonville a fee equal to $200,000 upon the
occurrence of any of the following events on or before June 30, 1997: (a) if
LCS' Board recommends a proposal other than as set forth in the Reorganization
Agreement; or (b) if LCS' Board withdraws, or modifies its recommendation of
approval of the Reorganization Agreement, after receipt of a different proposal
from another party; or (c) if LCS' shareholders do not approve the
Reorganization Agreement after a different proposal from a third party is made;
or (d) if LCS enters into an agreement to be acquired by any party other than
Jacksonville.
Jacksonville has agreed to pay LCS a fee equal to $200,000 upon the
occurrence of any of the following events on or before June 30, 1997: (a) if
Jacksonville's Board does not recommend that its shareholders approve
the Plan of Merger; or (b) if Jacksonville enters into an agreement with
another party and as a result refuses to the transactions set forth in the
Reorganization Agreement.
Waiver and Amendment; Termination
Waiver and Amendment. Prior to the Closing Date (as defined in the
Reorganization Agreement) Jacksonville or LCS, by action taken by their
respective Boards of Directors, may waive the performance of any
of the obligations of the other or waive compliance by the other with any of
the covenants or conditions contained in the Reorganization Agreement or
agree to the amendment or modification of the Reorganization Agreement by an
agreement in writing; provided, however, that after the favorable vote by the
shareholders of LCS any such action shall be taken only if, in the opinion of
LCS' or Jacksonville's Board of Directors, such waiver, amendment or
modification will not have a material adverse effect on the benefit intended
under the Reorganization Agreement for the shareholders of LCS or Jacksonville
and will not require resolicitation of any proxies from such shareholders.
Termination. The Reorganization Agreement may be terminated prior to the
Effective Date, either before or after approval by LCS shareholders, under the
circumstances specified therein, including (i) by mutual written consent of the
Boards of Directors of Jacksonville and LCS; (ii) by written notice from
Jacksonville to LCS if certain conditions set forth in the Reorganization
Agreement shall have become impossible to substantially satisfy and have not
been waived by LCS, or if any warranty or representation of LCS shall be
discovered to be or to have become untrue in any material respect, or LCS shall
have materially breached one or more provisions in the Reorganization Agree-
ment; (iii) by written notice from LCS to Jacksonville if certain conditions
set forth in the Reorganization Agreement have not been substantially satisfied
or have not been waived by Jacksonville, or if any warranty or representation
of Jacksonville shall be discovered to be or to have become untrue in any
material respect, or Jacksonville shall have materially breached one or more
provisions of the Reorganization Agreement; (iv) by either Jacksonville or LCS
after June 30, 1997 , if the Merger has not been consummated; and (v) by either
Jacksonville or LCS if the approval of the shareholders of LCS required
for the consummation of the Merger shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of shareholders,
or at any adjournment thereof.
17
In the event that the Reorganization Agreement or the transactions
contemplated thereby are terminated by either party as a result of a willful
breach by the other party, such other party shall promptly pay all
reasonable expenses of the non-breaching party. Such expenses shall include
all reasonable out-of-pocket expenses, including all fees and expenses of
counsel, accountants, investment bankers, experts and consultants
incurred by the non-breaching party. In addition, Jacksonville has agreed,
in such event, to reimburse LCS for any losses incurred by LCS in the
disposition of any assets of LCS as directed by Jacksonville pursuant to the
Reorganization Agreement.
Interests of Certain Persons in the Merger
General. Certain directors, officers and employees of LCS have interests
in the Merger in addition to their interests as shareholders of LCS generally.
These include, among other things, provisions in the Reorganization Agreement
relating to eligibility for certain LCS employee benefits and provisions in
other agreements between LCS and certain of LCS' directors, officers or
employees relating to employment terms, stock options and change-in-control
payments. Specifically the Chief Executive Officer of LCS has an agreement
entitling her to certain payments if she ceases to be employed by LCS or its
successor after a "change in control" of LCS, such as the Merger. In addition,
the directors, officers and employees of LCS hold options to acquire shares of
LCS Common Stock. The Reorganization Agreement specifies that all such options,
whether or not exercisable, shall be converted into and become at the Effective
Time the right to receive cash for each share covered by such stock option in
an amount equal to the difference between the Purchase Price minus the exercise
price of the stock option per share upon surrender by the holder of such stock
option of the agreement or certificate evidencing the same. Further, the Board
of Directors of LCS has made a determination that it is not in the best inter-
est of LCS or Jacksonville for the LCS stock options to be assumed by Jackson-
ville and that such LCS stock options shall be terminated at the Effective
Time.
Employees. Under the terms of the Reorganization Agreement Jacksonville
has agreed to offer continued employment to all full-time employees of LCS as
of the Effective Time. The employees of LCS who continue employment with
Jacksonville on or after the Effective Time shall be eligible to participate in
such employee benefit plans as may be in effect generally for employees of
Jacksonville from time to time. To the extent permissible under such employee
benefit plans, employees of LCS shall be entitled to participate in such
employee benefit plans on the same basis as new employees of Jacksonville and
shall be given credit for their prior years of service with LCS for the
purposes of determining eligibility and vesting under such employee benefit
plans.
At the request of Jacksonville, LCS shall cause its 401(k) Plan to be
terminated immediately prior to the Effective Time with the accounts
of participants becoming fully-vested and with the participants receiving the
right to roll-over their account balances to an individual retirement account
and/or Jacksonville's 401(k) Plan.
Employment Agreement With Chief Executive Officer. Effective May 1, 1994
the Bank entered into a 3-year employment agreement with the President and
Chief Executive Officer of the Company and the Bank, Carol J. Radtke. The
agreement may be extended annually by action of the Board of Directors for an
additional year, and the Board of Directors has taken action to extend the
agreement to April 30, 1999. Under the terms of said agreement, Ms. Radtke is
presently being paid an annual salary of $63,375, as well as certain other
benefits in addition to those available to bank employees generally. The
employment agreement provides for severance payment and other benefits in the
event of voluntary termination of employment in connection with any change in
control of LCS. Severance payments would also be provided on a similar basis
in connection with involuntary termination of employment where, subsequent to a
change in control, Ms. Radtke is assigned to duties inconsistent with her
position, duties, responsibilities and status immediately prior to such change
in control. The term "Change in Control" is defined in the agreement as, among
other things, any time during the period of employment when a change of control
is deemed to have occurred under regulations of the OBRE or FDIC or a change
in the composition of more than a majority of the Board of Directors of the
Company occurs. The Merger would constitute a Change in Control, thereby
triggering the Change in Control provision of Ms. Radtke's employment agree-
ment. Under such provision, the severance payment due Ms. Radtke, should her
employment be terminated either involuntarily or voluntarily pursuant to the
terms of the agreement, would equal 2.99 times her "Base Amount" as defined in
Section 280 G(b)(3) of the Internal Revenue Code of 1986, as amended (the
"Code"). This severance payment would amount to approximately $189,491, and be
payable to her within five (5) business days following such termination of
employment.
18
Pursuant to the Reorganization Agreement, however, Ms. Radtke has been
offered, and, upon completion of the Merger she intends to accept, the position
of Vice President of Jacksonville, which is considered a senior officer
position. It is anticipated that Jacksonville and Ms. Radtke will enter into a
three year employment agreement in consideration of Ms. Radtke foregoing her
right to the aforementioned payments under her existing employment agreement
with LCS. The Jacksonville employment agreement shall provide for a three year
term at an initial salary equal to Ms. Radtke's current salary and with bene-
fits comparable to those she is presently receiving from Litchfield as well as
all benefits accorded to persons at the level of Vice President of
Jacksonville. Among the benefits accorded to senior officers of Jacksonville
is a deferred compensation plan in which Ms. Radtke shall participate.
LCS Bancorp, Inc. Stock Option Plan. Pursuant to the LCS Bancorp, Inc.
Stock Option Plan, the directors, officers and employees of LCS have been
granted stock options to purchase an aggregate of 10,350 shares of LCS Common
Stock, all of which options will become immediately exercisable by reason of
the Merger. Each holder of an option pursuant to the stock option plan out-
standing at the date of the Reorganization Agreement and remaining outstanding
at the Effective Time shall receive, as of the Effective Time, a cash payment
in an amount equal to the Purchase Price less the exercise price of each such
option. Such cash payments shall result in the cancellation of all such
options. Each director of LCS, other than Ms. Radtke, currently hold unexer-
cised options to acquire 1,267 shares of the LCS Common Stock; Ms. Radtke
currently holds unexercised options to acquire 3,090 shares of the LCS Common
Stock; and other non-executive employees of Litchfield currently hold
unexercised options to acquire 925 shares of LCS Common Stock. Assuming such
options are held to the Effective Time, the directors, other than Ms. Radtke,
will each receive $7,052; Ms. Radtke will receive $19,848; and the non-
executive employees of Litchfield will receive $5,194 collectively.
LCS Bancorp, Inc. Management Recognition and Development Plan. Pursuant to
LCS Bancorp, Inc. Management Recognition and Development Plan, awards of shares
of LCS Common Stock were made to directors, officers and employees of LCS.
Pursuant to the terms of such plan, such shares are restricted and may not be
sold until they vest; shares vest from 3 years to 10 years depending upon the
terms of the grant. However, in accordance with the terms of such plan, shares
granted pursuant to such plan immediately vest and are required to be
distributed following the occurrence of a change in control such as the Merger.
Accordingly, Ms. Radtke will receive a distribution of 1,075 shares and each of
the other directors of LCS will receive a distribution of 465 shares. The
other employees of LCS will receive, in the aggregate, a distribution of 740
shares. Each such share will be converted into a right to receive the Purchase
Price as a result of the Merger.
Employee Stock Ownership Plan. The Reorganization Agreement provides that
Jacksonville will cooperate with LCS to maximize the allocation of the Purchase
Price applicable to unallocated shares to the existing participants of the LCS
Employee Stock Ownership Plan (ESOP) in a manner consistent with ERISA, the
Code and applicable law. In this regard, the Reorganization Agreement provides
that the ESOP may be terminated at or prior to the Effective Time. LCS shall
thereupon promptly apply to the Internal Revenue Service for a favorable
determination letter on the LCS ESOP's termination. Any and all distributions
from the ESOP after its termination shall be made consistent with the
determination letter of termination issued by the Internal Revenue Service
relating to the termination and the allocation of any excess amounts in LCS'
ESOP suspense account after repayment of any outstanding ESOP loan.
The Board of Directors. At the Closing Date Jacksonville shall cause its
directors' and officers' liability insurance carrier to include the directors
and officers of LCS under the Jacksonville Directors' and Officers' Liability
Policy and to pay any deductible required to be paid thereunder.
Jacksonville has also agreed that the directors of LCS as of the Effective
Time will be appointed to an Advisory Board for a term of at least 6 months.
Each member of the Advisory Board shall receive a monthly retainer of $200
subject to regulatory approval.
Certain Federal Income Tax Considerations
The Merger will be a taxable transaction to shareholders of LCS. For
shareholders who hold stock in LCS for investment purposes, the receipt of
the Purchase Price (or the consideration received upon the exercise of
dissenters' rights) will be treated as gross proceeds from the sale of a
capital asset. If the stock in LCS has been held for more than one year (as of
the date of the Merger), then the gain or loss will be treated as long-term
capital gains or losses. Assuming the Merger occurs as planned, the income
will be recognized for tax purposes in 1997, when the Merger occurs and the
shareholders must tender their stock. Each shareholder is urged to consult
with his or her own financial advisor regarding tax issues not covered in this
general discussion.
19
DISSENTERS' RIGHTS
Pursuant to Delaware General Corporation Law Section 262 ("Section "262"),
a copy of which is attached to this Proxy Statement as Annex III, a shareholder
of the Company may dissent from the proposed corporate action to approve the
Reorganization Agreement and receive the right to an appraisal of such
shareholder's shares.
If the Merger is consummated, dissenting shareholders (defined below) of
the Company will have the right, if they strictly comply with the provisions
of Section 262, to have the fair value of their shares judicially determined
and paid to them ("appraisal rights"). Any shareholder of the Company
intending to enforce his appraisal rights under Section 262 must object in
writing to the adoption of the Reorganization Agreement prior to the LCS
Special Meeting, or at the LCS Special Meeting but before the vote on the
Reorganization Agreement, by filing with the Secretary of the Company a written
objection to the Merger ("a notice of election to dissent"), identifying him-
20
self and stating that he intends thereby to demand appraisal of his shares. A
vote against, or a direction in a proxy to vote against, the Reorganization
Agreement will not in itself constitute a notice of election to dissent, and
will not preserve the shareholder's appraisal rights. If the Reorganization
Agreement is approved and adopted at the LCS Special Meeting, Jacksonville must
give written notice not later than ten days after the Effective Time that the
Merger has become effective to each shareholder who has timely filed a notice
of election to dissent and who has not voted in favor of the Reorganization
Agreement (a "dissenting shareholder"). A shareholder's vote in favor of the
Reorganization Agreement will waive his appraisal rights. However, a
shareholder's failure to vote against the Reorganization Agreement will not in
itself be a waiver of his appraisal rights if he has filed a timely notice of
election to dissent.
A notice of election to dissent may be withdrawn by a dissenting share-
holder at any time within 60 days after the Effective Time. Upon such with-
drawal, the dissenting shareholder will be entitled to receive the same consid-
eration received by the other Company shareholders. If (i) a dissenting share-
holder timely withdraws his notice of election to dissent, (ii) Company share-
holders do not approve the Reorganization Agreement, (iii) a court of competent
jurisdiction determines that the dissenting shareholder is not entitled to
payment for his shares, (iv) no petition for an appraisal is filed within the
time period discussed below, or (v) a dissenting shareholder otherwise loses
his appraisal rights, then such shareholder will be reinstated to any rights
other Company shareholders then have.
Upon consummation of the Merger, each dissenting shareholder will cease to
have any rights of a shareholder except the right to be paid the fair value
of his shares and the right to receive payments of dividends or other
distributions, if any, payable to shareholders of record prior to the Effective
Time and any other rights under Section 262.
Within 120 days after the Effective Time a dissenting shareholder who has
perfected his appraisal rights may file a petition in the Delaware Court of
Chancery demanding a determination of the value of the shares of all dissenting
shareholders. Upon the filing of any such petition by a shareholder, service
of a copy of such petition shall be made upon Jacksonville. In addition, such
dissenting shareholder is entitled, during such time period, to request from
Jacksonville a statement as to the number of dissenting shareholders from whom
the Company has received a demand for appraisal and the number of shares of
Common Stock held by such stockholders. Jacksonville must furnish the state-
ment within ten days after receipt of the request therefor. Jacksonville must,
within 20 days after the filing with the Court of Chancery described above,
file with the Register in Chancery a verified list of the names and addresses
of all dissenting shareholders. The Court may then order that all of the
individuals on that list be notified of the time and place of the hearing on
the petition.
At the hearing on the petition, the Court will determine the shareholders
who have complied with Section 262 and have become entitled to appraisal rights
and will determine the value of shares of Common Stock based on all relevant
factors, exclusive of any element of value attributable to the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. The Court may require
all dissenting shareholders to submit their certificates for Common Stock to
the Register in Chancery for notation as to the pendency of the appraisal pro-
ceeding with respect to such shares. If any dissenting shareholder fails to
submit his certificates, the Court may dismiss the proceedings as to such
shareholder.
Upon conclusion of the proceeding, the Court will direct Jacksonville to
pay the fair value of the shares, together with interest, if any, to the share-
holders entitled thereto, upon surrender of the certificates representing their
shares. The costs of the proceeding may be determined by the Court and divided
among the parties as the Court deems equitable.
The procedures outlined above are set forth in Section 262, attached hereto
as Annex II. Upon compliance with the requirement of such Section, a dis-
senting shareholder will be entitled to receive payment of the fair value of
his shares in accordance with the procedures and subject to the conditions set
forth therein.
20
Shareholders wishing to exercise their appraisal rights should consult
their own counsel.
The foregoing is only a summary of the material provisions of Delaware law
relating to appraisal rights and should not be considered to be a comprehensive
legal description. The statements in this Proxy Statement with respect to the
terms of Section 262 are qualified in their entirety by reference to the copy
of Section 262, attached hereto as Annex III, setting forth a complete descrip-
tion of the rights and obligations of the Company and of any shareholder who
desires to exercise appraisal rights.
21
OWNERSHIP OF EQUITY SECURITIES
Persons and groups owning in excess of 5% of the Common Stock are required
to file certain reports regarding such ownership with the Company and with the
Securities and Exchange Commission, in accordance with the Securities Exchange
Act of 1934 (the "Exchange Act").
The following table sets forth, as of _________, 1996, the shares of LCS
Common Stock beneficially owned by directors of LCS individually, by all
executive officers and directors of LCS as a group and by each person who was
the beneficial owner of more than 5% of the LCS Common Stock as of __________,
1996.
Name and Amount and Nature Percent of
Address of of Beneficial Outstanding (a)
Wayne P. Brauer 2,051 1.91%
Carol J. Radtke(b)(c) 2,497 2.32%
Olind McPherson 2,051 1.91%
Herman Helgen 2,051 1.91%
Howard Hartke 3,651 3.39%
Robert Parrish 2,301 2.14%
All Officers and Directors
as a Group (9 persons)(c) 15,215 14.14%
(a) The total number of shares of Common Stock outstanding on ___________,
1996 was 107,640.
(b) Includes shares held as custodian under Illinois Gifts To Minors Act.
(c) Includes allocated ESOP shares totalling 517 shares, including 239
shares for Ms. Radtke.
21
MARKET PRICE AND DIVIDEND INFORMATION
The following table represents the estimated market price of LCS Common
Stock reflecting the high and low sale prices for LCS Common Stock by quarter.
LCS Common Stock trades over-the-counter through the National Daily Quotation
System "Pink Sheet" published by the National Quotation Bureau, Inc. LCS has
not paid any cash dividends since the Conversion. On June 30, 1996, there
were approximately 159 holders of LCS Common Stock.
1995 High Low
Initial Offering Price at Conversion 10.00 10.00
First Quarter Ended March 31, 1995 11.00 10.00
Second Quarter Ended June 30, 1995 16.50 16.00
Third Quarter Ended September 30, 1995 15.00 15.00
Fourth Quarter Ended December 31, 1995 N/A N/A
1996
First Quarter Ended March 31, 1996 20.50 20.50
Second Quarter Ended June 30, 1996 18.00 18.00
Since the Conversion, there has been very little trading activity in the LCS
Common Stock. During 1996 there have been only two trades involving a total
of 2,010 shares; one of those trades involved a donation of shares to a charity
for auction at a fund-raising event. The last reported sale of LCS Common
Stock prior to the announcement of the Company's entering into the Reorganiza-
tion Agreement occurred on May 24, 1996 and involved 2,000 shares sold at a
reported price of $18.00 per share. Because of the very limited activity in
the LCS Common Stock, the above trading range reflects management's best
estimated as to the trading range of the LCS Common Stock.
PROPOSAL II
ADJOURNMENT OF SPECIAL MEETING
If, at the time of the LCS Special Meeting, there are not sufficient votes
to approve the adoption of the Reorganization Agreement, such proposal cannot
be approved unless the LCS Special Meeting is adjourned to permit further
solicitation of proxies. In order to allow proxies that have been received by
LCS at the time of the LCS Special Meeting to be voted for such adjournment if
necessary, LCS is submitting the question of adjournment under such
circumstances to its shareholders as a separate matter for their consideration.
A majority of the shares represented and voting at the LCS Special Meeting is
required in order to approve any such adjournment. The Board of Directors of
LCS recommends that shareholders vote their proxies in favor of such adjourn-
ment so that their proxies may be used for such purposes if it should become
necessary. Properly executed proxies will be voted in favor of any such
adjournment unless otherwise indicated thereon. If it is necessary to adjourn
the LCS Special Meeting, no notice of the time and place of the adjourned
meeting is required to be given to shareholders other than an announcement of
such time and place at the LCS Special Meeting.
22
<TABLE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data for LCS for
each of the years ended December 31, 1993 through 1995, and the six months
ended September 30, 1996 and September 30, 1995. This information should be
read in conjunction with the LCS Audited Financial Statements, including the
respective notes thereto, and the LCS Interim Financial Statements (unaudited)
included elsewhere herein.
<CAPTION>
Twelve Months Ended Nine Months Ended
12/31/93 12/31/94 12/31/95 06/30/95 06/30/96
(in Thousands)
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Total Assets ............................... 20,569 19,707 19,181 19,992 18,820
Loans Receivable, Net ...................... 6,618 6,846 8,277 7,708 8,529
Mortgage Backed Securities ................. 2,303 1,764 1,628 1,751 1,501
Investment Securities (including FHLB Stock) 7,439 7,554 6,417 7,069 6,094
Other Interest-Earning Deposits ............ 3,695 2,785 2,367 2,866 2,133
Deposits ................................... 19,245 18,755 17,068 17,982 16,738
Total Borrowings ........................... 0 0 0 0 0
Stockholders' Equity ....................... 1,164 835 1,949 1,852 1,941
SELECTED OPERATIONS DATA:
Total interest income ..................... 1,392 1,269 1,366 676 661
Total interest expense .................... 1,105 915 896 446 427
Net interest income ....................... 287 354 470 230 234
Provision for loan losses ................. (15) (1) 2 6 0
Net interest income after provision for loan
losses .................................. 302 355 468 224 234
Fees and service charges .................. 14 11 17 8 8
Gain (Loss on sales of investment securities
& interest-bearing deposits .............. 77 (4) 0 0 2
Gain (Loss) on sale of real estate owned .. 0 0 0 0 0
Gain (Loss) on disposal of fixed assets ... 0 0 0 0 0
Other non-interest income ................. 1 1 1 0 0
Total non-interest income ................. 92 8 18 8 10
Total non-interest expense ................ 360 348 374 185 206
Income tax expense ........................ 3 3 36 7 7
Net income ................................ 31 12 76 40 31
KEY FINANCIAL RATIOS:
Return on average assets ................... 0.15% 0.006% 0.39% 0.40% 0.33%
Return on average equity ................... 2.84% 1.21% 4.52% 4.34% 3.19%
Average equity to average assets ........... 5.20% 4.94% 8.64% 7.89% 10.29%
Dividend payout ratio ...................... N/A N/A 0.00% 0.00% 0.00%
Net interest margin ........................ 1.40% 1.82% 2.46% 2.37% 2.55%
Non-interest expense to average assets ..... 1.72% 1.74% 1.92% 1.88% 2.18%
<FN>
23
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the Financial Statements, the accompanying
Notes to Financial Statements and the other sections contained in this Proxy
Statement.
Financial Condition
Assets. Total assets decreased $526,000 or 2.7% to $19,181,000 on
December 31, 1995 from $19,707,000 on December 31, 1994. The decrease
primarily resulted from a $1,769,000 decrease in the Bank's liquidity and
investment portfolio. The Bank's loan portfolio increased $1,432,000 to
$8,371,000 at December 31, 1995 from $6,939,000 at December 31, 1994.
Liabilities. Deposits decreased $1,687,000 or 9.0% to $17,068,000 on
December 31, 1995 from $18,755,000 on December 31, 1994. The reduction in
deposit balances was consistent with the Bank's strategy of reducing
deposits due to the uncertainty surrounding the "special assessment" that
Congress was proposing to impose on SAIF-insured financial institutions.
Capital. Shareholders' equity increased $1,114,000, or 133.4%, to
$1,949,000 on December 31, 1995. The increase in 1995 included the proceeds
from the Conversion of the Bank on January 27, 1995. Net proceeds from the
Conversion of $802,000, less the funding of the ESOP loan of $52,000, were
added to shareholders' equity. In addition, the unrealized loss on available
for sale securities decreased by $282,000, net of tax to ($7,000) at
December 31, 1995 from ($289,000) at December 31, 1994. Net income of
$76,000 was added to equity. No dividends were declared in 1995.
Borrowings. Litchfield did not have any borrowings during the year
ending December 31, 1995 and has not had any borrowings during the five most
recent fiscal years.
Results of Operations
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, primarily loans and mortgage-backed and investment securities, and int-
erest expense on interest-bearing liabilities, primarily deposits and borrow-
ings. The Company's net income also is affected by the establishment of pro-
visions for loan losses and the level of its non-interest income, including
fees on loans, deposit service charges, the results of real estate activities,
and gains or losses from the sale of assets, as well as its non-interest
expense and income tax provisions.
General. The Company reported net income (loss) of $76,000, $12,000, and
$31,000 for the years ended December 31, 1995, 1994 and 1993, respectively, and
$31,000 and $40,000 for the six months ended June 30, 1996 and 1995,
respectively.
The $9,000 decrease in net income for the six months ended June 30,
1996 was primarily due to a $21,000 increase in non-interest expense, as
partially offset by an $6,000 decrease in the provision for credit losses,
a $2,000 increase in gains on sales of investment securities, and a $4,000
increase in net interest income.
The $64,000 increase in net income for the year ended December 31, 1995
was due primarily to a $116,000 increase in net interest income and a $10,000
increase in other income which were partially offset by a $26,000 increase in
other expenses and a $33,000 increase in income tax expense.
Net income decreased by $19,000 in 1994, primarily due to an $82,000
decrease in gains on sales of investment securities and a $14,000 increase in
the provision for credit losses, which was partially offset by a $67,000
increase in net interest income and a $12,000 decrease in other expenses.
Net Interest Income. Net interest income is determined by an institu-
tion's interest rate spread (i.e., the difference between the yields earned on
its interest-earning assets and the rate paid on its interest-bearing liabili-
ties) and the relative amount of interest-earning assets and interest-bearing
liabilities.
24
Net interest income decreased $4,000 or 1.7% for the six months ended
June 30, 1996 compared to the six months ended June 30, 1995. This increase
was due primarily to a $19,000 decrease in interest expense, as offset
by a $15,000 decrease in interest income. The decrease in interest income was
partially due to a $995,000 decrease in the average balance of interest earning
assets, as offset by an increase in the average yield on interest earning
assets from 6.98% during the six months ended June 30, 1995 to 7.19% for
the six months ended June 30, 1996. The decrease in interest expense was
due to a $1,058,000 decrease in the average balance of deposits, primarily time
deposits, as offset by an increase in the average rates paid on deposits from
4.99% for the six months ended June 30, 1995 to 5.08% for the six months
ended June 30, 1996.
Net interest income increased $116,000, or 32.7% in 1995, as a result of
an increase of $97,000 in interest income and a decrease in interest expense of
$19,000. The increase in interest income was due to an increase in the average
yield on interest-earning assets from 6.52% during 1994 to 7.16% during 1995,
with the average balance of interest earning assets declining from $19,469,000
in 1994 to $19,082,000 in 1995. The decrease in interest expense was due to a
$1,318,000 decrease in the average balance of deposits, with an increase in the
average rate paid on deposits from 4.83% during 1994 to 5.08% during 1995.
Net interest income increased $67,000 or 23.3%, in 1994 as a result of a
decrease in interest expense of $190,000, which more than offset a decrease of
$123,000 in interest income. The decrease in interest income was due to a
$969,000 decrease in the average balance of interest-earning assets, and a
decrease in the average yield on interest-earning assets from 6.81% during 1993
to 6.52% during 1994. The decrease in interest expense was due to a $770,000
decrease in the average balance of deposits, primarily time deposits, and a
decrease in the average rates paid on deposits from 5.61% during 1993 to 4.83%
during 1994.
25
<TABLE>
Average Balance Sheet
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the
resultant yields, as well as the interest expense on average interest bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjust-
ments were made. All average balances are monthly average balances. Non-
accruing loans have been included in the table as loans carrying a zero yield.
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
(Dollars in Thousands) (Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable, net $ 7,436 $ 634 8.53% $ 6,792 $ 540 7.95% $ 6,172 $ 539 8.73%
Mortgage-backed securities 1,768 122 6.90% 2,034 138 6.78% 3,101 204 6.58%
Investment securities 7,026 428 6.09% 7,463 418 5.60% 7,944 463 5.83%
Other interest-earning assets 2,852 182 6.38% 3,180 173 5.44% 3,221 186 5.77%
Total interest-earning assets 19,082 1,366 7.16% 19,469 1,269 6.52% 20,438 1,392 6.81%
Non-interest earning assets 426 547 512
Total $19,508 $20,016 $20,950
Interest-Bearing Liabilities:
Savings deposits $ 2,863 $ 86 3.00% $ 3,342 $ 93 2.78% $ 3,040 $ 87 2.86%
Certificate deposits 14,760 810 5.49% 15,599 822 5.27% 16,671 1,018 6.11%
Total interest-bearing
liabilities 17,623 896 5.08% 18,941 915 4.83% 19,711 1,105 5.61%
Non-interest bearing
liabilities 200 87 149
Retained earnings 1,685 988 1,090
Total $19,508 $20,016 $20,950
Net interest income $ 470 $ 354 $ 287
Net interest rate spread(1) 2.08% 1.69% 1.20%
Net interest margin(2) 2.46% 1.82% 1.40%
Net earning assets $ 1,459 $ 528 $ 727
Ratio of average interest-earning
assets to average interest-bearing
liabilities 108.28% 102.79% 103.69%
<FN>
____________________________________
(1) Net interest rate spread represents the difference between the average
rate on interest earning assets and the average cost of interest bearing
liabilities.
(2) Net interest margin represents net interest income divided by average
interest earning assets.
</FN>
<FN>
26
</FN>
</TABLE>
<TABLE>
The following table presents for the periods indicated the total dollar amount of interest income from average
interest earning assets and the resultant yields, as well as the interest expense on average interest bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances
are monthly average balances. Non-accruing loans have been included in the table as loans carrying a zero yield.
<CAPTION>
SIX MONTHS ENDED JUNE 30, (unaudited)
1996 1995
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield
Balance Paid Rate Balance Paid Rate
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable, net $ 8,351 $353 8.45% $ 7,180 $298 8.30%
Mortgage-backed securities 1,596 55 6.89% 1,819 63 6.93%
Investment securities 6,114 184 6.02% 7,240 216 5.97%
Other interest-earning assets 2,327 69 5.93% 3,144 99 6.30%
Total interest-earning assets 18,388 661 7.19% 19,383 676 6.98%
Non-interest earning assets 504 255
Total $18,892 $19,638
Interest-Bearing Liabilities:
Savings deposits $ 2,826 37 2.62% $ 2,999 47 3.13%
Certificate deposits 13,998 390 5.57% 14,883 399 5.36%
Total interest-bearing liabilities $16,824 427 5.08% $17,882 446 4.99%
Non-interest bearing liabilities 124 206
Retained Earnings 1,944 1,550
Total $18,892 $19,638
Net interest income $234 $230
Net interest rate spread (1) 2.11% 1.99%
Net interest margin (2) 2.55% 2.37%
Net earning assets $ 1,564 $ 1,501
Ratio of average interest earnings
assets to average interest
bearing liabilities 109.30% 108.39%
<FN>
______________________________________
(1) Net interest rate spread represents the difference between the average rate on interest earning assets and
the average cost of interest bearing liabilities.
(2) Net interest margin represents net interest income divided by average interest earning assets.
27
</FN>
</TABLE>
<TABLE>
The following schedule presents the dollar amount of changes in interest income and interest expense for major
components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase
related to higher outstanding balances and that due to the unprecedented levels and volatility of interest rates.
For each category of interest-earning assets and interest-bearing liabilities, information is provided on
changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes
in rate (i.e., changes in rate multiplied by new volume). For purposes of this table, changes attributable to
both rate and volume, which cannot be segregated have been allocated proportionately to the change due to volume
and the change due to rate.
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 v. 1995 1993 v. 1994
Increase Increase
(Decrease) (Decrease)
Due to Due to
Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 51 $ 43 $ 94 $ 54 ($ 53) $ 1
Mortgage-backed securities ( 18) 2 ( 16) ( 70) 4 ( 66)
Investments ( 24) 34 10 ( 28) ( 17) ( 45)
Other interest-earning assets ( 18) 27 9 ( 2) ( 11) ( 13)
Total interest-earning assets ($ 9) $106 $ 97 ($ 46) ($ 77) ($123)
Interest-bearing liabilities:
Savings deposits ($ 13) $ 6 ($ 7) $ 9 ($ 3) $ 6
Certificate of deposits ( 44) 32 ( 12) ( 65) ( 131) ( 196)
Total interest-bearing liabilities ($ 57) $ 38 ($ 19) ($ 56) ($134) ($190)
Net interest income: $ 48 $ 68 $116 $ 10 $ 57 $ 67
<FN>
_____________________________________
(1) Does not include interest on loans 90 days or more past due.
28
</FN>
</TABLE>
Non-Interest Income. Total non-interest income increased $2,000 or 25.0%
for the six months ended June 30, 1996 as compared to the six months
ended June 30, 1995 primarily as a result of an increase of $2,000 in
gains on sales of investment securities.
Total non-interest income, excluding security gains and losses, increased
in 1995 by $6,000 or 50%, primarily as a result of a $6,000 increase in service
charges on deposit accounts.
Total non-interest income, excluding security gains and losses, decreased
in 1994 by $3,000, or 20.0%, primarily as a result of a $3,000 decrease in
service charges on deposit accounts.
Non-Interest Expense. Total non-interest expense increased $21,000 or
11.4% for the six months ended June 30, 1996 as compared to the six
months ended June 30, 1995 primarily as a result of an increase of $7,000 in
supervisory exams and fees, audit and legal expense, a $10,000 increase in
staffing costs, and a $6,000 increase in franchise, filing and trustee fees,
which were partially offset by a $3,000 decrease in postage and office
supplies.
Total non-interest expense increase $26,000, or 7.5%, in 1995 primarily as
a result of a $25,000 increase in salaries and benefits, half which was
attributable to the Employee Stock Ownership Plan and the Management Develop-
ment and Recognition Plan, which was approved by the shareholders at the April
11, 1995 annual meeting. A $5,000 decrease in FDIC insurance premiums and a
$2,000 decrease in computer service bureau expense were offset by a $3,000
increase in insurance and bond premiums and a $4,000 increase in office
supplies and postage, a portion of which is attributable to the additional
costs involved in maintaining both a holding company and bank.
Total non-interest expense decreased $12,000, or 3.3%, in 1994 primarily as
a result of an $11,000 decrease in FDIC insurance premiums and an $11,000
decrease in supervisory exams, audit and legal expense. These decreases were
partially offset by an increase of $11,000 in salaries and employee benefits
due in part to the employer contributions to the 401(k) Plan adopted on July 1,
1994.
The Bank does not pay any post-retirement health benefits; accordingly, the
Bank does not foresee any adverse financial effects on its operations from
implementation of Statement of Financial Accounting Standards No. 106.
Allowance for Loan Losses/Provision for Loan Losses. The allowance for
loan losses is established through a provision for loan losses based on manage-
ment's evaluation of the risk inherent in its loan portfolio and the general
economy. Management's evaluation includes a review of all loans on which full
collectibility may not be reasonably assured, economic conditions, historical
loan loss experience and the Bank's internal credit review process. Based on
the foregoing factors, the Bank established an allowance for loan losses of
$94,000, or 1.1% of loans receivable, $93,000, or 1.3% $94,000, or 1.4%, and
$93,000, or 1.08%, at December 31, 1995, 1994 and 1993 and at June 30,
1996, respectively.
Management believes that the provision at June 30, 1996 is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for losses.
Such agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the time of
their examination.
For a reconciliation of the activity in the allowance for loan losses in
recent periods and an analysis of the allowance at the end of such periods,
see "BUSINESS OF THE BANK-Allowance for Losses on Loans".
Income Tax Provision. The Company recorded income tax expense of $35,600
in 1995, compared to $2,500 in 1994 and $2,900 in 1993. These income tax
provisions reflected effective tax rates of 32%, 17% and 8.5% for the years
ended December 31, 1995, 1994 and 1993, respectively. The increased income tax
provision for 1995 was due in part to increased taxable income as well as
increase in the effective tax rate as applied to deferred tax liabilities.
29
Asset/Liability Management
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets anticipated, based upon certain assumptions, to mature or
reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to adverse-
ly affect net interest income while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income while
a positive gap would tend to adversely affect net interest income.
At June 30, 1996 total interest-earning assets maturing or repricing
within one year exceeded total interest-bearing liabilities maturing or
repricing in the same time period by $2,655,000, representing a cumulative one-
year gap ratio of positive 14.41%. Thus, during periods of rising interest
rates, it is expected that yield on the Bank's interest-earning assets
would rise more quickly than the cost on its interest-bearing liabilities,
which would positively affect net interest income. Although in periods of
falling interest rates the opposite effect on net interest income is expected,
the Bank could experience substantial prepayments of its mortgage loans and
mortgage backed securities. Management believes that currently the risk of
prepayments is limited due to the fact that the yield on the loan portfolio
approximates current market rates. The risk of prepayment is further
minimized by the small amount of long-term, fixed-rate mortgages originated
by the Bank. Further, fixed-rate loans have terms no greater than
twenty years, with recent fixed-rate loan originations having a term of no
greater than fifteen years. Also, in recent years the Bank has increased
commercial real estate mortgage loans, and commercial, agricultural and
consumer loans, all of which have relatively short terms. Nonetheless, the Bank
closely monitors its interest rate risk as such risk relates to management's
strategy. See "BUSINESS OF THE BANK-Investment Activities-Mortgage-Backed
Securities" and -"Mutual Fund."
The following table sets forth the scheduled repricing or maturity of the
Bank's assets and liabilities as of June 30, 1996, based on the following
assumptions:
1. Fixed-rate certificate accounts will not be withdrawn prior to maturity.
2. Passbook deposits were assumed to withdraw at a rate of 17% during the
first year, a rate of 20% for years two and three, and 17% for years
four and five.
3. Adjustable-rate loans are calculated at the earlier of maturity or the
contractual repricing date.
4. Fixed-rate mortgage loans, other fixed-rate loans and fixed-rate
mortgage-backed securities are shown on the basis of contractual
amortization and management's estimate of annual prepayments based upon
previous regulatory agency reports and historical experience.
The effect of these assumptions is to quantify the dollar amount of items
that are interest-sensitive and that can be repriced within each of the periods
specified. Such repricing can occur in one of three ways: (1) the rate of
interest to be paid on an asset or liability may adjust periodically on the
basis of an interest rate index; (2) an asset or liability, such as a mortgage
loan, may amortize, permitting reinvestment of cash flows at the then-
prevailing interest rates; or (3) an asset or liability may mature, at which
time the proceeds can be reinvested at the current market rates. Management
believes these prepayment and erosion rates represent reasonable estimates
based on the Bank's experience and are consistent with information provided by
regulatory agencies.
30
<TABLE>
The following table sets forth the interest rate sensitivity of the Bank's assets and liabilities at
September 30, 1996 on the basis of prepayments and decay rates as calculated through historical analysis
or as provided by regulatory agencies.
<CAPTION>
Maturing or Repricing
Within Over 1-3 Over 3-5 Over
One Year Years Years 5 Years Total
Amount Amount Amount Amount Amount
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Fixed rate one-to-four family,
commercial real estate and
agricultural real estate loans 203 411 497 1,220 2,331
Adjustable rate one-to-four family,
commercial real estate and
agricultural real estate loans 3,565 1,337 0 0 4,902
Consumer, commercial and
agricultural loans 498 513 380 0 1,391
Mortgage backed securities 107 557 605 266 1,535
Investment securities and other 4,683 2,912 654 18 8,267
Total interest-earning assets 9,056 5,730 2,136 1,504 18,426
Savings deposits 235 276 235 636 1,382
Demand, NOW and MMDA 378 378 378 379 1,513
Certificates 5,788 5,461 2,594 0 13,843
FHLB advances and other borrowings 0 0 0 0 0
Total interest-bearing liabilities 6,401 6,115 3,207 1,015 16,738
Interest-earning assets less
interest-bearing liabilities 2,655 (385) (1,071) 489 1,688
Cumulative interest-rate sensitivity gap 2,655 2,270 1,199 1,668
Cumulative interest-rate gap as a
percentage of interest-earning assets 14.41% 12.32% (7.58)% 9.16%
<FN>
31
</FN>
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets such as ARM loans, have
features which restrict changes in interest rates on a short-term basis over
the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the Bank's results of operations, the
Bank's Board of Directors has implemented and continues to monitor asset and
liability management policies to better match the maturities and repricing
terms of the Bank's interest-earning assets and interest-bearing liabilities.
Such policies have consisted primarily of: (i) the origination and purchase of
single-family residential ARMS, which have adjustable or floating interest
rates and/or shorter maturities than traditional fixed-rate, single-family
residential loans; (ii) investment in short-term and/or adjustable-rate secur-
ities and mortgage-backed securities; and (iii) managing interest rate expense.
For a discussion of recently-proposed regulations which specify the amount
of regulatory capital required to be maintained by a savings bank based on the
vulnerability of its results of operations to changes in interest rates, see
"REGULATION-Capital Requirements."
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from princi-
pal and interest payments on loans, mortgage-backed securities and investment
securities. Though the Bank in recent years has not utilized any borrowings,
advanced from the FHLB-Chicago are available if a need for funds were
experienced. While maturities and scheduled amortization of loans and mort-
gage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition. See Statement of Cash Flows in Financial
Statements included elsewhere herein.
The primary investing activity of the Bank is the origination of mortgage
commercial, agricultural and consumer loans. During the years ended
December 31, 1995, 1994 and 1993, and the six months ended June 30, 1996,
the Bank originated loans in the amounts of $4,193,000, $2,230,000, $3,386,000
and $1,913,000, respectively. Purchases of investment and mortgage-backed
securities totalled $1,118,000, $2,258,000, $1,781,000 and $624,000,
respectively, in those same periods. During the years ended December 31, 1995,
1994 and 1993 and the six months ended June 30, 1996, these activities
were funded primarily by principal repayments on loans and mortgage-backed
securities and maturities and sales of investment securities totalling
$5,474,000, $4,227,000, $5,879,000 and $2,572,000, respectively.
Deposits are primary source of funds for supporting the Bank's lending and
investing activities. During the year ended December 31, 1995 the Bank
experienced a $1,687,000 net decrease in deposit accounts. During 1994 the
Bank experienced a net decrease in deposit accounts of $490,000. For the
year ended December 31, 1993, the Bank experienced a $920,000 decrease in
deposit accounts. For the six months ended June 30, 1996, the Bank
experienced an $329,000 decrease in deposit account. While net savings
deposits decreased in each of the most recent three fiscal years, funding for
new loan originations and purchases and the purchase of investment securities
and mortgage-backed securities has been provided primarily from the principal
and interest payments on loans receivable and the sale of investment securities.
The Bank must maintain an adequate level of liquidity to ensure the avail-
ability of sufficient funds to support loan growth and deposit withdrawals,
satisfy financial commitments and take advantage of investment opportunities.
The Bank's sources of funds include deposits, principal and interest payments
from loans and mortgage-backed securities and earnings on investments, as well
as FHLB advances if needed. During 1995, 1994 and 1993 the Bank used its
sources of funds primarily to fund loan commitments, purchase mortgage-backed
securities and pay maturing savings certificates and deposit withdrawals. At
June 30, 1996, the Bank had loan commitments totalling $225,000 to
originate loans and $397,000 in unused lines of credit.
32
At June 30, 1996, savings certificates amounted to $13,843,000 or
82.7% of the Bank's total deposits, including $5,780,000 which were scheduled
to mature by June 30, 1997. Management of the Bank believes it has
adequate resources to fund all of these commitments, that all of these
commitments will be funded by June 30, 1997 and that it can adjust the
rates of savings certificates to retain deposits in changing interest rate
environments should it choose to do so.
The OBRE requires a savings institution to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 5%
of the average daily balance of its net withdrawable deposits and short-term
borrowings. In addition, short-term liquid assets currently must constitute
1% of the sum of net withdrawable deposit accounts plus short-term borrowings.
The Bank's actual liquidity ratios at June 30, 1996 and 1995 were 54% and
45%, respectively.
The Bank is required to maintain specific amounts of capital pursuant to
state and federal regulations. As of June 30, 1996, the Bank was in
compliance with all regulatory capital requirements which were effective as of
such date, with core and risk-based capital ratios of 9.8%, and 20.9%,
respectively.
Impact of New Accounting Standards
Accounting for Certain Investments in Debt and Equity Securities. In May,
1993, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." SFAS 115 requires the use of fair
value accounting for loans and securities available for sale or trading and
retains the use of the amortized cost method for loans and investments which
the Bank has the positive intent and ability to hold to maturity.
SFAS 115 requires the classification of debt and equity securities into one
of three categories: held to maturity, available for sale, or trading. Held to
maturity securities are measured at amortized cost. Unrealized holding gains
and losses for trading securities are included in income. Unrealized holding
gains and losses for available for sale loans and securities are excluded from
income and reported net of taxes as a separate component of equity.
Implementation of SFAS 115 is required for fiscal years beginning after
December 15, 1993. The Bank elected to adopt SFAS 115 effective December 31,
1993 for its mortgage-backed securities and investment securities. The
effect of adopting SFAS 115 has been a decrease of $7,300 to total retained
earnings at December 31, 1995 and a decrease of approximately $56,500 at
June 30, 1996.
Accounting for Impairment of a Loan. In May 1993, the FASB issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." The statement
generally would require all creditors to account for impaired loans except
those loans that are accounted for at fair value or at the lower of cost or
fair value, at the present value of the expected future cash flows discounted
at the loan's effective interest rate. SFAS No. 114 became effective for
fiscal years beginning after December 15, 1994. SFAS No. 114 has not had a
material effect on the Bank's financial condition or results of operations.
Accounting for Post-Employment Benefits. In November 1992, the FASB issued
SFAS No. 112, "Employers' Accounting for Post-Employment Benefits." SFAS No.
112 establishes accounting standards for employers who provide benefits to
former or inactive employees after employment but before retirement. The
statement is effective for years beginning after December 31, 1993. The
statement is not expected to have a material impact on the Bank, since the
Bank, as a general policy, does not provide post-employment benefits.
Disclosure Regarding the Fair Value of Financial Instruments. In December
1991, the FASB issued SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." SFAS 107 is effective for companies with total assets of
$150,000,000 or greater and, with fiscal years ending after December 15, 1992.
For companies with total assets under $150,000,000, disclosure will be required
for fiscal years ended after December 31, 1995.
33
Employers' Accounting for Employee Stock Ownership Plans. On November 22,
1993, the American Institute of Certified Public Accountants ("AICPA") issued
Statements of Position 93-6, "Employers' Accounting for Employee Stock Owner-
ship Plans" ("SOP 93-6"). SOP 93-6 supersedes SOP 76-3, "Accounting Practices
for Certain Employee Stock Ownership Plans," which was issued in December 1976.
SOP 93-6 is effective for fiscal years beginning after December 15, 1993.
Employers are required to apply the provisions of SOP 93-6 to shares purchased
by employee stock ownership plans after December 31, 1992, that have not been
committed to be released as of the beginning of the year of adoption. SOP
93-6, among other things, changes the measure of compensation expense recorded
by employers from the cost of employee stock ownership plan shares to the fair
value of employee stock ownership plan shares.
Effect of Inflation and Changing Prices
The Financial Statements and related financial data presented herein have
been prepared in accordance with GAAP which require the measurement of finan-
cial position and operating results in terms of historical dollars, without
considering the changes in relative purchasing power of money over time due to
inflation. The primary impact of inflation on operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
Management seeks to manage the relationship between interest sensitive assets
and liabilities in order to protect against wide interest rate fluctuations,
including those resulting from inflation.
34
BUSINESS OF LCS
LCS, a Delaware corporation, was incorporated on August 25, 1994, for the
purpose of becoming the holding company for Litchfield upon the Bank's
conversion from a state-chartered mutual savings bank to a state-chartered
stock savings bank ("Conversion"). The Conversion was completed on January
27, 1995. At December 31, 1995, LCS had total assets of $19,180,787,
total deposits of $17,067,827 and shareholders' equity of $1,948,780.
Subsequent to the Conversion, the Company has not engaged in any significant
activity other than holding the stock of the Bank.
The Company, on an unconsolidated basis, has used the proceeds of the
Conversion to fund the loan to the Employee Stock Ownership Plan of $51,750,
which was used to acquire 5% of the share issued in the conversion. The loan
is being repaid in equal quarterly principal installments plus interest. The
Company also invests in U. S. Treasury and agency obligations. The funds for
the Company's operations are provided principally from repayment of the ESOP
loan and investment revenue. The Company's expenses consist primarily of
postage and other office supply expenses, legal and filing fees, and franchise
taxes.
BUSINESS OF LITCHFIELD
General. The Bank was organized in 1883 as an Illinois-chartered mutual
savings and loan association named "Oil City Savings and Loan Association."
In 1972, Oil City Savings and Loan Association merged with Cooperative Savings
and Loan Company, and the merged entity took the name "Litchfield Community
Savings and Loan Association". In 1993, the Bank converted to an Illinois-
chartered savings bank and changed its name to "Litchfield Community Savings,
S.B." In 1995 Litchfield converted from an Illinois-chartered mutual savings
bank to an Illinois-chartered stock savings bank. The Bank is regulated by the
Commissioner of Banks and Real Estate of the State of Illinois ("OBRE") and its
deposits are insured up to the applicable limits under the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank ("FHLB") System.
34
The Bank's principal business consists of attracting deposits from the
general public through a variety of deposit programs and originating loans
secured by owner-occupied single family (one-to-four units) residential
properties located in its primary market area. The Bank also, to a lesser
extent, has been active in the origination and purchase of commercial and
agricultural real estate loans. The Bank also originates consumer loans
(primarily loans secured by deposits in the Bank, automobiles, and home
improvement loans) and commercial business loans. The Bank also purchases
U. S. Government and agency securities, and invests in mortgage-backed
securities, investment grade investment securities and short-term liquid
assets. Funds for these activities are provided principally be deposit growth,
repayments of outstanding loans, and operating revenues. The Bank has not
used borrowed funds in the last five years.
The Bank derives its income principally from interest earned on loans,
mortgage-backed securities, and interest earned on investments and other
assets. To a lesser extent, loan and other fees, and gains on investment
securities provide income for the Bank. The Bank's principal expenses are
interest expense on deposits and other expenses such as salaries and employee
benefits, FDIC insurance premiums, computer service bureau expense, and
occupancy and equipment expense.
Operating characteristics of the Bank in recent years include the following:
* Capital Strength - At December 31, 1995, the Bank met all of its
regulatory capital requirements, with leverage capital of $1,804,000,
or 9.47% of adjusted total assets, and risk-based capital of
$1,898,000 or 20.74% of total risk-weighted assets.
* Superior Asset Quality - At December 31, 1995, the Bank had non-
performing loans (those 90 days or more delinquent) of $3,000, or
0.4% of net loans. The allowance for possible loan losses totalled
$94,000 at December 31, 1995, and is considered by management to be
adequate.
* Net Interest Income - The Bank has been striving over the last few
years to increase its net interest income by shifting assets from the
investment portfolio to the loan portfolio. During 1995, net interest
income increased $116,000, or 32.7%, over 1994.
Lending Activities
Lending Strategy. The principal lending activity of the Bank is origi-
nating for retention in its portfolio first mortgage loans secured by owner-
occupied one-to-four family residential properties located in its primary
market area. In addition, in order to increase the yield and/or the interest
rate sensitivity of its portfolio and in order to provide more comprehensive
financial services to the families and community businesses in the Bank's
primary market area, the Bank also originates commercial and agricultural real
estate loans. The Bank also offers home improvement, automobile, personal and
other consumer loans, as well as commercial and agricultural loans.
Beginning in 1993, the Bank began building its loan portfolio and reducing
the amount of funds invested in mortgage-backed securities, investment
securities and other liquid assets. This process has resulted in the loan
portfolio increasing in size despite the shrinking of the deposit and asset
base.
Residential Real Estate Lending. The Bank offers adjustable rate mortgage
loans ("ARM's") and fixed rate mortgage loans with terms up to thirty years.
No loans or servicing have been sold by the Bank. At December 31, 1995,
approximately $3,833,000, or 46% of the Bank's total loan portfolio consisted
of adjustable rate mortgages secured by one-to-four family dwellings. All of
these loans were originated by the Bank. The low interest rate environment
of late 1995 and early 1996 may slow the growth of the adjustable rate mortgage
portfolio due to borrowers preference for fixed rate loans. This could have
a negative impact on the Bank's net interest income.
The residential ARM's currently offered by the Bank have interest rates
which adjust every year based upon changes in the weekly average yield on U.S.
Treasury securities adjusted to a constant comparable maturity of one year, as
made available by the Federal Reserve Board, plus a margin of 275 basis points.
The amount of any increase in the interest rate is presently limited to 2% per
year, with a limit of 6% over the life of the loan. The interest rate decline
over the life of the loan is generally limited to approximately 50 basis points
under the start rate. The Bank currently offers one-year adjustable rate
mortgages at a "teaser rate", which is a rate below the rate which would
35
prevail when the index used for repricing is applied. The Bank also currently
offers a "3/1" adjustable rate mortgage in which the initial interest rate is
"locked" or fixed for the first three years of the loan. Thereafter, the
interest rate may adjust with the same parameters as the one-year adjustable
rate loan. ARM's decrease the risks associated with changes in interest rates,
but involve other risks because as interest rates increase, the underlying
payments by the borrower increase, thus increasing the potential for default.
At the same time, the marketability of the underlying collateral may be
adversely affected by higher interest rates. These risks have not had an
adverse effect on the Bank to date.
At December 31, 1995, approximately $1,747,000, or 21% of the Bank's total
loan portfolio consisted of fixed rate mortgages secured by one-to-four family
dwellings. Substantially all of these loans were originated by the Bank.
Fixed rate mortgages are originated by the Bank for terms up to fifteen years,
with balloon loans allowing amortization up to thirty years. All loans are
originated for portfolio. Most loans are originated on terms which permit
their sale to secondary market investors, such as Federal Home Loan Mortgage
Corporation or Federal National Mortgage Association. The Bank is not,
however, a secondary market seller and has not sold any loans to date.
Most residential mortgage loans are originated with loan-to-value ratios
not exceeding 80%. The Bank does not utilize private mortgage insurance.
Exceptions are granted from time-to-time by the Managing Officer, the Loan
Committee, or the Board of Directors. At December 31, 1995, there were ten
loans totaling $372,800 that exceeded 80% loan to value. Some of these
loans were further secured with a cosigner. The Bank has not received any
requests for the financing of multi-family residential property and has no
loans in portfolio at December 31, 1995 secured by multi-family dwellings.
Commercial and Agricultural Real Estate Lending. The commercial and
agricultural real estate loans originated or purchased by the Bank are
primarily secured by industrial facilities, convenience facilities, office
buildings, restaurants, and land used for agricultural purposes and
recreational purposes and are all located in the Bank's primary market area.
These loans amounted to $1,101,268, or 13% of the total loan portfolio at
December 31, 1995. These loans generally have terms of fifteen to twenty years
and are originated with an interest rate that adjusts based upon Wall Street
Journal Prime Rate. Most adjust annually with a margin of one to two percent
over the Prime Rate. The Bank's policy requires that any such loan not exceed
80% loan-to-value of the property.
During 1995, the Bank purchased two participations in a commercial real
loan secured by a first mortgage loan on one piece of property located in the
Bank's primary market area. The balance of these two participations at
December 31, 1995 was approximately $220,250 and the participations were per-
forming as agreed. The balance of these participations is included in total
commercial and agricultural real estate loans at December 31, 1995 as indicated
above.
Commercial and agricultural real estate entails significant additional
risks as compared to one-to-four family residential property. Commercial and
agricultural real estate loans typically involve large loan balances to a
single borrower or groups of related borrowers. The payment experience on such
loans is typically dependent on the successful operation of the real estate
project. These risks can be impacted by supply and demand conditions in the
market, as well as adverse conditions in the economy generally. To minimize
these risks, the Bank generally limits itself to seasoned businesses and/or to
borrowers with which it has experience. The maximum loan the Bank can make to
any one borrower was $500,000 at December 31, 1995.
The Bank evaluates all aspects of commercial and agricultural real estate
loan transactions in order to mitigate risk to the extent possible. The Bank
seeks to ensure that the property securing the loan will generate sufficient
cash flow to adequately cover operating expenses and debt service payments.
To this end, commercial real estate loans generally are made at a loan-to-
value ratio of 75% or less and the Bank generally imposes a minimum debt
coverage ratio (the ratio of net cash from operations before payment of debt
service to debt service) of 110% to 120%. In underwriting these loans,
consideration is given to the property's operating history, future operating
projections, position in the local and regional market, location and physical
condition. The underwriting analysis also includes credit checks and a review
of the financial condition of the borrower. Property values are substantiated
generally by outside appraisers, with qualifications approved by the Board of
the Bank. These appraisal reports are reviewed prior to closing of the loan
to assure compliance with the Bank's appraisal policy. The Bank also, in
most cases, obtains full personal loan guarantees from the borrowers. The Bank
validates such personal loan guarantees through an investigation of the
borrower's personal finances.
36
Construction and Land Loans. The Bank offers a limited number of
residential construction loans for the construction of owner-occupied, single-
family dwellings in the Bank's primary lending area. The typical term of the
loan is one year. At December 31, 1995, there were no construction loan
outstanding. The Bank also originates loans within its primary market
area for the acquisition of land (either improved lots or unimproved land),
and for the making of the necessary improvements to prepare the land for sale
as improved real estate on which the purchaser of the property can then build.
At December 31, 1995 there were two lot loans outstanding with balances
totaling approximately $23,300. Management does not anticipate increasing its
construction lending in the near future.
Commercial, Agricultural and Consumer Lending. The Bank also offers
various types of commercial, agricultural and consumer loans. The Bank's
commercial and agricultural loans at December 31, 1995 totaled $456,800, or 5%
of the total loan portfolio. The Bank's consumer loan portfolio totaled
$1,216,000, or 15% of the total loan portfolio at December 31, 1995 (including
second mortgage loans on owner-occupied residential properties). The Bank's
commercial business loans are typically secured loans, such as vehicle,
equipment or inventory loans. The Bank has a line of credit of $500,000 with a
local automobile dealer which, at December 31, 1995, had a balance of approxi-
mately $207,000. The Bank's consumer loans consist primarily of automobile
loans, home improvement loans, and loan secured by deposit accounts with the
Bank. Personal, unsecured loans are offered generally only to consumers who
are customers of the Bank in good standing.
Loan Solicitation and Processing. Loans originated by the Bank are derived
from a number of sources. Loan originations by the Bank can be attributed to
direct solicitation, real estate broker referrals and dealer referrals,
present depositors and borrowers, attorneys and walk-in customers.
Loan Underwriting. The Bank's lending activities are subject to the Bank's
written, nondiscriminatory underwriting standards and loan origination
procedures prescribed by the Bank's Board of Directors and its management.
Detailed loan applications are obtained to determine the borrower's ability to
repay, and the more significant items on these applications are verified
through the use of credit reports, financial statements and confirmations.
Employment stability for at least two years and a satisfactory payment
history on current and past obligations are also considered in determining an
applicant's ability to repay. Generally, an applicant's anticipated ratio of
housing-related expenses should not exceed 25-28% of the applicant's gross
verified income; an applicant's ratio of total debt service obligations
(including housing-related expenses) should not exceed 35-38% of the appli-
cant's gross verified income. For loans to be secured by commercial or agri-
cultural property, the anticipated net cash flow from the operation of the
property would need to exceed the debt service requirements. Property
valuations are generally performed by independent outside appraisers approved
by the Bank's Board of Directors. All mortgage loans are ratified by the Board
of Directors.
It is the Bank's policy to have a mortgage creating a valid lien on real
estate and to generally obtain a title insurance policy which ensures that the
property is free of prior encumbrances. Borrowers must also obtain hazard
insurance policies prior to closing and, when the real estate is in a flood
plain as designated by the Department of Housing and Urban Development, must
also obtain flood insurance. Borrowers in excess of 80% loan-to-value are
generally required to escrow for real estate taxes and hazard insurance
premiums.
Interest rates charged by the Bank on loans are affected principally by
competitive factors, the demand for such loans and the supply of funds
available for lending purposes. These factors, are, in turn, affected by
general economic conditions, monetary policies of the Federal Government,
including the Federal Reserve Board, legislative tax policies and government
budgetary matters.
All loan applications are reviewed by the Bank's President, who has the
authority to approve all residential loans up to $50,000 with a loan-to-value
not in excess of 85%. The Bank's Loan Committee, comprised of two outside
directors and the President, approves loans from $50,000 to $100,000, and the
Board of Directors approves all loans in excess of $100,000, as well as
virtually all commercial and agricultural loans.
Origination, Purchase and Sale of Loans. As indicated above, the Bank
generally limits its loan origination to properties located within the
primary market area. From time to time, as funds allow, requests for loans
outside the primary market area are considered for approval. The Bank does not
actively solicit loan applications from outside the primary market area. All
loans originated by the Bank are generally within fifty miles of the Bank's
corporate headquarters.
37
The Bank has historically purchased loans in the secondary market consist-
ing primarily of loans secured by one-to-four family dwellings. The Bank has
not made any new purchases of residential loans in the last five years. The
balance of the residential participations purchased at December 31, 1995 was
$37,400 and consisted of two loans. As indicated above, the Bank purchased two
participations in a mortgage loan securing commercial property in the primary
market area. The Bank intends to continue this practice from time-to-time as
opportunities arise that meet the Bank's normal lending standards.
The Bank has not sold any loans as of December 31, 1995 and management has
no plans at this point to sell loans.
Loan Commitments. the Bank, upon the receipt of a loan application in
connection with the origination of a one-to-four family residential mortgage
loan, generally provides a 45-day written commitment as to the interest rate
on the loan. If the loan has not been closed within 45 days, the rate may be
adjusted to reflect current market conditions at the Bank's option. The
Bank's loans are closed by Bank personnel. The Bank's mortgage loan documents
are prepared on standards FNMA/FHLMC documents by bank personnel. At December
31, 1995, the Bank had loan commitments totaling $339,352.
Loan Fee Income. In addition to interest earned on loans, the Bank
received income through fees in connection with loan originations, loan
modifications and late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period with the
volume and type of loans originated, which, in turn, is dependent on prevailing
mortgage interest rates and their effect on the demand for loans in the markets
served by the Bank. As a result of prevailing market conditions, the Bank has
charged only nominal fees in connection with loan originations in recent years.
38
<TABLE>
Loan Portfolio Analysis
The following table sets forth the composition of the Bank's loan portfolio by type of loan as of the dates indicated:
<CAPTION>
At December 31, (Amounts in Thousands)
1995 1994 1993 1992 1991
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<C> <C> <C> <C> <C> <C> <C> <C>
<S>
Type of Loan:
Mortgage Loans
One-to-four family
Residential(1) $ 5,733 69.27% $5,406 78.96% $5,336 80.63% $4,930 83.96% $5,042 82.90%
Commercial/
Agricultural 1,101 13.30% 466 6.81% 470 7.10% 229 3.90% 383 6.30%
Total mortgage
loans 6,834 82.57% 5,872 85.77% 5,806 87.73% 5,159 87.86% 5,425 89.20%
Other Loans:
Commercial/
agricultural 457 5.52% 172 2.51% 11 0.17% 0 0.00% 0 0.00%
Consumer 1,080 13.05% 895 13.08% 895 13.52% 835 14.22% 823 13.53%
Total other loans 1,537 18.57% 1,067 15.59% 906 13.69% 835 14.22% 823 13.53%
Total loans
receivable 8,371 101.14% 6,939 101.36% 6,712 101.42% 5,994 102.08% 6,248 102.73%
Less:
Unearned income ( 0) 0.00% ( 0) 0.00% ( 0) 0.00% 1 0.01% ( 0) 0.00%
Loans in process ( 0) 0.00% ( 0) 0.00% ( 0) 0.00% ( 0) 0.00% ( 0) 0.00%
Allowance for possible
loan losses ( 94) ( 1.14%) ( 93) 1.36%) ( 94) ( 1.42%) ( 123) ( 2.09%) ( 166) (2.73%)
Total loans receivable,
net $ 8,277 100.00% $6,846 100.00% $6,618 100.00% $5,872 100.00% $6,082 100.00%
______________________
Second Mortgage Loans
Included in mortgage
loans $ 137 $ 109 $ 60 $ 88 $ 117
<FN>
39
</FN>
</TABLE>
<TABLE>
Loan Maturity and Repricing
The following table sets forth certain information at December 31, 1995, regarding the dollar amounts
of loans maturing in the Bank's loan portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans, loans having no stated schedule
of repayments and no stated maturity are reported as due in one year or less. Loan balances do not
include undisbursed loan proceeds, unearned discounts, deferred loan fees or allowance
for loan losses.
<CAPTION>
One Year Three Five Beyond
Within One Through Through Through Ten
Year Three Years Five Years Ten Years Years Totals
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One-to-four family residential 2,084 1,952 193 502 1,002 5,733
Commercial and agricultural real estate 277 780 0 0 44 1,101
Other loans:
Commercial and agricultural loans 288 49 87 33 0 457
Consumer loans 180 406 448 46 0 1,080
Total loans 2,829 3,187 728 581 1,046 8,371
<FN>
The following table sets forth the dollar amount of all loans at December 31, 1995 and due after
December 31, 1996, that have fixed interest rates and those that have floating or adjustable
interest rates.
</FN>
<CAPTION>
Fixed Adjustable or
Rates Floating Rates Totals
<S> <C> <C> <C>
Mortgage loans:
One-to-four family residential 1,841 1,808 3,649
Commercial and agricultural real estate 44 780 824
Other loans:
Commercial and agricultural loans 153 16 169
Consumer loans 900 0 900
Total loans 2,938 2,604 5,542
<FN>
40
</FN>
</TABLE>
<TABLE>
Loans Originated, Purchased and Sold
The following table shows total loans originated, purchased, sold and repaid
during the periods indicated.
<CAPTION>
(Dollars in Thousands)
1995 1994 1993
<S> <C> <C> <C>
Total gross loans receivable-
Beginning of period $6,939 $6,712 $5,995
Loans Originated:
One-to-four family residential 1,738 1,352 2,579
Construction 0 0 120
Commercial and agricultural real estate 677 15 0
Commercial and agricultural loans 692 161 13
Consumer loans 861 702 674
Total Loans Originated 3,968 2,230 3,386
Loans Purchased:
One-to-four family residential 0 0 0
Commercial and agricultural real estate 225 0 0
Total Loans Purchased 225 0 0
Loan principal repayments (2,761) (2,003) (2,669)
Other 0 0 0
Total Reductions (2,761) (2,003) (2,669)
Net Loan Activity 1,432 227 717
Total gross loans receivable-
End of Period $8,371 $6,939 $6,712
<FN>
41
</FN>
</TABLE>
Problem Assets and Asset Classification. When a loan becomes between 30
and 59 days delinquent, the Bank contacts the Borrower either by telephone, in
person or by mail. If a loan becomes 60-89 days delinquent, a formal demand
is made on the borrower. If a delinquency continues, and a loan is delinquent
90 days, several courses of action are available, including directing the
Bank's attorney to send a 30-day letter advising the borrower of possible legal
action and/or an authorization to accommodate the special needs of the borrower
in the case of hardship. The Bank's officers make a physical inspection of the
property to evaluate the condition of the property. When a loan becomes four
or more months delinquent, arrangements are made to obtain title, begin
foreclosure or both, unless a written repayment plan has been signed by both
the borrower and the Bank. The Board of Directors reviews a complete list at
each monthly meeting of all loans 30 days or more delinquent at the previous
month end. They are apprised of the action being taken by management to bring
the loan current.
The remedies available to the Bank in the event of a default or delinquency
with respect to certain residential mortgage loans, and the procedures by which
such remedies may be exercised, are governed by the loan documents and Illinois
law. Under the lending documents used by the Bank, the Bank is prohibited from
accelerating the maturity of a residential mortgage loan, commencing any legal
action (including foreclosure proceedings) to collect on such loan, or taking
possession of any loan collateral until the lender has first provided the
delinquent borrower with at least 30 days' prior written notice specifying the
nature of the delinquency and the borrower's right to correct such delinquency.
In the event the default is not cured on or before the date required in the
notice, the Bank may, at its option, require immediate payment in full of all
sums secured by the mortgage without further demand and may institute
foreclosure proceedings.
Assuming the foreclosure is uncontested, the Bank can complete the
foreclosure and obtain a deed to the collateral property within eight to ten
months of filing the complaint in Illinois. Under Illinois law, the mortgagor
has a Right of Reinstatement. Specifically, the mortgagor has the right to
cure all defaults that existed had no acceleration occurred provided that such
cure is made prior to the expiration of 90 days from the date the court
obtains jurisdiction over the mortgagor.
Loans are placed on a non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest
income. As a matter of policy, the Bank does not accrue interest on loans past
due 90 days or more. All previously accrued but unpaid interest is deducted
from interest income. Consumer loans more than 120 days delinquent are
generally written-off as loss.
Real estate acquired by the Bank as a result of foreclosure or by deed-in-
lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired, it is recorded at the lower of cost or fair value at the
date of the acquisition and any write-down resulting therefrom is charged to
the allowance for losses on loans. Similar treatment is accorded to the
collateral for loans or securities which have been deemed to constitute
in-substance foreclosures. All incidental costs, such as insurance and real
estate taxes, incurred in maintaining the Bank's lien on the collateral
property are capitalized between the date the loan becomes delinquent and the
date of acquisition. After the date of acquisition, all costs incurred in
maintaining the property are expensed and costs incurred for the improvement or
development of such property are capitalized. The Bank had no real estate
owned at December 31, 1995.
The Bank records loans as in-substance foreclosures if the borrower has
little or no equity in the property based upon its current fair value, if
repayment can be expected only to come from operation or sale of the collateral
and if the borrower has effectively abandoned control of the collateral or has
continued to retain control of the collateral but, because of the current
financial status of the borrower, it is doubtful the borrower will be able to
repay the loan in the foreseeable future.
42
The following table sets forth information with respect to loans past due
60-89 days in the Bank's portfolio at the date indicated:
At June 30, At December 31,
1996 1995 1994 1993 1992 1991
(Dollars in Thousands)
Loans past due 60-89 days:
One-to-four residential $0 $21 $ 0 $0 $51 $56
Commercial/agricultural
real estate 0 0 0 0 0 0
Construction loans 0 0 0 0 0 0
Commercial/agricultural 0 0 0 0 0 0
Consumer loans 2 3 0 0 7 2
Total past due 60-89 days $ 2 $24 $ 0 $0 $58 $58
The table on the following page details nonaccrual loans and real estate
owned by the Bank. There were no non-accrual loans at June 30, 1996.
If interest on nonaccrual loans had been accrued, interest income on
consumer loans would have been increased by $422 for the year ended
December 31, 1995. At December 31, 1994, interest income on consumer loans
would have been increased by $630 and interest income on one-to-four family
residential loans would have been increased by $648.
At June 30, 1996, the Bank had no nonperforming assets and there were
no mortgage loans 90 days or more delinquent at June 30, 1996. The Bank
had no real estate owned at June 30, 1996. At December 31, 1995, the
Bank's nonperforming assets totaled $3,354, one consumer loan, which is in a
workout situation. There were no mortgage loans 90 days or more delinquent at
December 31, 1995. The Bank had no real estate owned at December 31, 1995.
At December 31, 1994, the Bank's nonperforming assets totaled $24,019 and
consisted of one single-family residential mortgage loan of $19,555 and one
consumer loan of $4,464. Both loans were in approved workout situations.
43
<TABLE>
Non-Accrued Loans and Real Estate Owned
The following table sets forth information regarding nonaccrual loans and
real estate owned by the Bank at the dates indicated. As of the dates
indicated, the Bank did not have any material restructured loans within the
meaning of Statement of Financial Accounting Standard No. 15 or any accruing
loan more than 90 days delinquent:
<CAPTION>
(Dollars in Thousands)
At
June 30, At December 31,
1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
One-to-four residential $0 $ 0 $ 20 $ 0 $ 55 $144
Commercial/agricultural
real estate 0 0 0 0 0 0
Construction loans 0 0 0 0 0 0
Commercial/agricultural 0 0 0 0 0 0
Consumer loans 0 3 4 9 18 34
Total nonaccrual loans 0 $ 3 $ 24 $ 9 $ 73 $178
Total real estate owned(2) 0 0 0 0 0 10
Total nonperforming assets 0 $ 3 $ 24 $ 9 $ 73 $188
Total loans delinquent 90 days or
more to net loans receivable 0 0.04% 0.35% 0.14% 1.24% 2.93%
Total loans delinquent 90 days
or more to total assets 0 0.02% 0.12% 0.04% 0.34% 0.80%
Total nonperforming assets to
total assets 0 0.02% 0.12% 0.04% 0.34% 0.84%
<FN>
___________________________
(1) The Bank does not accrue interest on loans delinquent ninety days or more;
such loans are put on a nonaccrual status.
(2) Includes real estate in judgment and in-substance foreclosures.
44
</FN>
</TABLE>
Classified Assets. Regulations of the FDIC and OBRE require that each
insured institution review and classify its assets on a regular basis. The
Bank has adopted a Classification of Assets Policy and Procedures and has made
the President/Managing Officer of the Bank responsible for approving classifi-
cations and valuation allowances and for making appropriate recommendation as
to the changes in procedures and policies to the Board for approval. In
addition, in connection with examinations of insured institutions, OBRE and
FDIC examiners have authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications of problem
assets: standard, doubtful and loss. Substandard assets must have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weakness of substandard assets with the
additional characteristic that the weaknesses make the collection of
liquidation in full on the basis of currently existing facts, conditions and
values questionable, and there is a high possibility of loss. An asset
classified loss is considered uncollectible and of such little value that its
continuance as an asset of the institution is not warranted. The Bank's
Classification of Assets Policies and Procedures also contains a special
mention category, described as assets which do not currently expose the Bank to
a sufficient degree of risk to warrant classification, but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof
is classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss or charge-off such amount. A portion of general loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital.
The Bank has complied with all regulatory requirements for reviewing and
classifying problem loans. These procedures were reviewed during the
recently completed regulatory examination and the examiners found the above
described procedures for reviewing and classifying loans and establishing
adequate valuation reserves to be satisfactory. Regulations require that the
Bank obtain an appraisal on a foreclosed property when it obtains title to the
property. This happens when the foreclosure process is completed and the asset
is transferred from foreclosure or redemption status to real estate owned.
Prior to that time, management obtains the best information available regarding
the current value of the property from inspection of the property by qualified
staff members and directors, review of existing appraisal information and
analyses of local markets by Bank approved appraisers.
At June 30, 1996, December 31, 1995, 1994 and 1993, the aggregate
amounts of the Bank's classified assets, and of the Bank's general and specific
loan loss allowance for the periods then ended, were as follows:
(Dollars is Thousands)
At
June 30, At December 31,
1996 1995 1994 1993
Substandard assets $ 74 $97 $127 $ 74
Doubtful assets 0 0 0 0
Loss 0 0 0 0
Special mention 0 0 0 0
Specific loan allowance 0 0 0 0
General loan allowance 93 94 93 94
Allowance for Losses on Loans
The allowance for losses on loans is established through a provision for
loan losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation, which includes a review
of all loans on which full collectibility may not be reasonably assured,
considers among other matters, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience and other
factors that warrant recognition in providing for an adequate loan loss
allowance. For loans delinquent more than 90 days, the property securing the
loan is physically inspected and an estimated valuation of the property is
made. Once that amount is determined, the difference between such value and the
unpaid balance of the loan is established as a specific reserve. On larger
loans, the Bank has instituted a program to have an appraiser value the
collateral when foreclosure seems probable.
45
Management is not aware of any loans other than those already identified
which currently warrants the establishment of a specified allowance for loss.
In addition, the Bank cannot currently predict the amount, if any, of
anticipated charge-offs to the allowance for losses on loans for the year
ended December 31, 1996. However, based on the evaluation of the risk
inherent in its loan portfolio at June 30, 1996, management considers the
level of the allowance for losses on loans more than adequate to provide for
losses through December 31, 1996.
As a result of the declines in real estate market values and the
significant losses experienced by many financial institutions, there has been
a greater level of scrutiny by regulatory authorities of the loan portfolios
of financial institutions, undertaken as a part of the examinations of such
institutions by the OBRE and FDIC. The results of recent examinations of other
depository institutions indicate that these regulators may be applying more
conservative criteria in evaluating real estate market values. The Bank was
not required to increase its provisions for general loan losses after its most
recent examination dated March 4, 1996. While the Bank believes it had
established its existing allowances for loan losses in accordance with GAAP at
June 30, 1996, there can be no assurances that the applicable regulators,
when reviewing the Bank's loan portfolio in the future, will not request the
Bank to increase its allowance for loan losses, thereby adversely affecting
the Bank's financial condition and earnings.
46
<TABLE>
Analysis of Loan Loss Allowance
The following table sets forth an analysis of the Bank's allowance for
loan losses at or for the periods indicated. Where specific loan loss reserves
have been established, any difference between the loss reserve and the amount
of loss realized has been charged to the allowance for loan losses.
<CAPTION>
(Dollars in Thousands)
June 30, December 31,
1996 1995 1994 1993 1992 1991
<C> <C> <C> <C> <C> <C>
Allowance at beginning of period $94 $93 $94 $123 $166 $ 224
Provision for loan losses 0 2 ( 1) ( 15) ( 45) ( 86)
Charge-offs:
Residential real estate 0 0 0 0 0 0
Commercial/agricultural
real estate 0 0 0 0 0 0
Commercial/agricultural 0 0 0 0 0 0
Consumer 1 1 0 15 5 8
Total charge-offs 1 1 0 15 5 8
Recoveries 0 0 0 1 7 36
Net charge-offs 1 1 0 14 ( 2) ( 28)
Allowance-balance at end of period $93 $94 $93 $94 $123 $ 166
Ratio of allowance to gross loans
receivable at the end of
the period 1.08% 1.12% 1.34% 1.40% 2.05% 2.66%
Ratio of allowance to non-performing
assets at end of period N/A 3133.33% 387.50% 1044.44% 168.49% 88.30%
<FN>
47
</FN>
</TABLE>
<TABLE>
Distribution of Loan Loss Allowance
The distribution of the Bank's allowance for losses on loans at the dates
indicated is summarized as follows:
<CAPTION>
(Dollars in Thousands)
At December 31,
1995 1994 1993 1992 1991
Amount % (1) Amount % (1) Amount % (1) Amount % (1) Amount % (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family $ 14 68.49% $ 20 77.91% $ 22 79.50% $ 39 82.25% $ 72 80.70%
Commercial/
agricultural
real estate 0 13.15% 0 6.71% 0 7.01% 0 3.82% 0 6.13%
Commercial/
agricultural 0 5.46% 0 2.48% 0 0.16% 0 0.00% 0 0.00%
Consumer 8 12.90% 7 12.90% 8 13.33% 31 13.93% 41 13.17%
Unallocated 72 66 64 53 53
Total $ 94 100.00% $ 93 100.00% $ 94 100.00% $ 123 100.00% $166 100.00%
<FN>
(1) Represents percentage of Loan in Each Category to Total Loans
</FN>
<CAPTION>
At June 30,
1996
Amount % (1)
<S> <C> <C>
One-to-four family $ 13 69.68%
Commercial/
agricultural
real estate 0 14.18%
Commercial/
agricultural 0 4.04%
Consumer 6 12.10%
Unallocated 74 -
Total $ 93 100.00%
<FN>
48
</FN>
</TABLE>
Investment Activities
The Bank is required by regulations to maintain certain liquidity ratios
and does so by investing in securities that qualify as liquid assets under OBRE
and FDIC regulations. In addition, the Bank invests in securities in order to
utilize excess funds that have not been invested in loans, though the yield on
investments is generally less than that available on loans. Such securities
include obligations issued or fully guaranteed by the U. S. Government,
mortgage-backed securities, certain federal agency obligations, certain time
deposits and negotiable certificates of deposit issued by commercial banks
and other specific investments, including commercial paper and corporate debt
securities, as well as a mutual fund that invests primarily in adjustable rate
mortgage securities. The Bank also has an investment in the common stock of
the FHLB-Chicago in order to satisfy the requirement for membership in such
FHLB (See Note 1 of Notes to Consolidated Financial Statements contained in the
Annual Report). At December 31, 1995, the Bank's investment securities and
interest-earning deposits totaled $10,411,264, or 54.28% of total assets. At
December 31, 1994, the Bank's investment securities and interest-earning
deposits totaled $12,103,015, or 61.42% of total assets. SEE Management
Discussion Liquidity in Annual Report.
The Bank's investment decisions are made by the Bank's President in
accordance with the Bank's Investment Portfolio Policy and in consultation
wit the Bank's Board of Directors, which also serves as the Bank's Investment
Committee. The Board is responsible for formulating the investment policy
guidelines, the approval of the Bank's investment strategies and for monitoring
the investment performance of the Bank. The investment policy of the Bank is
designed to provide liquidity to the Bank, to assist in reducing interest rate
risk, and to maximize returns on the investment portfolio. The investment
policy is also intended to comply with the guidelines set forth in the
"Supervisory Policy Statement on Securities Activities" issued by the FDIC on
February 28, 1992.
The Bank balances the investment portfolio to current and anticipated
needs. Maturities are laddered so as to balance the amount of funds requiring
reinvestment at any time. In addition, investments are chosen to maintain
required liquidity ratios and the requirements of the Qualified Thrift Lender
("QTL") test.
Effective December 31, 1993, the Bank adopted SFAS No. 115. SFAS No. 115
requires the Bank to classify certain securities as available for sale if the
Bank may sell said securities to meet liquidity or other investment needs,
rather than holding them to maturity. Any security that is classified as
available for sale is stated at current fair market value, rather than
historical cost, and any resulting adjustment is reflected in the equity
section of the Bank's balance sheet with no effect on current income.
(See Note 1-Accounting Policies-Investment Securities in the Notes to the
Consolidated Financial Statements.) During the years ended December 31, 1995
and 1994, the Bank had no securities held for trading.
49
<TABLE>
Investment Securities Analysis
The following table sets forth LCS Bancorp, Inc.'s consolidated securities
portfolio at the date indicated:
<CAPTION>
(Dollars in Thousands)
December 31,
1995 1994 1993
Book % of Book % of Book % of
Value Total Value Total Value Total
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
DEBT SECURITIES:
U.S. Government/Agency Securities
Held to Maturity $ 1,237 15.38% $ 998 10.71% $ 0 0.00%
Available for Sale 1,257 15.63% 1,183 12.70% 2,555 26.23%
Mortgage Backed Securities
Held to Maturity 99 1.23% 116 1.24% 142 1.46%
Available for Sale 1,529 19.01% 1,648 17.69% 2,160 22.17%
Corporate Bonds
Held to Maturity 594 7.38% 1,224 13.14% 934 9.59%
Available for Sale 1,407 17.49% 1,303 13.98% 1,125 11.55%
Total Debt Securities 6,123 76.12% 6,472 69.46% 6,916 71.00%
EQUITY SECURITIES:
FHLB Stock 77 .96% 76 .81% 95 .98%
Investment in Mutual Fund 1,844 22.92% 2,770 29.73% 2,730 28.02%
Total Equity Securities 1,921 23.88% 2,846 30.54% 2,825 29.00%
TOTAL INVESTMENTS 8,044 100.00% 9,318 100.00% 9,741 100.00%
OTHER INTEREST EARNING ASSETS:
FHLB Overnight Fund 1,234 1,457 2,162
Cash Management Accounts 154 79 121
Certificates of Deposit in
other financial institutions 979 1,249 1,412
Total Other Interest Earning Assets 2,367 2,785 3,695
TOTAL $10,411 $12,103 $13,436
<FN>
50
</FN>
</TABLE>
<TABLE>
Investment Portfolio Maturities
The following table sets forth the maturities and weighted average yields
of the securities in the Company's investment portfolio at December 31, 1995
using carrying values:
<CAPTION>
(Dollars in Thousands)
Less Than One to
One Year Five Years Over Five Years
Amount Yield Amount Yield Amount Yield Total Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government/Agency Securities $ 565 6.43% $1,929 6.05% $ 0 0.00% $2,494 6.14%
Mortgage-Backed Securities 0 0.00% 1,007 6.67% 621 7.69% 1,628 7.05%
Corporate Bonds 0 0.00% 2,001 6.59% 0 0.00% 2,001 6.59%
FHLB Stock (1) 0 0.00% 77 7.06% 0 0.00% 77 7.06%
Mutual Fund 1,844 6.14% 0 0.00% 0 0.00% 1,844 6.14%
Totals $2,409 $5,014 $621 $8,044
<FN>
(1) The FHLB Stock has no stated maturity. For purposes of this table, it's
maturity is assumed to be one to five years.
51
</FN>
</TABLE>
Sources of Funds
General. Deposits are the primary source of the Bank's funds for use in
lending and for other general business purposes. In addition to deposits, the
Bank obtains funds from normal loan amortization and prepayments and from
operations. Contractual loan payments are a relatively stable source of funds,
which deposit inflows and outflows and loan prepayments are significantly
influenced by general market interest rates and economic conditions.
Borrowings may be used on a short-term basis to compensate for seasonal or
other reductions in normal sources of funds or for deposit inflows at less than
projected levels. Borrowings may also be used on a longer term basis to
support expanded lending or investment activities.
Deposits. The Bank has historically emphasized fixed-rate certificates
accounts and regular passbook savings accounts. The Bank has a number of
different programs designed to attract both short-term and long-term deposits
of the general public by providing an assortment of accounts and rates. These
programs include passbook and certificates of deposit ranging in maturity terms
from 6 to 48 months. The Bank also offers checking accounts (both interest-
bearing and non-interest bearing) and money market accounts.
The Bank's deposits are obtained primarily from residents in its primary
market area. The principal methods used by the Bank to attract deposits
include offering a wide variety of services and accounts, competitive interest
rates, personalized services, convenient office location, and the offering of
various types of "special, limited time" deposit programs. The Bank utilizes
traditional marketing methods to attract new customers and savings deposits,
including print media advertising, radio and direct mailings. The Bank does
not utilize brokered deposits or actively seek negotiated rate certificates of
deposit in excess of $100,000 ("jumbo certificates").
The Bank's deposit composition has shifted somewhat in recent years as the
general levels of market interest rates has decreased significantly from the
levels experienced during the 1980's. The Bank has attempted to shift deposits
to emphasize lower-cost products, such as regular savings accounts, money
market accounts and checking accounts. Thus, while deposit balances have been
decreasing, the Bank's cost of funds have also decreased. Furthermore, since
regular savings accounts, money market accounts and checking accounts tend to
be less interest rate sensitive than certificates of deposit, the Bank's
emphasis of these accounts is also consistent with its interest rate risk
management strategy.
52
Deposit Balances
The following table sets forth information concerning the Bank's time deposits
and other deposits at December 31, 1995:
Percentage
Category Minimum Balance of Total
Term Checking and Savings Balance (in 000's) Deposits
None NOW Accounts $ 250 $ 726 4.25%
None Non-interest Checking 100 161 .94%
None Money Market Accounts 2,500 735 4.31%
None Passbook Savings 100 1,128 6.61%
Certificates of Deposit
6 month Fixed Rate, Fixed Term 1,000 1,609 9.43%
12 month Fixed Rate, Fixed Term 1,000 3,251 19.05%
18 month Fixed Rate, Fixed Term 1,000 1,320 7.73%
24 month Fixed Rate, Fixed Term 1,000 608 3.56%
30 month Fixed Rate, Fixed Term 1,000 1,182 6.93%
36 month Fixed Rate, Fixed Term 1,000 111 0.65%
48 month Fixed Rate, Fixed Term 1,000 1,494 8.75%
60 month Fixed Rate, Fixed Term 1,000 1,695 9.93%
Odd Term Fixed Rate, Fixed Term 1,000 107 0.63%
IRA Accounts
12 month Fixed Rate, Fixed Term 250 60 0.35%
18 month Fixed Rate, Fixed Term 250 153 0.90%
24 month Fixed Rate, Fixed Term 250 19 0.11%
30 month Fixed Rate, Fixed Term 250 311 1.82%
36 month Fixed Rate, Fixed Term 250 0 0.00%
48 month Fixed Rate, Fixed Term 250 616 3.61%
60 month Fixed Rate, Fixed Term 250 1,773 10.39%
Odd Term Fixed Rate, Fixed Term 250 9 0.05%
Total Deposits $17,068 100.00%
Accrued Interest 89
Total $17,157
53
Time Deposits by Rates
The following table sets forth the Bank's time deposits classified by rate as
of the date indicated:
At December 31,
Rate 1995 1994 1993
Below 4.00% $ 0 $ 389 $ 3,902
4.00%-5.99% 13,163 14,170 6,254
6.00%-7.99% 1,155 155 1,030
8.00%-8.99% 0 191 2,130
9.00 and over 0 0 2,680
Total $14,318 $14,905 $15,996
The following table sets forth the amounts (in thousands) and maturities of
time deposits at December 31, 1995 using weighted rates:
Amount Due
Up to 1-2 2-3 3-4 After 4 Percent of
Rate One Year Years Years Years Years Total Total
4.00%-5.99% $6,831 $3,000 $1,270 $2,062 $ 0 $13,163 91.93%
6.00%-7.99% 300 0 0 0 855 1,155 8.07%
8.00% and over 0 0 0 0 0 0 0.00%
Total $7,131 $3,000 $1,270 $2,062 $ 855 $14,318 100.00%
Substantially all of Litchfield's depositors are residents of the local
communities.
Borrowings. The Bank is permitted to obtain advances from the FHLB-Chicago
upon the security of capital stock of the FHLB-Chicago it owns and certain of
its home mortgage loans and other assets (principally, securities which are
obligations of, or guaranteed by, the U.S. Government or agencies thereof),
provided certain standards related to creditworthiness have been met.
See "REGULATION-Federal Home Loan Bank System." Such advances may be made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities and the FHLB-Chicago prescribes the
acceptable uses to which the advance pursuant to each program may be made,
as well as limitations on the size of such advances. Depending on the
program, such limitations are based either on a fixed percentage of the Bank's
regulatory capital or on the FHLB's assessment of the Bank's credit-worthiness.
The FHLB is required to review its credit limitations and standards at least
once every six months. Prepayment of FHLB -Chicago advances would incur
prepayment penalties. At December 31, 1995, the Bank had no outstanding
borrowings, nor has it had any borrowings during any of the most recent five
years.
Subsidiaries
Litchfield has no subsidiaries.
Employees
As of December 31, 1995, Litchfield had six full-time employees, and two
part-time employees. The employees are not represented by a collective
bargaining unit. The Bank believes its relationship with its employees to be
excellent. The holding Company had no employees at December 31, 1995 or at any
time during the year.
54
Offices and Other Material Properties
As of December 31, 1995, the Bank conducted its business from its only
office, equipped with a two-lane drive-up facility, located at 501 North State,
Litchfield, Illinois. The net book value of the Bank's investment in office,
properties, and equipment totaled $207,657 at December 31, 1995. See Note 7 of
Notes to Financial Statements included herein. The Bank uses the services of
an independent third-party data processing service to process customer records.
The net book value of the Bank's data processing equipment at December 31, 1995
was approximately $4,500.
Competition
The Bank faces significant competition in attracting deposits. Its most
direct competition for deposits has historically come from commercial banks
located in its market area, all of which are substantially larger than the
Bank. The Bank also faces additional significant competition for investors'
funds from short-term money market mutual funds and issuers of corporate and
government securities. The Bank competes for deposits principally by offering
depositors a variety of deposit programs, a convenient location and hours, and
other services. The Bank does not rely upon any individual group or entity for
a material portion of its deposits.
The Bank's competition for real estate loans comes principally from mortgage
banking companies, commercial banks and other savings institutions. The Bank
competes for loan originations primarily through the interest rates and loan
fees it charges, and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. Factors which affect competition
include the general and local economic conditions, current interest rate levels
and volatility in the mortgage markets.
LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to banking, LCS is not a
party to, and none of LCS's property is subject to, any pending legal
proceedings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, LCS had, and expects to have in the future, banking transactions
with officers and directors of LCS, their immediate families and entities in
which they are principal owners (more than 10% interest). The transactions are
in the ordinary course of business and on substantially the same terms,
including interest rates and security, as those prevailing at the same time for
comparable transactions with others and do not involve more than the normal
risk of collectibility or present other unfavorable factors.
EXPERTS
The financial statements of LCS as of December 31, 1995, included in LCS'
1995 Annual Report to Shareholders which is incorporated herein by reference,
have been audited by Sikich, Gardner & Co., LLP, independent public
accountants. Representatives of Sikich, Gardner & Co., LLP are expected to
be present at the LCS Special Meeting with the opportunity to make a
statement if they desire to do so and to be available to respond to
appropriate questions.
AVAILABLE INFORMATION
Incorporated by reference herein are (i) the Annual Report of LCS on
Form 10-K for the year ended December 31, 1995, as filed with the SEC and
(ii) the Quarterly Report for LCS on Form 10-Q for the quarter ended June 30,
1996, as filed with the SEC, and (iii) any documents filed subsequent to the
date of this Proxy Statement.
Any shareholder of LCS may obtain a copy of LCS' Annual Report on
Form 10-K or Quarterly Report on Form 10-Q by contacting Carol J. Radtke,
President of LCS, 501 N. State Street, Litchfield, Illinois 62056. LCS
will provide such reports without charge. In addition, such reports, proxy
statements and other information filed with the SEC can be inspected and
copied at the public reference facilities maintained by the SEC at Judiciary
Plaza, 450 5th Street, N.W., Room 1024, Washington, D.C. 20549; 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601; and 7 World Trade
Center, 13th Floor, New York, N. Y. 10048. Copies of each such materials
may also be obtained at prescribed rates from the Public Reference Section
of the SEC at Judiciary Plaza, 450 5th Street, N.W., Room 1024, Washington,
D.C. 20549.
55
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy material relating to the
next annual meeting of shareholders in the event the Merger is not consummated,
a shareholder proposal must have been received by the Secretary at the offices
of the Company at the address set forth on the first page of this Proxy
Statement, not later than November 1, 1996. Any such proposal will be subject
to Proxy Rule 14a-8 of the rules and regulations of the Securities and Exchange
Commission.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the LCS
Special Meeting other than those matters described in this Proxy Statement.
However, if any other matters should properly come before the LCS Special
Meeting, it is intended that the proxies solicited hereby will be voted with
respect to those other matters in accordance with the judgment of the persons
voting the proxies.
By Order of the Board of Directors
s/Rhonda Reener
Rhonda Reener
Secretary
____________________, 199__
Litchfield, Illinois
56
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
JACKSONVILLE SAVINGS BANK
AND
LCS BANCORP, INC.
AND
LITCHFIELD COMMUNITY SAVINGS, S.B.
Agreement and Plan of Merger
By and Among
Jacksonville Savings Bank
and
LCS Bancorp, Inc.
and
Litchfield Community Savings, S.B.
Dated: August 13, 1996
TABLE OF CONTENTS
Page No.
ARTICLE I............................................................... 1
THE COMPANY MERGER AND MERGER....................................... 1
1.1 The Merger.................................................. 1
1.2. Effective Time of the Merger................................ 2
1.3. Closing..................................................... 2
1.4. Modification of Structure................................... 3
ARTICLE II.............................................................. 3
EFFECT OF THE COMPANY MERGER AND MERGER;
CERTAIN ACTIONS IN CONNECTION THEREWITH........................... 3
2.1. Effect of the Merger........................................ 3
2.2. Effect on LCS Common Stock.................................. 4
2.3. Options..................................................... 4
2.4. Jacksonville to Make Cash Available......................... 4
2.5. Payment of Cash............................................. 4
ARTICLE III............................................................. 5
REPRESENTATIONS AND WARRANTIES OF JACKSONVILLE...................... 5
3.1. Corporate Organization...................................... 5
3.2. Authorization............................................... 6
3.3. No Violation................................................ 6
3.4. Consents and Approvals...................................... 6
3.5. Information Supplied for Inclusion in the LCS Proxy Statement 7
3.6. Cash Payment................................................ 7
3.7. Accuracy of Information..................................... 7
3.8. Supplement to Jacksonville Disclosure Schedule.............. 7
3.9. Litigation.................................................. 7
3.10 Information in the Jacksonville Proxy Statement............. 7
ARTICLE IV.............................................................. 8
REPRESENTATIONS AND WARRANTIES OF LCS AND LITCHFIELD................ 8
4.1. Corporate Organization...................................... 8
4.3. Authorization............................................... 9
4.4. No Violation................................................ 9
4.5. Reports and Financial Statements............................ 9
4.6. Consents and Approvals...................................... 10
4.7. Absence of Certain Changes.................................. 10
4.8. Employee and Employee Benefits Matters...................... 11
4.9. Litigation.................................................. 12
4.10. Tax Matters................................................. 13
4.11. Information in the LCS Proxy Statement...................... 13
4.12. Environmental Matters....................................... 13
4.13. Insurance................................................... 15
4.14. Compliance with Laws and Orders............................. 15
4.15. Governmental Regulation..................................... 15
4.16. Contracts and Commitments................................... 16
4.17. Agreements with Directors, Officers and Shareholders........ 16
4.18. Accuracy of Information..................................... 16
4.19. Supplement to LCS Disclosure Schedule....................... 16
4.20. Title to Assets; Leases..................................... 17
4.21. Information Supplied for Inclusion in the
Jacksonville Proxy Statement............................ 17
4.22. Fees........................................................ 17
4.23. Business of LCS............................................. 18
ARTICLE V............................................................... 18
COVENANTS OF JACKSONVILLE............................................ 18
5.1. Affirmative Covenants....................................... 18
5.2. Negative Covenants.......................................... 18
5.3. Breaches.................................................... 18
5.4. Employee Benefit Plans: Employment Arrangements............. 19
5.5. Filing of Applications...................................... 20
5.6. Expenses.................................................... 20
5.7. Supplement to Jacksonville Disclosure Schedule.............. 20
5.8. Confidentiality............................................. 20
5.9. Non-Assignability........................................... 21
ARTICLE VI.............................................................. 21
COVENANTS OF LCS.................................................... 21
6.1. Affirmative Covenants....................................... 21
6.2. Negative Covenants.......................................... 21
6.3. Report to Jacksonville...................................... 24
6.4. Breaches.................................................... 24
6.5. Supplement to Disclosure Schedule........................... 24
6.6. Expenses.................................................... 24
6.7. Consents and Approvals...................................... 25
6.8. Dissenters' Rights.......................................... 25
ARTICLE VII............................................................. 25
ADDITIONAL AGREEMENTS............................................... 25
7.1. LCS Shareholders' Meeting................................... 25
7.2. Proxy Statement for LCS Shareholders' Meeting............... 25
7.3. Jacksonville Shareholders' Meeting.......................... 25
7.4. Proxy Statement for Jacksonville Shareholders' Meeting...... 26
7.5. Cooperation: Regulatory Approvals.......................... 26
7.6. Reports..................................................... 26
7.7. Brokers or Finders.......................................... 26
7.8. Additional Agreements: Reasonable Efforts................... 27
7.9. Release of Information...................................... 27
7.10. Access to Properties and Records; Confidentiality........... 27
7.11. Certain Policies............................................ 28
ARTICLE VIII............................................................ 28
CONDITIONS TO THE OBLIGATIONS OF JACKSONVILLE....................... 28
8.1. No Material Adverse Effect.................................. 28
8.2. Representations and Warranties.............................. 28
8.3. Performance and Compliance.................................. 29
8.4. No Proceeding or Litigation................................. 29
8.5. Consents Under Agreements................................... 29
8.6. No Amendments to Resolutions................................ 29
8.7. Certificate of LCS Officers................................. 29
8.8. Corporate Proceedings....................................... 29
8.9. Legal Opinion............................................... 29
ARTICLE IX.............................................................. 30
CONDITIONS TO THE OBLIGATIONS OF LCS................................ 30
9.1. Representations and Warranties.............................. 30
9.2. Performance and Compliance.................................. 30
9.3. Corporate Proceedings....................................... 30
9.4. Certificate of Jacksonville Officers........................ 30
9.5. Legal Opinion............................................... 30
9.6. Fairness Opinion............................................ 30
ARTICLE X............................................................... 31
CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES........................ 31
10.1. Governmental Approvals...................................... 31
10.2. No Injunctions or Restraints................................ 31
10.3. LCS and Jacksonville Shareholder Approval................... 31
10.4 Corporate Proceedings....................................... 31
ARTICLE XI.............................................................. 32
TERMINATION......................................................... 32
11.1. Reasons for Termination..................................... 32
11.2. Effect of Termination....................................... 33
ARTICLE XII............................................................. 33
MISCELLANEOUS....................................................... 33
12.1. Nonsurvival of Representations, Warranties and Agreements... 33
12.2. Expenses.................................................... 34
12.3. Waivers: Amendments........................................ 34
12.4. Assignment: Parties in Interest............................ 34
12.5. Entire Agreement............................................ 35
12.6. Captions and Counterparts................................... 35
12.7. Certain Definitions......................................... 35
12.8. Enforcement of the Agreement................................ 35
12.9. Governing Law............................................... 35
12.10. Notices..................................................... 35
SCHEDULES
Schedule 3.1
Schedule 3.9
Schedule 4. 1 (a)
Schedule 4.2
Schedule 4.4
Schedule 4.5
Schedule 4.6
Schedule 4.7
Schedule 4.8(a)
Schedule 4.8(b)
Schedule 4.9
Schedule 4. 1 0
Schedule 4.12(a)
Schedule 4.12(b)
Schedule 4.12(c)
Schedule 4.12(d)
Schedule 4.12(e)
Schedule 4.12(f)
Schedule 4.13
Schedule 4.14
Schedule 4.15
Schedule 4.16
Schedule 4.17
Schedule 4.20(b)
Schedule 5.4(a)
Exhibits
Agreement of Company Merger..................................... Exhibit A
Plan of Merger.................................................. Exhibit B
Plan of Complete Liquidation and Dissolution.................... Exhibit C
Legal Opinion of Kemp, Grzelakowski & Lorenzini, Ltd............ Exhibit D
Legal Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C...... Exhibit E
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of August 13, 1996 (the
"Agreement"), is entered into by and among Jacksonville Savings Bank
("Jacksonville") and LCS Bancorp, Inc. ("LCS"), the holding company for
Litchfield Community Savings, S.B. ("Litchfield"). References to Jacksonville
include subsidiaries of Jacksonville ("Jacksonville Subsidiary") unless the
context indicates otherwise. References to LCS shall include Litchfield unless
the context indicates otherwise.
W I T N E S S E T H:
WHEREAS, Jacksonville is an Illinois-chartered stock savings bank
headquartered in Jacksonville, Illinois, 54% of the issued and outstanding
capital stock of which is owned by Jacksonville Bancorp, MHC, an Illinois
chartered mutual holding company; and
WHEREAS, Litchfield is an Illinois-chartered stock savings bank head-
quartered in Litchfield, Illinois, 100% of the issued and outstanding capital
stock of which is owned by LCS, a Delaware Corporation in stock form; and
WHEREAS, the parties desire to provide for Jacksonville's acquisition of
Litchfield pursuant to a Merger (as defined in Section 1.1(b) below) of
Jacksonville and Litchfield on or after the Effective Time (as defined in
Section 1.2 hereof); and
WHEREAS, in connection with the Company Merger (as defined in Section 1.1
(a) below) the outstanding capital stock of LCS will be converted into the
right to receive cash; and
WHEREAS, it is intended that Jacksonville and Litchfield will be merged
such that Jacksonville will be the surviving corporation and that the resulting
savings institution will expand its market area and achieve certain economies
of scale and efficiencies as a result of the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties, and agreements herein contained, and in order to
set forth the conditions upon which the foregoing Merger will be carried out,
the parties, intending to be legally bound, hereby agree as follows:
ARTICLE I.
THE COMPANY MERGER AND MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, and in accordance with the provisions of. Section 18(c) of the
Federal Deposit Insurance Act (12 U.S.C. 1828(c)), as amended (the "Bank Merger
Act"), and Section 8004 of the Illinois Savings Bank Act (the "Savings Bank
Act"), and the rules and regulations promulgated under each of the Bank
Merger Act and the Savings Bank Act (the "Regulations"), at the Effective
Time, the parties hereby agree that the following corporate transactions shall
occur substantially concurrently in the order set forth below:
(a) Pursuant to the Agreement of Company Merger, attached hereto as
Exhibit A, among Jacksonville, LCS and a to-be-formed Illinois corporation
which is to be wholly owned by Jacksonville, such to-be-formed corporation
shall be merged with and into LCS (the "Company Merger') and, in connection
therewith, and subject to the rights of dissenting stockholders which have been
asserted and duly perfected in accordance with the provisions of Section 262 of
the Delaware General Corporation Law ("DGCL"), each share of common stock, $.01
par value per share, of LCS ("LCS Common Stock") and each option to purchase
LCS Common Stock granted pursuant to the LCS stock option plans, as identified
herein, outstanding immediately prior to the Effective Time (as defined herein)
of the Company Merger shall be canceled in exchange for the right to receive
the Purchase Price (as defined herein), with the result that LCS will become a
wholly owned subsidiary of Jacksonville.
(b) Pursuant to the Agreement of Merger, attached hereto as Exhibit B,
between Litchfield and Jacksonville, Litchfield shall merge with and into
Jacksonville simultaneously with or immediately following consummation of the
transactions referred to in Section 1.1(a) hereof, with the result that
Jacksonville will acquire all of the assets and liabilities of Litchfield and
Litchfield shall cease to exist (the "Merger"). In effecting the Merger,
Jacksonville may charter an interim savings bank.
(c) Pursuant to the Plan of Complete Liquidation and Dissolution (the
"Plan"), attached hereto as Exhibit C, LCS shall be liquidated into
Jacksonville simultaneously with or immediately following consummation of the
transactions referred to in Sections 1.1(a) and (b) hereof, with the result
that Jacksonville will acquire all of the assets and liabilities of LCS and
LCS shall cease to exist.
1.2. Effective Time of the Merger. As soon as practicable after each of
the conditions set forth in Articles VIII, IX and X hereof have been satisfied
or waived, Jacksonville and Litchfield will file, or cause to be filed, the
Agreement of Merger attached as Exhibit B hereto (the "Merger Agreement"),
along with copies of the resolutions approved by LCS as sole stockholder of
Litchfield approving the Merger of Litchfield and Jacksonville with the
Illinois Commissioner of Banks and Real Estate ("Commissioner"). The
Commissioner shall then issue to Jacksonville, as the surviving institution, a
certificate of merger. The Merger shall become effective at the time when the
certificate of merger is recorded in the counties in which either Jacksonville
or Litchfield has an office (the "Effective Time").
1.3. Closing. If (a) the Agreement and the transactions contemplated here-
by have been duly approved as required by the shareholders of LCS and Jackson-
ville, and (b) all relevant conditions of the Agreement have been satisfied or
waived, the closing (the "Closing") shall take place as promptly as practicable
thereafter at the executive offices of Jacksonville. At the Closing, the
parties hereto will exchange certificates, letters and other documents as
required hereby and will cause the filing described in Section 1.2 hereof with
respect to the Merger to be made. Such Closing will take place within ten (10)
business days of the satisfaction or waiver of all conditions and/or obliga-
tions and applicable waiting periods contained in Articles VIII, IX and X of
this Agreement. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
2
1.4. Modification of Structure. Notwithstanding any provision of this
Agreement to the contrary, Jacksonville may elect, subject to the filing of all
necessary applications and the receipt of all required regulatory approvals,
to modify the structure of the transactions contemplated hereby so long as (i)
there are no material adverse federal income tax consequences to the stock-
holders of LCS as a result of such modification, (ii) the consideration to be
paid to holders of LCS Common Stock under this Agreement is not thereby changed
in kind or reduced in amount solely because of such modification and (iii) such
modification will not be likely to materially delay or jeopardize receipt of
any required regulatory approvals.
ARTICLE II.
EFFECT OF THE COMPANY MERGER AND MERGER;
CERTAIN ACTIONS IN CONNECTION THEREWITH
2.1. Effect of the Merger.
(a) Jacksonville, as the surviving institution in the Merger,
shall possess all of the properties and rights and be subject to all of the
liabilities and obligations of LCS and Litchfield, all as more fully described
in the Merger Agreement and the Regulations. The name of Jacksonville, as
the surviving institution in the Merger, shall remain "Jacksonville Savings
Bank".
(b) Following the Merger, Jacksonville will operate Litchfield's
office as a branch office. Jacksonville will use its reasonable efforts to have
this branch office operate under a "doing business as" name of Litchfield
Community Savings, a division of Jacksonville Savings Bank.
(c) At the Effective Time, each share of capital stock of LCS
issued and outstanding immediately prior thereto shall, by virtue of the
Company Merger, be canceled. Each option to purchase LCS Common Stock granted
pursuant to LCS' stock option plans and outstanding immediately prior to the
Effective Time shall, by virtue of the Company Merger, be canceled. No new
shares of the capital stock or other securities or obligations of Jacksonville
shall be issued or be deemed issued with respect to or in exchange for such
canceled shares, and such canceled shares of capital stock shall not be
converted into any shares or other securities or obligations of Jacksonville.
(d) Simultaneously with the Merger, each share of Litchfield common
stock issued and outstanding immediately prior thereto shall by virtue of the
Merger be canceled.
(e) The Articles of Incorporation and bylaws of Jacksonville, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and bylaws of Jacksonville, as the surviving institution of the
Merger.
(f) The directors and officers of Jacksonville immediately prior to
the Effective Time shall be the directors and officers of Jacksonville, as the
surviving institution of the Merger, and shall continue in office until their
successors are duly elected or otherwise duly selected.
4
(g) All deposit accounts of Litchfield existing immediately prior
to the Merger shall, upon consummation of the Merger, remain insured by the
Federal Deposit Insurance Corporation ("FDIC") to the fullest extent permitted
by law and regulation.
2.2. Effect on LCS Common Stock. At the Effective Time, by virtue
of the Company Merger and without any action except as specified herein on the
part of the holders of shares of LCS Common Stock, each issued and outstanding
share of LCS Common Stock (except as otherwise provided in the Regulations with
respect to the rights of dissenting shareholders of LCS) shall be converted
into the right to receive $17.75 in cash (the "Purchase Price"). All shares of
LCS Common Stock which are held in the treasury of LCS and any shares of LCS
Common Stock owned by Jacksonville or any direct or indirect wholly owned
subsidiary or parent of Jacksonville shall be canceled.
2.3 Options. As of the Effective Time, Jacksonville shall pay to
each holder of an option which has been granted by LCS to purchase shares of
LCS Common Stock, and which is outstanding and exercisable but unexercised
immediately prior to the Effective Time in accordance with LCS' stock option
plans, an amount in cash computed by multiplying (i) any positive difference
obtained by subtracting from (x) the per share amount of the Purchase Price and
(y) the per share exercise price applicable to such option by (ii) the number
of shares of LCS Common Stock subject to such option, subject, with respect to
each such holder, to the receipt by Jacksonville of an acknowledgment from such
holder that such payment shall constitute consideration for the termination and
cancellation of such option. LCS agrees to take or cause to be taken all
action necessary so that each such option outstanding immediately before the
Effective Time as a result of the failure of the holder thereof to deliver the
acknowledgment described in the preceding sentence shall be converted into a
right to receive the amount described in the preceding sentence.
2.4. Jacksonville to Make Cash Available. At the Effective Time,
Jacksonville shall make available the amount of cash payable pursuant to
Section 2.2 and Section 2.3 hereof.
2.5 Payment of Cash.
(a) Jacksonville shall act as the exchange agent (the "Exchange Agent")
in connection with the Company Merger. At the closing, the Exchange Agent
shall (except to those holders of LCS Common Stock who have properly exercised
dissenters' rights of appraisal) pay to each holder who delivers his or her
certificate or certificates representing such shares to the Exchange Agent a
check for an amount equal to the number of shares represented by the certifi-
cate or certificates so surrendered to the Exchange Agent multiplied by the
Purchase Price. As to each holder of record of LCS Common Stock who does not
surrender his shares at Closing, the Exchange Agent shall send a notice and
form of letter of transmittal advising such shareholder of the effectiveness of
the Company Merger and the procedures for surrendering to the Exchange Agent
outstanding certificates formerly evidencing shares of LCS Common Stock. Each
shareholder who thereafter delivers his or her certificate or certificates
representing such shares to the Exchange Agent shall be mailed a check for an
amount, without interest, equal to the number of shares represented by the
certificate or certificates so surrendered to the Exchange Agent multiplied by
the Purchase Price. Upon surrender, each certificate evidencing LCS Common
Stock shall be canceled. Until so surrendered, each outstanding certificate
which prior to the Effective Time evidenced shares of LCS Common Stock will be
deemed for all purposes (except as otherwise provided in Section 2.2 hereof) to
4
evidence the right to receive cash, without interest, equal to the number of
shares represented by the certificate or certificates multiplied by the
Purchase Price. After the Effective Time, there shall be no further registra-
tion of transfers on the records of LCS of shares of LCS Common Stock and, if
a certificate evidencing such shares is presented for transfer, it shall be
canceled in exchange for a check (except as otherwise provided in Section 2.2
hereof) in the appropriate amount as calculated above. Notwithstanding any
provision of this Agreement, neither the Exchange Agent nor any person, firm
or entity shall be liable or obligated to any former holder of any share of LCS
Common Stock (or to anyone claiming through any such former holder) with
respect to amounts to which any such holder would have been entitled as a
consequence of the Company Merger, if such amounts have been paid, or are
payable, to any public official pursuant to any abandoned property, escheat or
similar laws.
(b) If delivery of all or any part of the cash to be paid in connection
with the Company Merger is to be paid to a person other than the person in
whose name the certificate surrendered in exchange therefor is registered, it
shall be a condition to such delivery that the certificate surrendered in
exchange shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such a delivery pay to the Exchange Agent any
transfer or other taxes required by reason of such delivery in any name other
than that of the registered holder of the certificate surrendered or establish
to the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(c) In the event any certificate for LCS Common Stock shall have been
lost, stolen or destroyed, the Exchange Agent shall deliver (except as other-
wise provided in Section 2.2 hereof) in exchange for such lost, stolen or
destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, the cash to be paid in the Company Merger as provided for
herein; provided, however, that Jacksonville may, in its sole discretion and as
a condition precedent to the delivery thereof, require the owner of such lost,
stolen or destroyed certificate to deliver a bond in such reasonable sum as
Jacksonville may direct as indemnity against any claim that may be made against
Jacksonville, LCS or any other party with respect to the certificate alleged to
have been lost, stolen or destroyed.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF JACKSONVILLE
Jacksonville hereby represents and warrants to LCS as follows:
3.1. Corporate Organization.
(a) Jacksonville is a stock savings bank duly organized and validly
existing and in good standing under the laws of the State of Illinois. The
Jacksonville Subsidiary is duly organized and validly existing and in good
standing under the laws of the State of Illinois.
(b) The to-be-formed corporation referred to in Section 1.1(a) hereof
will be duly organized and validly existing under the laws of the jurisdiction
of its incorporation and have the authority to consummate the Company Merger
contemplated herein.
5
(c) All deposit accounts issued by Jacksonville are insured by the FDIC
to the maximum extent permitted under applicable law.,
(d) Jacksonville has all requisite corporate power and authority to
own, operate and lease its properties as presently owned, operated and leased
and to engage in the activities and business now being conducted by it.
Schedule 3.1 to the Jacksonville disclosure schedule attached hereto as Annex I
(the "Jacksonville Disclosure Schedule") lists each "subsidiary" of
Jacksonville.
3.2. Authorization. The Board of Directors of Jacksonville has approved
the Agreement and the transactions contemplated hereby and has authorized the
execution, delivery and performance by Jacksonville of the Agreement. No other
corporate proceeding on the part of Jacksonville is necessary to authorize the
Agreement or to consummate the transactions contemplated hereby, and
Jacksonville has full corporate power and authority to enter into the Agreement
and to consummate the transactions contemplated hereby subject to the condi-
tions set forth in Articles VIII and X of this Agreement. This Agreement has
been duly and validly executed and delivered by Jacksonville and constitutes
the valid and binding obligation of Jacksonville, enforceable against each of
them in accordance with its terms, subject to (a) all applicable bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally, and (b) the application of equitable principles if
equitable remedies are sought.
3.3. No Violation. Neither the execution and delivery of the Agreement
nor, subject to the receipt of the consents and approvals contemplated by
Section 3.4, the consummation of the transactions contemplated herein will,
(a) conflict with, result in the breach of, constitute a violation of,
constitute a default under or accelerate the performance of the terms of any
government regulation, judgment, order or decree of any court or other govern-
mental agency to which Jacksonville or any of the Jacksonville Subsidiaries may
be subject, or any contract, agreement or instrument to which Jacksonville or
any of the Jacksonville Subsidiaries is a party or by which Jacksonville or
any of the Jacksonville Subsidiaries are bound or committed, or the articles
of incorporation of Jacksonville, the articles of incorporation of any of the
Jacksonville Subsidiaries, or the bylaws of Jacksonville or any of the
Jacksonville Subsidiaries, or, any law, or any rule or regulation of any
governmental agency or authority, or (b) constitute an event that with
the lapse of time or action by a third party could result in a default under
any of the foregoing, or (c) result in the creation of any lien, charge or
encumbrance upon any of the assets or properties of Jacksonville or any of the
Jacksonville Subsidiaries.
3.4. Consents and Approvals. Other than the receipt of approvals
required by the Savings Bank Act the Bank Merger Act the Bank Holding Company
Act ("BHCA"), and the regulations promulgated under said acts, or waivers to
such approvals, and the approval of Jacksonville's stockholders, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any public or governmental body or authority is necessary for the
consummation by Jacksonville of the transactions contemplated by the
Agreement. Jacksonville knows of no reason (including those relating to fair
lending laws or other laws relating to discrimination, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the
Community Reinvestment Act and the Home Mortgage Disclosure Act, and antitrust
or consumer disclosure laws and regulations) why the regulatory approvals
should not be obtained.
6
3.5. Information Supplied for Inclusion in the LCS Proxy Statement. Any
information regarding Jacksonville or any of the Jacksonville Subsidiaries
supplied by Jacksonville to LCS specifically for inclusion in the LCS Proxy
Statement (as defined in Section 7.2 hereof) will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading.
3.6. Cash Payment. Jacksonville has sufficient funds to pay the cash
payment required under Sections 2.2 and 2.3 and such payment will not cause it
to fail to meet any regulatory capital requirements to which it is subject.
3.7. Accuracy of Information. The statements made by Jacksonville in the
Agreement and in any other written documents executed and/or delivered by or on
behalf of Jacksonville pursuant to the terms of the Agreement are true and
correct in all material respects.
3.8. Supplement to Jacksonville Disclosure Schedule. Jacksonville will
promptly supplement or amend the Jacksonville Disclosure Schedule with respect
to any matter hereafter arising that, if existing or occurring at the date of
this Agreement would have been required to be set forth or described in the
Jacksonville Disclosure Schedule. No supplement or amendment to the
Jacksonville Disclosure Schedule will have any effect for the purpose of
determining satisfaction of the condition set forth in Section 9.1 hereof.
3.9. Litigation. Except as set forth in Schedule 3.9 to the Jacksonville
Disclosure Schedule, no claims have been asserted and no relief has been sought
against Jacksonville or any of the Jacksonville Subsidiaries in any pending
litigation or governmental proceedings or otherwise which would be reasonably
likely to result in Jacksonville becoming unable to pay the Purchase Price or
otherwise perform its obligations under, and consummate the transactions
contemplated by, this Agreement.
3.10. Information in the Jacksonville Proxy Statement. Jacksonville
represents and warrants that the Jacksonville Proxy Statement will not, either
at the time it is mailed to Jacksonville stockholders in connection with the
Jacksonville Stockholders Meeting (as defined in Section 7.3 hereof) or at the
time of the Jacksonville Stockholders Meeting, contain any untrue statement of
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading; provided, however, that none of the
representations and warranties in this Section 3. 10 shall apply to statements
in or omissions from the Jacksonville Proxy Statement made in reliance upon and
in conformity with information about or furnished by or on behalf of LCS for
use in the Jacksonville Proxy Statement.
7
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF LCS AND LITCHFIELD
LCS and Litchfield represent and warrant to Jacksonville as follows:
4.1. Corporate Organization.
(a) LCS and Litchfield have all requisite corporate power and
authority to own, operate and lease their properties as presently owned,
operated or leased and to engage in the activities and business now conducted
by each of them. LCS and Litchfield are qualified to do business in each
jurisdiction in which the nature of business conducted or assets owned or
leased by each of LCS and Litchfield makes such qualification necessary and
where a failure to do so would have a Material Adverse Effect. The
jurisdictions in which LCS and Litchfield are qualified to do business as a
foreign corporation are identified in Schedule to the LCS disclosure schedule
attached hereto as Annex II (the "LCS Disclosure Schedule"). LCS is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Litchfield is a member in good standing of the
Federal Home Loan Bank of Chicago and all eligible accounts issued by Litch-
field are insured by the FDIC to the maximum extent permitted under applicable
law. Litchfield is a savings bank duly organized, validly existing and in good
standing under the laws of the State of Illinois. Other than Litchfield, LCS
has no direct or indirect subsidiaries.
(b) LCS and Litchfield have each delivered to Jacksonville true and
complete copies of the certificate or articles of incorporation, organization
certificate or other chartering instrument and bylaws of LCS and Litchfield,
respectively, in effect on the date hereof. The minute books of LCS and
Litchfield each contain accurate minutes of all meetings and accurate consents
in lieu of meetings of the board of directors (and any committee thereof) and
of the stockholder(s) of LCS recorded therein, and as of the Effective Time
such minute books will contain accurate minutes of all such meetings and such
consents in lieu of meetings respectively held or executed prior thereto. The
minute books accurately reflect all transactions referred to in such minutes
and consents in lieu of meetings and disclose all material corporate actions of
the stockholder(s) and board of directors of LCS and Litchfield and all
committees thereof. Except as reflected in such minute books, there are no
minutes of meetings or consents in lieu of meetings of the board of directors
(or any committee thereof) or of the stockholder(s) of LCS and Litchfield.
4.2. Capitalization. The authorized capital stock of LCS consists of
400,000 shares of LCS Common Stock, par value $.01 per share, and 100,000
shares of preferred stock, par value $.01 per share ("Preferred Stock"). As of
June 30, 1996, there were issued and outstanding 107,640 shares of LCS Common
Stock and no shares of Preferred Stock. As of June 30, 1996, 10,350 shares of
LCS Common Stock were reserved for issuance pursuant to stock options and no
shares of Preferred Stock were reserved for issuance pursuant to stock options.
All of such issued and outstanding shares of LCS capital stock are validly
issued, fully paid and nonassessable and not issued in violation of any
preemptive rights. LCS does not have any arrangements or commitments
obligating LCS to issue or sell or otherwise dispose of, or to purchase or
redeem, shares of its capital stock or any securities convertible into or
having the right to purchase shares of its capital stock. Schedule 4.2 of the
LCS Disclosure Schedule sets forth a complete and accurate list of all options
8
to purchase LCS Common Stock that have been granted and which remain
unexercised, including the dates of grant, exercise prices, dates of vesting,
dates of termination and shares subject to grant. To the best of LCS'
knowledge, no person or group (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act")) other than as set forth
at Schedule 4.2 of the LCS Disclosure Schedule, is the beneficial owner of 5%
or more of the outstanding LCS Common Stock. The authorized capital stock of
Litchfield consists of 1,000 shares of common stock, par value $1.00 per
share, and 9,000 shares of preferred stock, par value $100 per share. As of
June 30, 1996, 1,000 shares of Litchfield common stock and no shares of
preferred stock were outstanding. All shares of Litchfield common stock are
held by LCS free and clear of all liens and encumbrances.
4.3. Authorization. The respective Boards of Directors of LCS and
Litchfield have approved the Agreement and the transactions contemplated
thereby and authorized the execution, delivery and performance by LCS and
Litchfield of the Agreement. No other corporate proceeding on the part of
either LCS or Litchfield is necessary to authorize the Agreement or to
consummate the transactions contemplated thereby other than the approval of the
holders of LCS Common Stock as provided in Section 7.1 hereof and the approval
of LCS as sole stockholder of Litchfield common stock. LCS and Litchfield have
full corporate power and authority to enter into the Agreement and, upon
approval of the shareholders of LCS Common Stock in accordance with law and
subject to the additional conditions set forth in Articles IX and X of this
Agreement, to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by LCS and Litchfield and
constitutes the valid and binding obligations of LCS and Litchfield,
enforceable against it in accordance with its terms, subject to (a) all
applicable bankruptcy, insolvency, moratorium, or other similar laws affecting
the enforcement of creditors' rights generally or the rights of creditors of
savings associations the accounts of which are insured by the FDIC, (b) the
application of equitable principles if equitable remedies are sought, and
(c) the provisions of this Agreement providing that the Company Merger will be
enforceable only upon approval by the holders of LCS Common Stock as described
in Section 7.1 hereof.
4.4. No Violation. Other than as set forth in Schedule 4.4 of the LCS
Disclosure Schedule, neither the execution and delivery of the Agreement nor,
subject to the receipt of the consents and approvals contemplated by Section
4.6, the consummation of the transactions contemplated herein will (a) conflict
with, result in the breach of, constitute a default under or accelerate the
performance provided by the terms of any judgment, order or decree of any court
or other governmental agency to which LCS or Litchfield may be subject, or any
contract, agreement or instrument to which either LCS or Litchfield is a party
or by which LCS or Litchfield are bound or committed, or the certificate of
incorporation of LCS or the bylaws of LCS, the articles of incorporation of
Litchfield or bylaws of Litchfield, or, to the knowledge of LCS or Litchfield
(as defined in Section 12.7(e) hereof), any law, or any rule or regulation of
any governmental agency or authority, or (b) constitute an event that with the
lapse of time or action by a third party, or both, could result in a default
under any of the foregoing or (c) result in the creation of any material lien,
charge or encumbrance upon any of the assets, properties or stock of LCS or the
capital stock of LCS.
4.5. Reports and Financial Statements. LCS has previously furnished
Jacksonville with true and complete copies of its (a) Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and annual meeting proxy statements. As
of their respective dates, such reports and statements did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
9
the circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
LCS included in such reports or otherwise delivered to Jacksonville
(collectively referred to herein as the "LCS Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the consolidated financial position of LCS as of the dates
thereof and the results of its operations and changes in consolidated financial
position for the periods then ended, subject, in the case of the unaudited
interim consolidated financial statements, to normal year-end audit adjust-
ments, any other adjustments described therein, and the absence of certain
footnotes. Except as set forth in Schedule 4.5 to the LCS Disclosure Schedule,
since December 31, 1995, LCS has not suffered a Material Adverse Effect and LCS
is not aware of any event or circumstance, or series of events and circum-
stances, which is reasonably likely to result in a Material Adverse Effect to
LCS. The books and records of LCS have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect only
actual transactions. As of December 31, 1995, except and to the extent (i)
reflected, disclosed or provided for in the consolidated financial statements
referred to above and (ii) of liabilities incurred since December 31, 1995 in
the ordinary course of business and consistent with prudent banking practice,
LCS does not have any liabilities, whether absolute, accrued, contingent or
otherwise, material to the business, operations, assets or financial condition
of LCS.
4.6. Consents and Approvals. Other than as set forth in Schedule 4.6 to
the LCS Disclosure Schedule and other than the receipt of approvals required
by the Savings Bank Act, the Bank Merger Act, the Regulations, the BHCA and
applicable federal securities and state laws, and the approval of the holders
of LCS Common Stock as described in Section 7.1 hereof, no filing or
registration with, no notice to and no permit, authorization, consent or
approval of any third party or any public or governmental body or authority is
necessary for the consummation by LCS of the transactions contemplated by the
Agreement or to enable LCS to continue to conduct its business after the
Effective Time in a manner which is consistent with that in which it is
presently conducted, except where the failure to make such filing or obtain
such permit, authorization, consent or approval will not in the aggregate have
a Material Adverse Effect.
4.7. Absence of Certain Changes. Since December 31, 1995, and except as
otherwise permitted by this Agreement, LCS has not except as set forth in
Schedule 4.7 to the LCS Disclosure Schedule: (a) issued or sold any corporate
debt securities as issuer thereof; (b) granted any option for the purchase of
its capital stock; (c) declared or set aside or paid any dividend or other
distribution in respect of its capital stock; (d) incurred any material
obligation or liability (absolute or contingent), except obligations or
liabilities incurred in the ordinary course of business in accordance with past
practices; (e) mortgaged, pledged or subjected to lien or encumbrance (other
than statutory liens for taxes not yet delinquent and landlord liens) any of
its material assets or properties except pledges to secure government deposits
and in connection with repurchase or reverse repurchase agreements; (f)
discharged or satisfied any material lien or encumbrance or paid any obligation
or liability (absolute or contingent), other than current liabilities included
in LCS' consolidated balance sheet as of December 31, 1995, and current
liabilities incurred since the date thereof in the ordinary course of business
in accordance with past practices; (g) sold, exchanged or otherwise disposed of
any of its material capital assets other than in the ordinary course of
business in accordance with past practices; (h) materially made or modified
any wage or salary increase other than routine periodic increases in salary for
10
employees in the ordinary course of business and in accordance with past
practices or as required by law, entered into any employment contract with or
other arrangement with respect to the employment of any officer or salaried
employee or instituted any employee welfare, bonus, stock option, profit
sharing, retirement or similar plan or arrangement; (i) 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; (j) except in the ordinary course of business in accordance with past
practices, 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; (k) entered into any material
transaction outside the ordinary course of its business in accordance with past
practices, except as expressly contemplated by the Agreement; or (l) except in
the ordinary course of business in accordance with past practices or as
reflected in the LCS consolidated financial statements, sold or otherwise
disposed of any of its material investment securities.
4.8. Employee and Employee Benefits Matters. (a) Schedule 4.8(a) to the
LCS Disclosure Schedule lists (i) each employee benefit plan within the meaning
of ERISA Section 3(3) ("LCS Benefit Plans") which is maintained by LCS for the
benefit of any current or former employee, officer, director, consultant or
agent; (ii) each plan, program or arrangement for the provision of medical,
surgical, or hospital care or benefits, benefits in the event of sickness,
accident, disability, death, unemployment, severance, vacation, apprenticeship,
day care, scholarship, prepaid legal services or other benefits; and (iii)
every other retirement or deferred compensation plan, bonus or incentive
compensation plan or arrangement, severance or vacation pay arrangement, or
other fringe benefit plan, program or arrangement through which LCS provides
benefits for or on behalf of any current or former employee, officer, director,
consultant or agent. LCS has delivered or made available to Jacksonville a
true and correct copy of (a) each LCS Benefit Plan, (b) the most recent annual
report (Form 5500) filed with the Internal Revenue Service ("IRS") with respect
to each LCS' Benefit Plan, if applicable, (c) each trust agreement and group
annuity contract, if any, relating to such LCS Benefit Plan, (d) the most
recent actuarial report or valuation relating to a LCS Benefit Plan subject to
Title IV of ERISA and (e) all rulings and determination letters and any open
requests for rulings or letters that pertain to any LCS Benefit Plan.
(b) All of the plans, programs and arrangements described in this Sec-
tion 4.8 or listed in Schedule 4.8(a) to the LCS Disclosure Schedule that are
subject to ERISA and the Internal Revenue Code ("Code") are in material
compliance with all applicable requirements of ERISA and the Code and all other
applicable federal and state laws, including, without limitation, the reporting
and disclosure requirements of Part I of Title I of ERISA. Each of the LCS
Benefit Plans that is intended to be a pension, profit sharing, stock bonus,
thrift, savings or employee stock ownership plan that is qualified under
Section 401(a) of the Code satisfies the applicable requirements of such
provision and there exist no circumstances that would adversely affect the
qualified status of any such Plan under that section, except with respect to
any required retroactive amendment for which the remedial amendment period has
not yet expired. All contributions required to be made under the terms of any
LCS Benefit Plan have been timely made. Except as set forth in Schedule 4.8(b)
to the LCS Disclosure Schedule, there is no pending or, to the knowledge of
LCS, threatened litigation, claim, action, governmental proceeding or investi-
gation against or relating to any LCS Benefit Plan which could give rise to any
material liability, and there is no reasonable basis for any material
litigations, claims, actions or proceedings against any such LCS Benefit Plan.
11
No LCS Benefit Plan (or LCS Benefit Plan fiduciary) has engaged in a non-exempt
"Prohibited Transaction" (as defined in Section 406 of ERISA and Section
4975(c) of the Code) since the date on which said sections became applicable to
such Plan. There have been no acts or omissions by LCS that have given rise to
any fines, penalties, taxes or related charges under Sections 502(c), 502(i) or
4071 of ERISA or Chapter 43 of the Code, or that may give rise to any material
fines, penalties, taxes or related damages under such laws for which LCS may be
liable. LCS has no knowledge of, or any reasonable basis to believe, that any
material liability under Title IV of ERISA has been incurred by LCS, any former
Affiliates of LCS or the LCS Benefit Plans since the effective date of ERISA
that has not been satisfied in full, and that any condition exists that pre-
sents a material risk of incurring a liability under such Title, other than
liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC"),
which payments have been made or will be made when due. With respect to each
of the LCS Benefit Plans which is subject to Title IV of ERISA, the present
value of accrued benefits under such Plan or Plans, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Plan's actuary with respect to such Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits and LCS is not aware of any facts or circum-
stances that would materially change the funded status of any such ERISA Plan.
None of the LCS Benefit Plans is a "multi employer pension plan" as such term
is defined in section 3(37) of ERISA. Except as listed on Schedule 4.8(a) of
the LCS Disclosure Schedule, no employee of LCS will be entitled to any
additional benefits or any acceleration of the time of payment or vesting of
any benefits under any LCS Benefit Plan as a result of the transactions
contemplated by this Agreement. Other than current or contingent liabilities
previously disclosed on Schedule 4.8(a) of the LCS Disclosure Schedule, neither
LCS nor any LCS Benefit Plan will have any material current or contingent
liability with respect to any Plan. All group health plans of LCS, including
any plans of current and former Affiliates of LCS that must be taken into
account under Section 4980B of the Code or Section 601 of ERISA or the
requirements of any similar state law regarding insurance continuation, have
been operated in material compliance with the group health plan continuation
coverage requirements of Section 4980B of the Code and Section 601 of ERISA to
the extent such requirements are applicable. All payments due from any LCS
Benefit Plan (or from LCS with respect to any LCS Benefit Plan, in any case,
not including the Management Stock Bonus Plan of LCS) have been made, and all
amounts properly accrued to date as liabilities of LCS that have not yet been
paid have been properly recorded on the books of LCS.
4.9. Litigation. Except as set forth in Schedule 4.9 to the LCS
Disclosure Schedule, no claims have been asserted and no relief has been sought
against LCS in any pending litigation or governmental proceedings or otherwise
which would be reasonably expected to result in damages or other relief which
would be reasonably Rely to have a Material Adverse Effect. To the knowledge
of LCS, there are no circumstances, conditions, events or arrangements,
contractual or otherwise, which may hereafter give rise to any proceedings,
claims, actions or government investigations involving LCS which would
reasonably be expected to result in damages or other relief which would be
reasonably likely to have a Material Adverse Effect, nor are any such proceed-
ings, claims, actions or government investigations threatened. Except as set
forth in Schedule 4.9 to the LCS Disclosure Schedule, LCS is not a party to
any order, judgment or decree which would reasonably be expected to have a
Material Adverse Effect, and LCS (a) is not the subject of any cease and desist
order, or other formal or informal enforcement action by any regulatory
authority and (b) has not made any, commitment to or entered into any agreement
with any regulatory authority that restricts or adversely affects its
operations or financial condition.
12
4.10. Tax Matters. LCS has timely filed (inclusive of applicable
extension periods) with the appropriate governmental agencies all material
federal, state and local income, franchise, excise, sales, use, real and
personal property and other tax returns and reports (including information
returns and reports) that are required to be filed, and LCS is not materially
delinquent in the payment of any taxes shown on such returns or reports or on
any assessments for any such taxes received by LCS. There are included in the
LCS Financial Statements adequate reserves for the payment of all accrued but
unpaid material federal, state and local taxes of LCS, including interest and
penalties, whether or not disputed for such fiscal years as reflected therein
and all fiscal years prior thereto. LCS has not executed or filed with the
Internal Revenue Service ("IRS") or any state tax authority any agreement
extending the period for assessment and collection of any federal or state tax,
and LCS is not a party to any action or proceeding by any governmental
authority for assessment or collection of taxes. There is no outstanding
material assessment or claim for collection of taxes against LCS. Except as
set forth in Schedule 4.10 to the LCS Disclosure Schedule, the federal income
tax returns of LCS have been audited by the IRS (or are closed to examination
due to the expiration of the applicable statute of limitations) and no
deficiencies were asserted as a result of such audit which have not been
resolved and paid in full or adequate reserves or accruals established in
accordance with generally accepted accounting principles with respect thereto.
LCS has not, during the past five (5) years, except as disclosed in
Schedule 4.10 to the LCS 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, county or local taxes.
No federal or state tax return of LCS is currently the subject of any audit
by the IRS or any other governmental agency. During the past five (5) years,
no material deficiencies have been asserted in connection with the federal and
state income tax returns of LCS, and LCS has no reason to believe that any
material deficiency would be asserted relating thereto. Except as disclosed in
Schedule 4.10 to the LCS Disclosure Schedule, LCS is not a party to any
agreement providing for allocation or sharing of taxes. LCS has not 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 LCS is or LCS was the common parent.
4.11. Information in the LCS Proxy Statement. The LCS Proxy Statement
will not, either at the time it is mailed to the shareholders of LCS in
connection with the LCS Shareholders' Meeting (as defined in Section 7.1
hereof) or at the time of the LCS Shareholders Meeting, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
none of the representations and warranties in this Section 4.11 shall apply to
statements in or omissions from the LCS Proxy Statement made in reliance upon
and in conformity with information about or furnished by or on behalf of
Jacksonville for use in the LCS Proxy Statement.
4.12. Environmental Matters. For purposes of this Section 4.12, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
13
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Materials of Environmental
Concern. The term Environmental Law includes without limitation (1) the
Comprehensive, Environmental Response, Compensation and Liability Act, as
amended, 42 U.S.C. Section 9601, et seq; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901, et seq; the Clean Air Act, as amended,
42 U.S.C. Section 7401, et seq; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251, et seq; the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 9601, et seq; the Emergency Planning and Community
Right to Know Act, 42 U.S.C. Section 11001, et seq; the Safe Drinking Water Act
42, U.S.C. Section 300f, et seq; and all comparable state and local laws, and
(2) any common law (including without limitation common law that may impose
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to
any Materials of Environmental Concern.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs, govern-
mental response costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on, or resulting from the
presence, or release into the environment, of any Materials of Environmental
Concern.
"Materials of Environmental Concern" means pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, leased or operated by LCS, including those properties serving
as collateral for any loans made and retained by LCS or for which LCS serves
in a trust relationship for the loans retained in portfolio.
(a) Other than as set forth on Schedule 4.12(a) to the LCS Disclosure
Schedule, to the knowledge of LCS, LCS is in compliance with all Environmental
Laws, except for any violations of any Environmental Law which would not,
singly or in the aggregate, have a material adverse effect on the business,
operations, assets, financial condition or prospects of LCS. Other than as set
forth on Schedule 4.12(a) to the LCS Disclosure Schedule, since December 31,
1991, LCS has not received any communication alleging that LCS is not in such
compliance and, to the knowledge of LCS, there are no present circumstances
that would prevent or interfere with the continuation of such compliance.
(b) Other-than as set forth on Schedule 4.12(b) to the LCS Disclosure
Schedule, to the knowledge of LCS, LCS has not been or is not in violation of
or liable under any Environmental Law, except any such violations or liabili-
ties which would not singly or in the aggregate have a material adverse effect
on the business, operations, assets or financial condition of LCS.
(c) Other than as set forth on Schedule 4.12(c) to the LCS Disclosure
Schedule, to the knowledge of LCS, none of the Loan Portfolio Properties and
Other Properties Owned by it has been or is in violation of or liable under any
Environmental Law, except any such violations or liabilities which singly or in
the aggregate would not have a material adverse effect on the business,
operations, assets or financial condition of LCS.
14
(d) Other than as set forth on Schedule 4.12(d) to the LCS Disclosure
Schedule, to the knowledge of LCS, there are no actions, suits, demands,
notices, claims, investigations or proceedings pending or threatened relating
to the liability of the Loan Portfolio Properties and Other Properties Owned
by LCS under any Environmental Law, including without limitation any
notices, demand letters or requests for information from any federal or state
environmental agency relating to any such liabilities under or violations of
Environmental Law, except such which would not have or result in a material
adverse effect on the business, operations, assets or financial condition of
LCS.
(e) Other than as set forth on Schedule 4.12(e) to the LCS Disclosure
Schedule, to the knowledge of LCS, there are no past or present actions,
activities, circumstances, conditions, events or incidents that could
reasonably form the basis of any Environmental Claim or other claim or action
or governmental investigation that could result in the imposition of any
liability arising under any Environmental Law against LCS or against any person
or entity whose liability for any Environmental Claim LCS has or may have
retained or assumed either contractually or by operation of law, except such
which would not have a material adverse effect on the business, operations,
assets, financial condition or prospects of LCS.
(f) LCS has set forth on Schedule 4.12(f) to the LCS Disclosure
Schedule, any environmental studies conducted by it during the past five years
with respect to any properties owned by it as of the date hereof.
4.13. Insurance. LCS has delivered to Jacksonville as part of
Schedule 4.13 to the LCS Disclosure Schedule true, accurate and complete copies
of all insurance policies and fidelity bonds of LCS. 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. LCS has not been notified that its
fidelity or insurance coverage will not be renewed by its carrier(s) on
substantially the same terms as its existing coverage. All such policies (i)
are sufficient for compliance by LCS with all requirements of law and all
agreements to which LCS is a party, and (ii) will not terminate or lapse prior
to the Effective Time without similar policies being obtained that would
continue until the Effective Time.
4.14. Compliance with Laws and Orders. Except as set forth in
Schedule 4.14 to the LCS Disclosure Schedule, LCS has not received notice of
any violation or alleged material violation of, or, to the knowledge of LCS,
is subject to any liability (whether accrued, absolute, contingent, direct or
indirect) for past or continuing material violations of, any law, statute or
regulation. LCS is not in default under, and no event has occurred that,
with the lapse of time or action by a third party or both, could result in a
default under the terms of any judgment, decree, order, writ, rule or regula-
tion of any governmental authority or court, whether federal, state or local
and whether at law or in equity, where the failure to be in full compliance
would reasonably be expected to result alone or in the aggregate in damages,
which would be reasonably likely to have a Material Adverse Effect.
4.15. Governmental Regulation. LCS holds all material licenses,
certificates, permits, franchises and rights from all appropriate federal,
state and other public authorities necessary for the conduct of its business;
and, between the date hereof and the Closing Date, LCS will maintain all such
licenses, certificates, permits, franchises and rights in effect. Except as
set forth in Schedule 4.15 to the LCS Disclosure Schedule, LCS is not a party
or subject to any agreements, directives, orders or similar arrangements
15
between or involving LCS and any state or federal savings institution regula-
tory authority. In connection with its most recent examination of Litchfield,
neither the Commissioner nor the FDIC have informed Litchfield, whether by
written communication or otherwise, to amend or change in any way its
accounting methods, methods of operation or business practices, or to classify
any loans not previously classified or to charge-off loans, or increase its
allowance for loan losses or to take or discontinue any activity or action.
4.16. Contracts and Commitments. Except as set forth in Schedule 4.16 to
the LCS Disclosure Schedule, LCS is not a party to or bound by any (a) material
lease or license with respect to any property, real or personal; (b) material
contract or commitment for capital expenditures; (c) material contract or
commitment for total expenses for the purchase of materials, supplies or for
the performance of services by third parties for a period of more than 60 days
from the date of this Agreement; (d) material contract or option for the
purchase or sale of any real or personal property other than in the ordinary
course of business; or (e) agreement, arrangement or understanding relating to
the employment, election, retention in office or severance of any present
or former director, officer or employee of LCS. To its knowledge, LCS has
performed in all material respects all obligations required to be performed by
it to date and is not in default under, and no event has occurred which, with
the lapse of time or action by a third party or both, could result in a default
resulting in material damages or other material default under any outstanding
mortgage, lease, contract, commitment or agreement to which LCS is a party or
by which LCS is bound or under any provision of its articles of incorporation
or bylaws. Each such outstanding material mortgage, lease, contract,
commitment or agreement is a valid and legally binding obligation of LCS
subject to (x) all applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors rights generally or the
rights of creditors of savings associations the accounts of which are insured
by the FDIC, and (y) the application of equitable principles if equitable
remedies are sought.
4.17. Agreements with Directors, Officers and Shareholders. Except as
set forth in Schedule 4.17 to the LCS Disclosure Schedule, no director,
executive officer, or holder of five percent (5.0%) or more of the outstanding
capital stock of LCS nor any associate of any such person (a "LCS Principal")
(a) is or has during the period subsequent to December 31, 1995, been a party
(other than as a depositor) to any transaction with LCS, whether as a borrower
or otherwise, that (i) was made other than in the ordinary course of business,
(ii) was made on other than substantially the same terms, including interest
rate and collateral, as those prevailing at the time for comparable trans-
actions with other persons, or (iii) involves more than the normal risk of
collectability or presents other unfavorable features; or (b) is a party to any
material loan or loan commitment, whether written or oral.
4.18. Accuracy of Information. The statements made by LCS in the Agree-
ment and in any other written documents executed and/or delivered by or on
behalf of LCS pursuant to the terms of the Agreement are true and correct in
all material respects. The statements contained in such other documents or
specifically referred to in the Agreement will be deemed to constitute
representations and warranties of LCS under this Agreement to the same extent
as if set forth herein in full.
4.19. Supplement to LCS Disclosure Schedule. LCS will promptly supple-
ment or amend the LCS Disclosure Schedule with respect to any matter hereafter
arising that, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in the LCS Disclosure Schedule.
16
No supplement or amendment to the LCS Disclosure Schedule will have any effect
for the purpose of determining satisfaction of the condition set forth in
Section 8.2 hereof.
4.20. Title to Assets, Leases
(a) Except for (i) liens and encumbrances specifically disclosed in any
of the consolidated financial statements of LCS referred to in Section 4.5
hereof, (ii) landlords' or statutory liens or other liens incurred in the
ordinary course of business and not securing indebtedness for borrowed money
and not yet delinquent, and (iii) liens and encumbrances which are not material
in amount and do not materially impair the value of any property subject
thereto or the use of such property for the purposes for which it is presently
used or intended to be used, to the knowledge of LCS, LCS has good and
marketable title, free and clear of all security interests, encumbrances, trust
agreements, liens or other adverse claims, to all its assets and property, real
and personal, reflected in the financial statements referred to in Section 4.5
hereof or acquired thereafter, which includes all property and assets used by
LCS that are material to the conduct of its businesses, except for assets and
property disposed of in the ordinary course of business after December 31,
1995.
(b) LCS as lessee has the right under valid and subsisting leases to
occupy, use, possess and control all property leased by it in all material
respects as presently occupied, used, possessed and controlled by LCS and
such leases will not terminate or lapse prior to the Effective Time or be
affected in any material respect by consummation of the transactions
contemplated hereby. Schedule 4.20(b) contains an accurate listing of each
lease pursuant to which LCS acts as lessor or lessee, including the expiration
date and the terms of any renewal options which relate to the same, as well as
a listing of each material real property owned by LCS and used in the conduct
of its business.
(c) All real and personal property is available for inspection by
Jacksonville and LCS disclaims any warranty of fitness for any particular
purpose. All real and personal property of LCS is in an "AS IS" condition.
LCS has furnished an Illinois Responsible Property Transfer Act Disclosure to
Jacksonville disclosing any information about any real properties to the best
of LCS' knowledge. However, LCS has made no independent investigation or
assessments of the condition of the real properties in any manner whatsoever
including but not limited to any of the representations as to the environmental
condition of any assets under this Agreement.
4.21. Information Supplied for Inclusion in the Jacksonville Proxy
Statement. Any information regarding LCS or Litchfield supplied by LCS
specifically for inclusion in the Jacksonville Proxy Statement (as defined in
Section 7.4 hereof) will not contain an untrue statement or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
4.22. Fees. LCS has not, and to the knowledge of LCS, none of their
respective officers, directors, employees or agents, has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions, or finders fees, and no broker or finder has acted directly
or indirectly for LCS, in connection with this Agreement or the transactions
contemplated hereby, except for fees payable to RP Financial, LC for
preparation of a fairness opinion discussed at Section 9.6 hereof.
17
4.23. Business of LCS. Since December 31, 1995, LCS has conducted
its business in the ordinary course. For purposes of the foregoing, LCS has
not, since December 31, 1995, controlled expenses through the (i) elimination
of employee benefits; (ii) deferral of routine maintenance of real property or
leased premises; (iii) elimination of reserves where the liability related to
such reserve has remained; (iv) reduction of capital improvements from previous
levels; (v) failure to depreciate capital assets in accordance with past
practices or to eliminate capital assets no longer used in LCS's business;
(vi) capitalized loan production expenses other than in accordance with SFAS
No. 91; or (vii) extraordinary reduction or deferral or ordinary or necessary
expenses.
ARTICLE V.
COVENANTS OF JACKSONVILLE
Jacksonville hereby agrees that from the date of this Agreement until
the Effective Time:
5.1 Affirmative Covenants.
(a) Unless the prior written consent of LCS shall have been obtained
(which shall not be unreasonably withheld), Jacksonville will maintain and will
cause each of its Subsidiaries to maintain their corporate existence in good
standing so as to be able to consummate the transactions contemplated by the
Agreement.
(b) As soon as reasonably practicable, Jacksonville will furnish
Litchfield with copies of all of Jacksonville's periodic reports on Forms F-2,
F-4 and F-3 and all proxy statements filed with the FDIC subsequent to the date
hereof.
5.2. Negative Covenants. Except as specifically contemplated by this
Agreement, Jacksonville shall not do, or agree or commit to do, or permit any
Jacksonville Subsidiary to do, without the prior written consent of LCS (which
shall not be unreasonably withheld), any of the following:
(a) willfully take action which would or is reasonably likely to (i)
adversely affect the ability of either Jacksonville or LCS to obtain any
necessary approvals of governmental authorities required for the transactions
contemplated hereby; (ii) adversely affect Jacksonville's ability to perform
their covenants and agreements under this Agreement; or (iii) result in any of
the conditions to the Company Merger set forth in Articles IX and X not being
satisfied; or
(b) agree in writing or otherwise to do any of the foregoing.
5.3. Breaches. Jacksonville shall, in the event it becomes aware of the
impending or threatened occurrence of any event or condition which would cause
or constitute a material breach (would have caused or constituted a breach
18
had such event occurred or been known prior to the date hereof) of any of its
representations or agreements contained or referred to herein, give
prompt written notice thereof to LCS and use its best efforts to prevent or
promptly remedy the same.
5.4 Employee Benefit Plans: Employment Arrangements
(a) Jacksonville shall offer continued employment to full-time employees
of LCS. Employees of LCS who continue employment with Jacksonville on or after
the Effective Time (all such persons referred to herein as "Continuing
Employees") shall be eligible to participate in such employee benefit plans as
may be in effect generally for employees of Jacksonville from time to time
(the "Jacksonville Benefit Plans"), if such Continuing Employee shall be
eligible or selected for participation therein. Except as specifically set
forth in this Section 5.4, Continuing Employees shall be entitled to partici-
pate in the Jacksonville Benefit Plans on the same basis as new employees of
Jacksonville and with Continuing Employees being given credit for their prior
years of service with LCS for purposes of determining eligibility and vesting
under the Jacksonville Benefit Plans. Notwithstanding anything in this Section
5.4(a) to the contrary, except as set forth in Schedule 5.4(a) to the
Jacksonville Disclosure Schedule participation by Continuing Employees
in employee benefit plans of Jacksonville with respect to which eligibility and
participation is at the discretion of the employer, such as non-qualified
deferred compensation plans, stock option plans, stock bonus plans, restricted
stock plans, and other such similar plans, (but not including employee benefit
plans generally available to all full-time employees of Jacksonville) shall be
discretionary with such employer.
(b) With respect to Continuing Employees, there shall be no waiting
period or preexisting condition exclusions applicable under the health benefits
coverage to be provided following the Effective Time to such persons, but the
benefits previously received by such persons will not count toward the maximum
benefit coverages provided by Jacksonville.
(c) Continuing Employees shall receive credit for their prior years of
service with LCS in determining their vacation allowance under the vacation
policy of Jacksonville.
(d) At the request of Jacksonville, which shall be made within a
reasonable period of time following the execution of this Agreement, LCS shall
cause its 401(k) plan (the "Litchfield 401(k) Plan") to be terminated
immediately prior to the Effective Time with the accounts of participants
becoming fully-vested and with the participants receiving the right to roll-
over their account balances to an individual retirement account and/or
Jacksonville's 401(k) plan (the "Jacksonville 401(k) Plan").
(e) With respect to the LCS ESOP, Jacksonville will cooperate with LCS to
maximize the allocation of the Merger Consideration applicable to unallocated
shares to the existing participants of the LCS ESOP in a manner consistent
with ERISA, the Code and any other applicable legal requirements. In this
regard, the ESOP may be terminated at or prior to the Effective Time and if
terminated, LCS shall promptly apply to the Internal Revenue Service for
a favorable determination letter on the LCS ESOP's termination. Any and all
distributions from the ESOP after its termination shall be made consistent with
the determination letter of termination issued by the Internal Revenue Service
relating to the termination and the allocation of any excess amounts in the
LCS ESOP suspense account after repayment of any outstanding ESOP loan.
19
(f) The current Chief Executive Officer ("Executive") of LCS shall be
offered a position as Vice President of Jacksonville, reporting directly to
Jacksonville's President. Such position shall be considered a senior officer
position. Jacksonville shall use its best efforts to enter into an employment
agreement with the Executive, in consideration of the Executive foregoing her
right to and payments under her existing employment agreement with LCS, said
agreement providing for a three year term at an initial salary equal to the
Executive's current salary. Jacksonville shall offer the Executive a deferred
compensation agreement and the Executive shall be eligible for all benefits
accorded to persons at the level of Vice President of Jacksonville.
(g) LCS' assistant vice president, treasurer and secretary shall perform
substantially the same function for Jacksonville as they are currently
providing LCS. At least one of the individuals performing said functions shall
be designated an officer of Jacksonville.
5.5. Filing of Applications. Jacksonville shall use its best efforts
promptly to prepare, submit, publish and file (a) an application to the FDIC
under the Bank Merger Act; (b) a waiver request to the Board of Governors of
the Federal Reserve ("FRB") under the BHCA, and (c) any other applications,
notices or statements required to be filed in connection with the transactions
contemplated hereby.
5.6. Expenses. Jacksonville hereby agrees that if this Agreement or the
transactions contemplated hereby are terminated by LCS pursuant to Sections
11.1(c) (iii) or (iv) as a result of a willful breach by Jacksonville,
Jacksonville shall promptly (and in any event within ten (10) business days
after such termination) pay all reasonable Expenses of LCS. For purposes
of this Section 5.6, the "Expenses of LCS" shall include all reasonable out-of-
pocket expenses (including all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to LCS and its Affiliates) incurred
by it or on its behalf in connection with the consummation of the transactions
contemplated by this Agreement and any losses incurred by LCS in the disposi-
tion of any assets of LCS as directed by Jacksonville pursuant to Section 7.11
of this Agreement.
5.7. Supplement to Jacksonville Disclosure Schedule. Jacksonville will
promptly supplement or amend the Jacksonville Disclosure Schedule with respect
to any matter hereafter arising that, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described in the
Jacksonville Disclosure Schedule. No supplement or amendment to the
Jacksonville Disclosure Schedule will have any effect for the purpose of deter-
mining satisfaction of the condition set forth in Section 9.1 hereof.
5.8. Confidentiality. Jacksonville agrees to treat as strictly
confidential and agrees not to divulge to any other person, natural or
corporate (other than employees of, and attorneys and accountants for, such
party) any proprietary financial statements, schedules, contracts, agreements,
instruments, papers, customer and account lists, documents and other informa-
tion relating to LCS by which it may come to know or which may come into its
possession during the course of its due diligence investigation of LCS and, if
the transactions contemplated hereby, are not consummated for any reason,
Jacksonville agrees promptly to return to LCS all written proprietary material
furnished in connection with such investigation.
20
5.9. Non-Assignability. Jacksonville hereby agrees that its rights under
this Agreement may not be assigned, sold or otherwise transferred to any other
party.
ARTICLE VI.
COVENANTS OF LCS
LCS hereby agrees that from the date of this Agreement until the
Effective Time:
6.1. Affirmative Covenants. Unless the prior written consent of
Jacksonville shall have been obtained (which shall not be unreasonably
withheld) and except as otherwise contemplated herein, LCS will:
(a) operate its business in the ordinary course in accordance with past
business practices;
(b) use its best efforts to preserve intact its business organization and
assets, maintain its rights and franchises, retain the services of its officers
and key employees (except that it shall have the right to terminate the
employment of any officer or key employee in accordance with established
employment procedures) and maintain its relationships with customers:
(c) maintain its corporate existence in good standing and file all
required LCS Reports (as defined in such Section 12.7(c) hereof);
(d) use its best efforts to maintain and keep its properties in as good
repair and condition as at present, except for ordinary wear and tear;
(e) use its best efforts to keep in full force and effect insurance and
bonds comparable in amount and scope of coverage to that now maintained by it
and, in the event that LCS is unable to keep such insurance and bonds in full
force and effect, to provide prompt notice of such failure to Jacksonville;
(f) perform all obligations required to be performed by it under all
material contracts, leases, and documents relating to or affecting its assets,
properties, and business;
(g) use its best efforts to comply with and perform in all material
respects all obligations and duties imposed upon it by all applicable laws
and regulations; and
(h) as soon as reasonably practicable, furnish Jacksonville copies of all
LCS' financial and regulatory reports subsequent to the date hereof.
6.2. Negative Covenants. Except as specifically contemplated by this
Agreement, from the date hereof until the Effective Time, LCS shall not do,
without the prior written consent of Jacksonville (which shall not be
unreasonably withheld), any of the following:
21
(a) incur any material liabilities or material obligations (which in the
aggregate shall not exceed $5,000), whether directly or by way of guaranty,
including any obligation for borrowed money whether or not evidenced by a note,
bond, debenture or similar instrument or enter into or extend any material
agreement or lease, except in the ordinary course of business consistent with
prudent business practices or in connection with the transactions contemplated
and permitted by the Agreement;
(b) (i) grant any bonus or material increase in compensation to its
directors or grant any bonus or any increase in compensation to its officers
and employees either individually or as a class, (ii) effect any change in
retirement benefits to any class of employees of officers (unless any such
change shall be required by applicable law) that would increase its retirement
benefit liabilities, (iii) adopt, enter into, amend or modify any LCS Benefit
Plan, (iv) enter into any employment, severance or similar agreements or
arrangements with any directors or officers.
(c) declare or pay any dividend on, or make any other distribution in
respect of, its outstanding shares of capital stock.
(d) (i) redeem, purchase or otherwise acquire any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, conversion or other rights to acquire any shares
of its capital stock or any such securities or obligations; (ii) merge with or
into any other corporation, savings institution or bank, permit any other
corporation, savings institution or bank to merge into it or consolidate with
any other corporation or bank, in either case, unless the fiduciary duties of
LCS' Board of Directors require it to do so, or effect any reorganization or
recapitalization; (iii) purchase or otherwise acquire any assets, or shares of
any class of stock, of any corporation, savings institution, bank or other
business; (iv) liquidate, sell, dispose of, or encumber any assets or acquire
any assets, other than in the ordinary course of its business consistent with
past practices; or (v) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock;
(e) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of its capital stock
of any class (including shares held in treasury), any debt instrument having
a right to vote or any securities convertible into, or any rights, to acquire,
any such shares, voting debt or convertible securities;
(f) initiate, solicit or encourage, or take any other action to
facilitate, any inquiries or the making of any proposal which constitutes a
Different Proposal, take any action in furtherance of such inquiries or to
obtain a Different Proposal, or negotiate with any person in, or agree to or
endorse any Different Proposal, or authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor,
accountant or other representative retained by it to take any such action.
"Different Proposal" means a bona fide proposal to acquire the entire equity
interest in LCS or substantially all of the assets of LCS, which is expressly
conditioned upon the termination of this Agreement and is made by a third party;
(g) propose or adopt any amendments to its articles of incorporation or
bylaws, except such amendments as may be required to consummate the
transactions contemplated by this Agreement;
22
(h) enter into an agreement in principle with respect to any acquisition
of a material amount of assets or securities or any release or relinquishment
of any material contract rights not in the ordinary course of business;
(i) except in its fiduciary capacity, purchase any shares of capital
stock of Jacksonville;
(j) change any of its methods of accounting in effect at December 31,
1995, or change any of its methods of reporting income or deductions for
federal income tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ending December 31, 1995,
except as may be required by law or generally accepted accounting principles;
(k) willfully take action which would or is reasonably likely to (i)
adversely affect the ability of Jacksonville or LCS to obtain any necessary
approvals of governmental authorities required for the transactions
contemplated hereby; (ii) adversely affect LCS' ability to perform its
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the Merger set forth in Articles VIII and X not being satisfied;
(l) change in any material respect the lending, investment, deposit,
asset and liability management and other material policies concerning the
business of LCS, unless required by law or regulation or, with respect to
lending or depository activities, unless such change is made in response to
market conditions;
(m) file any applications or make any contract with respect to branching
by LCS (whether de novo or by purchase, sale or relocation);
(n) form any new subsidiary or enter into or invest in any partnership,
joint venture or other business enterprise;
(o) purchase any debt securities or derivative securities;
(p) purchase any equity securities other than Federal Home Loan Bank
stock;
(q) discharge or satisfy any lien or encumbrance or pay any material
obligation or liability (absolute or contingent) other than at scheduled
maturity or in the ordinary course of business;
(r) sell or otherwise dispose of any loan, mortgage-backed security or
investment security except in the ordinary course of business consistent with
prudent banking practices and policies;
(s) modify or restructure the terms of any loans except in the ordinary
course of business and consistent with prudent banking practices;
(t) make any capital expenditures in excess of $5,000 individually or
$15,000 in the aggregate, other than pursuant to binding commitments existing
on the date hereof and other than expenditures necessary to maintain existing
assets in good repair;
23
(u) change its method of accounting in effect prior to the Effective
Time, except as required by changes in laws or regulations or generally
accepted accounting principles concurred in by its independent certified public
accountants, or change any of its methods of reporting income and deductions
for federal income tax purposes from those employed in the preparation of its
federal income tax returns for the year ended December 31, 1995, except as
required by changes in laws or regulations;
(v) acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity; or
(w) grant or agree to pay any bonus, severance or termination payment to,
or enter into or amend any employment agreement, severance agreement and/or
supplemental executive agreement with any of its directors, officers or
employees except as may be required pursuant to legally binding commitments
existing on the date hereof and set forth on LCS Disclosure Schedule 4.8.
(x) enter into or, except as may be required by law, modify any pension,
retirement stock option, stock purchase, stock appreciation right, stock grant,
savings, profit sharing, deferred compensation, supplemental retirement,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related thereto,
in respect of any of its directors, officers or employees; or make any annual
additions to (a) LCS' employee stock ownership plan ("LCS ESOP") in excess of
those amounts permitted pursuant to Sections 404 and 415 of the Code; (b) any
other defined contribution or defined benefit plan not in the ordinary course
of business and consistent with past practices and policies.
(y) agree in writing or otherwise to do any of the foregoing.
6.3 Report to Jacksonville. LCS will use its best efforts to keep
Jacksonville fully informed concerning all trends and developments of which
it becomes aware that may have a material effect upon the business, any
properties or condition (either financial or otherwise) of LCS.
6.4. Breaches. LCS shall, in the event it becomes aware of the impending
or threatened occurrence of any event or condition which would cause or
constitute a material 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, give prompt
written notice thereof to Jacksonville and use its best efforts to prevent or
promptly remedy the same.
6.5. Supplement to Disclosure Schedule. LCS will promptly supplement or
amend the LCS Disclosure Schedule with respect to any matter hereafter arising
that, if existing or occurring at the date of this Agreement, would have been
required to be set forth or described in the LCS Disclosure Schedule. No
supplement or amendment to the LCS Disclosure Schedule will have any effect for
the purpose of determining satisfaction of the condition set forth in Section
8.2 hereof.
6.6. Expenses. LCS hereby agrees that if this Agreement or the trans-
actions contemplated hereby are terminated pursuant to Sections 11.1(b)(iii) or
11.1 (b)(iv) as a result of a willful breach by LCS, LCS shall promptly (and
in any event within ten (10) business days after such termination)
pay all Expenses of Jacksonville. "Expenses of Jacksonville" as used in this
24
Section 6.6 shall include all reasonable in amount and reasonably incurred out-
of-pocket expenses of Jacksonville (including all fees and expenses of counsel,
accountants, experts and consultants to Jacksonville and its Affiliates)
incurred by it or on its behalf in connection with the consummation of the
transactions contemplated by this Agreement.
6.7. Consents and Approvals. LCS shall use its best efforts to assist
Jacksonville in obtaining the consents and approvals referenced in
Section 8.5 hereof.
6.8. Dissenters' Rights. Any holder of LCS Common Stock otherwise
entitled to receive the Purchase Price for each of his or her shares shall be
entitled to demand payment of the fair cash value of such shares as specified
in Section 262 of the Delaware General Corporation Law ("DGCL") if the holder
follows the procedures specified therein. These shares shall hereafter be
specified as "Dissenting Shares." Any Dissenting Shares shall not, after the
Effective Time, be entitled to vote for any purpose or receive any dividends
or other distributions and shall not be converted into cash as provided in
Section 2.2 hereof; provided, however, that shares of LCS Common Stock held by
a dissenting shareholder who subsequently withdraws a demand for payment,
fails to comply fully with the requirements of Section 262 of the DGCL, or
otherwise fails to establish the right of such shareholder to be paid the fair
cash value of such shareholder's shares under Section 262 of the DGCL shall be
deemed to be converted into cash pursuant to the terms and conditions specified
herein. LCS shall give Jacksonville prompt notice of any written demands for
appraisal of any shares of LCS Common Stock, attempted withdrawals of any such
demands, and any other instruments served pursuant to Section 262 of the DGCL
and received by LCS relating to shareholders' rights of appraisal. LCS shall
not, except with the prior written consent of Jacksonville, voluntarily make
any payment with respect to any demands for appraisals of any shares of LCS
Common Stock, offer to settle or settle any such demands or approve any
withdrawal of any such demands.
ARTICLE VII.
ADDITIONAL AGREEMENTS
7.1. LCS Shareholders' Meeting. LCS shall, as soon as is reasonably
practicable, call and hold a meeting of its shareholders (the "LCS
Shareholders' Meeting") to submit for shareholder approval this Agreement. The
Board of Directors of LCS will recommend that holders of LCS Common Stock vote
in favor of and approve this Agreement at the LCS Shareholders' Meeting.
7.2. Proxy Statement for LCS Shareholders' Meeting. For the purposes of
holding the LCS Shareholders' Meeting, LCS shall prepare an appropriate proxy
statement satisfying all applicable requirements under state and federal law
and regulations thereunder (said proxy statement, together with any and all
amendments or supplements thereto, being herein referred to as the "LCS Proxy
Statement").
7.3. Jacksonville Shareholders' Meeting. Jacksonville shall, if necessary,
call and hold a meeting of its shareholders (the "Jacksonville Shareholders
Meeting") to submit for shareholder approval this Agreement. The Board of
Directors of Jacksonville will recommend that holders of its common stock vote
in favor of and approve this Agreement. In the event that Jacksonville does
25
not need to hold a stockholders meeting, it may provide its stockholders with
an information statement setting forth the terms of this Agreement.
7.4. Proxy Statement for Jacksonville Shareholders' Meeting. For the
purposes of holding the Jacksonville Shareholders Meeting, Jacksonville shall
prepare an appropriate proxy statement satisfying all applicable requirements
under federal and state law and regulation.
7.5. Cooperation: Regulatory Approvals. The parties shall cooperate, and
shall cause each of their affiliates and subsidiaries to cooperate, in the
preparation and submission bythem, as promptly as reasonably practicable, of
such applications, petitions, waivers and other documents and materials as any
of them may reasonably deem necessary or desirable to the Commissioner, the
FRB, the FDIC, the Securities and Exchange Commission, the Department of
Justice ("DOJ"), other regulatory authorities, and any other persons for the
purpose of obtaining any approvals or consents necessary to consummate the
transactions contemplated by the Agreement. Each party will have the right
prior to filing to review and comment on such applications, petitions and other
documents and materials and shall furnish to the other copies thereof promptly
after filing or submission thereof. At the date hereof, none of the parties
is aware of any reason that the regulatory approvals required to be obtained by
it would not be obtained. The obligation to take action as provided in this
Section 7.5 shall not be construed as including an obligation to accept any
terms of or conditions to a consent, authorization, order or approval of, or
any exemption by, any party that are unduly burdensome as reasonably determined
by the Boards of Directors of Jacksonville or LCS. In the event of a
restraining order or injunction which prevents the Closing by reason of the
operation of Section 10.2, each of the parties hereto shall use its respective
best efforts to cause such order or injunction to be lifted and the Closing
to be consummated as soon as reasonably practicable.
7.6. Reports. Prior to the Effective Time, LCS shall prepare and file as
and when required all LCS Reports. LCS shall prepare such LCS Reports so that
(a) they comply in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the regulatory authority with which they
are filed and do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (b) with respect to any LCS Reports containing
financial information of the type included in the LCS consolidated financial
statements, the financial information (i) is prepared in accordance with
generally accepted accounting principles and practices as utilized in the LCS
consolidated financial statements applied on a consistent basis, (ii) presents
fairly the consolidated financial condition of LCS at the dates, and the
results of operations and cash flows for the periods, stated therein and (iii)
in the case of interim fiscal periods, reflects all adjustments, consisting
only of normal recurring items, subject to year-end audit adjustments. All LCS
Reports shall be provided to Jacksonville promptly following the filing of such
reports with the respective regulatory authority.
7.7. Brokers or Finders. Each of Jacksonville and LCS represents that no
agent, broker, investment banker, financial advisor or other firm or person is
or will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement, other than LCS' engagement of RP Financial, LC.
26
7.8. Additional Agreements: Reasonable Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by the Agreement, subject to the appropriate vote of (i) the
shareholders of LCS described in Section 7.1. and (ii) the shareholders of
Jacksonville described in Section 7.3 including cooperating fully with the
other party. In case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement or to
vest Jacksonville with full title to all properties, assets, rights, approvals,
immunities and franchises of LCS, the proper officers and directors of each
party to this Agreement shall take all such necessary action.
7.9. Release of Information. LCS and Jacksonville agree that prior to
making any public announcement with respect to the transactions contemplated
by this Agreement, each party will consult with the other and will use its best
efforts either to agree upon the text of the proposed joint announcement to be
made by both parties or to obtain the other's approval (which approval shall
not be unreasonably withheld) of the text of an announcement to be made solely
on behalf of such party. In the event that the parties do not ultimately agree
on the text of any proposed public announcement, no such disclosure shall be
made unless the party seeking to make an announcement is advised by counsel
that its failure to do so would be reasonably likely to constitute a violation
of law.
7.10. Access to Properties and Records; Confidentiality. (a) LCS shall
permit Jacksonville and its representatives reasonable access to its proper-
ties, and shall disclose and make available to them all books, papers and
records relating to the assets, stock ownership, properties, operations,
obligations and liabilities of LCS, including, but not limited to, all books of
account (including the general ledger), tax records, minute books of meetings
of boards of directors (and any committees thereof) and stockholders, organiza-
tional documents, bylaws, material contracts and agreements, filings with any
regulatory authority, accountants' work papers, litigation files, plans
affecting employees, and any other business activities or prospects in which
LCS may have a reasonable interest. LCS shall make its officers, employees
and agents and authorized representatives (including counsel and independent
public accountants) available to confer with Jacksonville and its
representatives.
(b) All information furnished previously in connection with the trans-
actions contemplated by this Agreement or pursuant hereto shall be treated as
the sole property of the party furnishing the information until consummation
of the transactions contemplated hereby and, if such transactions shall not
occur, the party receiving the information shall, upon request, return to the
party which furnished such information all documents or other materials
containing, reflecting or referring to such information, shall use its best
efforts to keep confidential all such information, and shall not directly or
indirectly use such information for any competitive or other commercial
purposes. The obligation to keep such information confidential shall continue
for three years from the date the proposed transactions are abandoned but shall
not apply to (i) any information which (x) the party receiving the information
can establish by convincing evidence was already in its possession prior to the
disclosure thereof by the party furnishing the information; (y) was then
generally known to the public; or (z) became known to the public through no
fault of the party receiving the information; or (ii) disclosures pursuant to a
legal requirement or in accordance with an order of a court of competent
jurisdiction, provided that the party which is the subject of any such legal
27
requirement or order shall use its best efforts to give the other party at
least ten business days prior notice thereof.
7.11. Certain Policies. At the request of Jacksonville, Litchfield s
hall, no earlier than five business days prior to the Effective Time, (i)
establish and take such reserves and accruals as Jacksonville shall reasonably
request to conform, on a mutually satisfactory basis, Litchfield's loan, real
estate, accrual and reserve policies to Jacksonville's policies and (ii)
establish and take such accruals, reserves and charges in order to implement
such policies in respect of severance costs, write-off or write-down of various
assets and other appropriate accounting adjustments, and to recognize for
financial accounting purposes such expenses incurred in connection with the
Merger, provided, however, that Litchfield shall not be obligated to take any
such action pursuant to this Section 7.11 unless and until (x) Jacksonville
specifies its request in a writing delivered to LCS, and acknowledges that all
conditions to the obligations of Jacksonville to consummate the Merger set
forth in Articles VIII and X have been waived (if available) or satisfied and
(y) LCS acknowledges that the conditions to its obligation to consummate the
Company Merger set forth in Articles IX and X have been waived (if available)
or satisfied. LCS shall not be required to take any such action that is not
consistent with generally accepted accounting principles, as determined by LCS'
independent auditors, or any requirement applicable to LCS or Litchfield by any
bank holding company, or bank regulatory agency. The representations,
warranties and covenants of LCS contained in this Agreement shall not be deemed
to be untrue or breached in any respect for any purpose as a consequence of any
action undertaken on account of Section 7.11 and shall not constitute grounds
for termination of the Agreement by Jacksonville.
ARTICLE VIII.
CONDITIONS TO THE OBLIGATIONS OF JACKSONVILLE
The obligations of Jacksonville under this Agreement to cause the
transactions contemplated herein to be consummated shall be subject to the
satisfaction or written waiver by Jacksonville of the following conditions:
8.1. No Material Adverse Effect. Except as disclosed in Schedule 4.5 to
the LCS Disclosure Schedule and except for general changes in market interest
rates, and the transactions contemplated thereby, costs and expenses relating
to this Agreement and the transactions contemplated hereby, there shall not
have been any Material Adverse Effect, or discovery of a condition or the
occurrence of any event that has or is likely to result in a Material Adverse
Effect on LCS from December 31, 1995 to the Closing Date; provided, however,
that there shall not have occurred a Material Adverse Effect for purposes of
this Section 8.1 if such action that would have given rise to a Material
Adverse Effect was taken by LCS at the request of Jacksonville pursuant to
Section 7.11 of this Agreement. Any regulatory changes affecting LCS or
Jacksonville including all BIF/SAIF premium changes and assessments, shall not
be deemed a Material Adverse Effect.
8.2. Representations and Warranties. Each of the representations and
warranties by LCS contained in this Agreement shall be true and correct in all
material respects (or where any statement in a representation or warranty
28
expressly contains a standard of materiality, such statement shall be true and
correct in all respects taking into consideration the standard of materiality
contained therein) at, or as of, the date of this Agreement and (except to the
extent such representation speaks as of an earlier date) and as of any date
subsequent, until and including the Closing Date (except as otherwise
contemplated or permitted by this Agreement) as though such representations and
warranties were made on and as of said date. Any information provided by LCS
pursuant to Section 6.5 hereof as a supplement to the LCS Schedule shall be
true and correct in all material respects as of the date such information is
supplied to Jacksonville.
8.3. Performance and Compliance. LCS shall have performed or complied in
all material respects with all covenants and agreements required by the
Agreements to be performed and satisfied by it on or prior to the Closing Date.
8.4. No Proceeding or Litigation. On the Closing Date, no suit, action or
proceeding shall be pending or overtly threatened, and no liability or claim
shall have been asserted against LCS involving any of the assets, properties,
business or operations of LCS that would reasonably be expected to have a
Material Adverse Effect.
8.5. Consents Under Agreements. Jacksonville shall have received the
consent or approval of each person whose consent or approval shall be required
in order to permit consummation of the Merger under any loan or credit
agreement, note, mortgage, indenture, lease or other agreement or instrument
to which LCS is a party or to which its respective property is subject, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on LCS on a
consolidated basis, whether prior to (if applicable) or following the
consummation of the transactions contemplated hereby.
8.6. No Amendments to Resolutions. Neither the Board of Directors of LCS
nor any committee thereof shall have amended, modified, rescinded or repealed
the resolutions adopted by such Board of Directors with respect to the Agree-
ment or shall have adopted any other resolutions in connection with the Agree-
ment and the transactions contemplated hereby which are inconsistent with such
resolutions, except resolutions adopted consistent with the express rights of
LCS under the Agreement.
8.7. Certificate of LCS Officers. LCS shall have furnished Jacksonville a
certificate, signed by its Chief Executive Officer and its Chief Financial
Officer, dated the Closing Date, to the effect, based on his knowledge, that
the conditions described in Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.6 and 8.8 of
this Agreement have been fully satisfied.
8.8. Corporate Proceedings. All action required to be taken by, or on the
part of Litchfield to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken by LCS.
8.9. Legal Opinion. Jacksonville shall have received an opinion, dated
the Closing Date from Kemp, Grzelakowski and Lorenzini, Ltd., counsel to LCS,
substantially in the form attached hereto as Exhibit D.
29
ARTICLE IX.
CONDITIONS TO THE OBLIGATIONS OF LCS
The obligations of LCS under this Agreement to cause the transactions
contemplated herein to be consummated shall be subject to the satisfaction or
written waiver by LCS of the following conditions:
9.1. Representations and Warranties. Each of the representations and
warranties of Jacksonville contained in this Agreement shall be true and
correct in all material respects (or where any statement in a representation
or warranty expressly contains a standard of materiality, such statement shall
be true and correct in all respects taking into consideration the standard of
materiality contained therein) at, or as of, the date of this Agreement and
(except to the extent such representation speaks as of an earlier date) and as
of any date subsequent, until and including the Closing Date (except as
otherwise contemplated or permitted by this Agreement) as though such
representations were made on and as of said date. Any information provided by
Jacksonville pursuant to Section 5.7 hereof as a supplement to the
Jacksonville Disclosure Schedule shall be true and correct in all material
respects as of the date such information is supplied to LCS.
9.2. Performance and Compliance. Jacksonville shall have performed or
complied in all material respects with all covenants and agreements required
by this Agreement to be performed and satisfied by it on or prior to the
Closing Date.
9.3. Corporate Proceedings. All action required to be taken by, or on the
part of Jacksonville to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken by Jacksonville.
9.4. Certificate of Jacksonville Officers. Jacksonville shall have
furnished to LCS a certificate, signed by its Chief Executive Officer and its
Chief Financial Officer and dated the Closing Date, to the effect, based on
their best knowledge, that the conditions described in Sections 9.1, 9.2 and
9.3 of this Agreement have been satisfied.
9.5. Legal Opinion. LCS shall have received the opinion of Luse Lehman
Gorman Pomerenk & Schick, P.C. in substantially the form attached hereto as
Exhibit E.
9.6. Fairness Opinion. LCS shall have received from RP Financial LC, an
opinion dated as of the immediately prior to the date of the Proxy Statement,
and a supplemental opinion dated as of the Closing Date, to the Effect that the
Purchase Price is fair from a financial point of view to shareholders of LCS.
30
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF ALL PARTIES
In addition to the provisions of Articles VIII and IX hereof, the
obligations of Jacksonville and LCS to cause the transactions contemplated
herein to be consummated, shall be subject to the satisfaction or written
waiver by Jacksonville and LCS of the following conditions:
10.1. Governmental Approvals. The parties hereto shall have received all
necessary approvals or waivers of the transactions contemplated by the Agree-
ment from governmental agencies and authorities, including, without limitation,
those of the Commissioner, the FRB, the FDIC and, if necessary, the DOJ, and
each of such approvals shall remain in full force and effect and all statutory
waiting periods in connection therewith shall have expired at the Closing Date
and such approvals and the transactions contemplated thereby shall not have
been contested by any federal or state governmental authority nor by any other
third party by formal proceeding. Provided, however, that no approval or
consent referred to in this Section 10.1 shall be deemed to have been received
by Jacksonville if it shall include any term, condition or requirement that,
individually or in the aggregate, (i) would result in a Material Adverse
Effect on the results, business, operations, assets, or financial condition of
Jacksonville on a consolidated basis, or (ii) would reduce the economic or
business benefits of the transactions contemplated by this Agreement to
Jacksonville in so material a manner that Jacksonville, in its reasonable
judgment, would not have entered into this Agreement. Jacksonville shall
notify LCS in writing of its intention to terminate this Agreement pursuant to
Section 11.1 (b) hereof as a result of the receipt by Jacksonville of any such
term, condition or requirement within five business days of the written receipt
of such term, condition or requirement, or the condition set forth in the
second sentence of this Section 10.1 shall be deemed waived by Jacksonville.
10.2. No Injunctions or Restraints. No suit, action or proceeding shall
be pending or overtly threatened before any court or other governmental agency
by the federal or any state government in which it is sought to restrain or
prohibit the consummation of the Company Merger or Merger and no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Company Merger or Merger shall be in effect.
10.3. LCS and Jacksonville Shareholder Approval. This Agreement shall
have been duly approved by the requisite affirmative vote of the shareholders
of LCS and Jacksonville as contemplated by Section 7.1 and Section 7.3 hereof.
10.4. Corporate Proceedings. The obligations of the parties to this
Agreement required to be performed at or prior to the Closing Date shall have
been duly performed and complied with in all material respects. All action
required to be taken by, or on the part of, the parties to this Agreement to
authorize the execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by the parties hereto.
31
ARTICLE XI.
TERMINATION
11.1 Reasons for Termination. This Agreement may be terminated and the
Company Merger abandoned at any time before the Closing Date, whether before
or after the approval or adoption of the Agreement by the shareholders of LCS
and Jacksonville.
(a) By mutual written consent of the Board of Directors of Jacksonville
and the Board of Directors of LCS;
(b) By written notice from Jacksonville to LCS if:
(i) any condition set forth in Article VIII of this Agreement shall
have become impossible to substantially satisfy at any time or prior to or
at the Closing has not been substantially satisfied or waived in writing prior
to the Closing; or
(ii) any condition set forth in Article X of this Agreement shall
have become impossible to substantially satisfy at any time or prior to or at
the Closing has not been substantially satisfied or waived in writing, pro-
vided, however, Jacksonville shall not have the right to terminate this Agree-
ment pursuant to this Section 11.1 (b)(ii) if any condition imposed by Section
10.1 hereof was not met due to the failure of Jacksonville to perform or
observe the covenants and agreements set forth in this Agreement; or
(iii) any warranty or representation as set forth in Article IV
hereof made by LCS shall be discovered to be or to have become untrue or
incorrect in any material respect, or where any statement in a representation
or warranty expressly includes a standard of materiality, such statement shall
be discovered to be or to have become untrue or incorrect in any respect taking
into consideration the standard of materiality contained therein, in either
case where any such breach has not been cured within thirty (30) days following
receipt by LCS of written notice of such discovery;
(iv) LCS shall have breached one or more provisions of the Agreement
in any material respect considering all such breaches in the aggregate, where
such breach has not been cured within thirty (30) days following receipt by LCS
of written notice of such breach; or
(v) the LCS Disclosure Schedule prepared in accordance with Article
IV of this Agreement, and which is received by Jacksonville subsequent to the
date of this Agreement, discloses information which, either individually or in
the aggregate, would have a Material Adverse Effect on LCS as determined by
Jacksonville in its sole discretion; provided that Jacksonville exercises its
right to terminate this Agreement within ten days after receipt of such
Disclosure Schedule.
(c) By written notice from LCS to Jacksonville, which has been approved
by the Board of Directors of LCS, if
32
(i) any condition set forth in Article IX of this Agreement has not
been substantially satisfied or waived in writing; or
(ii) any condition set forth in Article X of this Agreement has not
been substantially satisfied or waived in writing; provided, however, LCS shall
not have the right to terminate this Agreement pursuant to this Section
11.1(c)(ii) if any condition imposed by Section 10.1 hereof was not met due to
the failure of LCS to perform or observe the covenants and agreements set forth
in this Agreement; or
(iii) any warranty or representation as set forth in Article III
hereof made by Jacksonville shall be discovered to be or to have become untrue
or incorrect in any material respect, or where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be discovered to be or to have become untrue or incorrect in
any respect taking into consideration the standard of materiality contained
therein, in either case where any such breach has not been cured within thirty
(30) days following receipt by Jacksonville of written notice of such
discovery; or
(iv) Jacksonville shall have breached one or more provisions of the
Agreement in any material respect considering all such breaches in the
aggregate, where such breach has not been cured within thirty (30) days
following receipt by Jacksonville of written notice of such breach.
(d) By the Board of Directors of Jacksonville or LCS at any time after
the LCS Shareholders' Meeting or Jacksonville Shareholders Meeting as
contemplated in Section 7.1 and Section 7.3, respectively, if the shareholders
of LCS or Jacksonville have not approved this Agreement by the requisite
affirmative vote.
(e) By the Board of Directors of Jacksonville or LCS if the Company
Merger has not been consummated on or before June 30, 1997.
11.2. Effect of Termination. In the event of termination of this
Agreement by either LCS or Jacksonville as provided in Section 11.1, this
Agreement shall forthwith become void, and there shall be no liability or
obligation on the part of Jacksonville or LCS or their respective officers or
directors except with respect to Sections 5.6, 5.8, 6.6, 7.9 and 12.2 hereof.
ARTICLE XII
MISCELLANEOUS
12.1. Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties, covenants and agreements in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for the covenants and agreements which by their terms
are contemplated to be performed after the Effective Time.
33
12.2. Expenses. (a) Except as otherwise provided herein, all expenses
incurred by Jacksonville and LCS in connection with or related to the
authorization, preparation and execution of the Agreement, the solicitation of
shareholder approvals and all other matters related to the closing of the
transactions contemplated thereby, including, without limitation of the
generality of the foregoing, all fees and expenses of agents, representatives,
counsel and accountants employed by either such party or its Affiliates, shall
be borne solely and entirely by the party that has incurred the same.
(b) LCS also hereby agrees to pay Jacksonville and Jacksonville shall be
entitled to payment of, a fee (the "Fee") equal to $200,000, upon the occur-
rence of any of the following events on or before June 30, 1997: (i) if LCS'
Board recommends a Proposal other than this Agreement; or (ii) if LCS' Board
withdraws, or modifies its recommendation of approval of this Agreement, after
a Different Proposal is made; or (iii) if LCS' shareholders do not approve the
Agreement after a Different Proposal is made; or (iv) if LCS enters into an
agreement to be acquired by any other party. Such payment shall be made to
Jacksonville in immediately available funds within five business days after the
occurrence of an event set forth above .
(c) Jacksonville hereby agrees to pay LCS, and LCS shall be entitled to
payment of a fee equal to $200,000, upon the occurrence of any of the following
events on or before June 30, 1997: (i) if Jacksonville's Board does not
recommend that stockholders approve the Agreement, (ii) if Jacksonville enters
into an agreement with another party and as a result refuses to consummate the
transactions set forth herein.
(d) Jacksonville agrees that as of the Closing Date, it shall assume and
pay the unpaid reasonable expenses of LCS accrued in connection with the
Company Merger. In addition, at the Closing Date, Jacksonville shall continue
to provide and maintain directors and officers of LCS with liability coverage
under the Jacksonville Directors' and Officers' liability policy and to pay any
deductible required to be paid under the Jacksonville D&O liability policy.
12.3. Waivers: Amendments. At any time prior to the Closing Date,
Jacksonville, by action taken by its Board of Directors, or any committee or
officers thereunto authorized, or LCS, by action taken by its Board of
Directors, or any committee or officers thereunto authorized, may waive the
performance of any of the obligations of the other or waive compliance by the
other with any of the covenants or conditions contained in the Agreement or
agree to the amendment or modification of the Agreement by an agreement in
writing executed in the same manner as the Agreement; provided, however, that
after the favorable vote by the shareholders of LCS pursuant to Section 7.1 of
this Agreement any such action shall be taken only if, in the opinion of LCS'
or Jacksonville's Board of Directors, such waiver, amendment or modification
will not have a Material Adverse Effect on the benefits intended under the
Agreement for the shareholders of LCS or Jacksonville and will not require
resolicitation of any proxies from such shareholders.
12.4. Assignment: Parties in Interest. The Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assigned by the parties hereto, by
operation of law or otherwise. Nothing in the Agreement, express or implied,
is intended to confer upon any third party any rights or remedies of any nature
whatsoever under or by reason of the Agreement.
34
12.5. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by LCS or
Jacksonville or by any officer or officers of such parties relating to the
acquisition of the business or the capital stock of LCS by Jacksonville. The
aforementioned agreements constitute the entire agreement by the respective
parties, and there are no agreements or commitments except as set forth herein
and therein.
12.6. Captions and Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts, each of which shall
constitute one and the same instrument.
12.7. Certain Definitions. For purposes of this Agreement, the term:
(a) "Affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, another person.
(b) "Material Adverse Effect" shall mean any material adverse change
in or material adverse effect on the business, operations, assets, or financial
condition of the parties to this Agreement.
(c) "LCS Reports" shall mean all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that were and are required to be filed with the Commissioner, the
SEC, the FDIC, and any other applicable state securities or savings institution
authorities.
(d) "to the knowledge of Jacksonville" or "to the best knowledge of
Jacksonville" shall mean the actual knowledge of any member of the Board of
Directors or of any senior officer of Jacksonville.
(e) "to the knowledge of LCS" or "to the best knowledge of LCS" shall
mean the actual knowledge of any member of the Board of Directors or of any
senior officer of LCS.
12.8. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of the
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto will be
entitled to an injunction or injunctions to prevent breaches of the Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
12.9. Governing Law. The Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois, except to the effect that
Federal Law applies or the laws of the State of Delaware to the extent that
the rights of dissenting stockholders of LCS are asserted, without regard to
the conflicts of laws rules.
12.10. Notices. All notices given hereunder shall be in writing and
shall be mailed by first class mail, postage prepaid, or sent by facsimile
transmission or by nationally recognized overnight delivery service, addressed
as follows:
35
(a) If to Jacksonville, to:
Jacksonville Savings Bank
1211 West Morton
Jacksonville, Illinois 62650
Attention: Andrew F. Applebee, Chairman
of the Board and Chief Executive Officer
Facsimile No. (217) 245-2010
With A Copy To:
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Attention: Alan Schick, Esq.
Facsimile No. (202) 362-2902
(b) If to LCS to:
LCS Bancorp, Inc.
501 North State Street
Litchfield, Illinois
Attention: Carol Radtke, President and Chief Executive Officer
Facsimile No. (217) 324-2582
with a copy to:
Kemp, Grzelakowski & Lorenzini, Ltd.
1900 Spring Road
Suite 500
Oak Brook, Illinois 60521-1495
Attention: James J. Kemp, Esq.
Facsimile No. (630) 571-7755
36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
ATTEST: JACKSONVILLE SAVINGS BANK
By: s/ Roger McKinney By: s/ Andrew F. Applebee
Roger McKinney, Secretary Andrew F. Applebee, Chairman of the
Board and Chief Executive Officer
ATTEST: LCS BANCORP, INC.
By: s/ Rhonda L. Reener By: s/ Carol Radtke
Rhonda L. Reener, Secretary Carol Radtke, President and
Chief Executive Officer
ATTEST: LITCHFIELD COMMUNITY SAVINGS, S.B.
By: s/ Sandra Keith By: s/ Carol Radtke
Sandra Keith, Secretary Carol Radtke,
Chief Executive Officer
37
EXHIBIT A
AGREEMENT OF COMPANY MERGER
EXHIBIT A
AGREEMENT OF COMPANY MERGER
AGREEMENT OF COMPANY MERGER, dated as of ____, 1996, by and among
Jacksonville Savings Bank ("Jacksonville"), an Illinois-chartered savings bank,
Jacksonville Acquisition Corp. ("Interim"), an Illinois corporation formed by
Jacksonville solely to facilitate the transactions contemplated by the
Reorganization Agreement, defined below, and LCS Bancorp, Inc. ("Company"), a
Delaware corporation. Interim and the Company are hereinafter sometimes
collectively referred to as the "Merging Corporations".
This Agreement of Company Merger is being entered into pursuant to an
Agreement and Plan of Merger, dated as of August 13, 1996 (the "Merger
Agreement") by and among Jacksonville and the Company and Litchfield Community
Savings, S.B., the Company's wholly owned subsidiary.
In consideration of the premises, and the mutual covenants and
agreements contained herein and in the Merger Agreement, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
1.1 "Effective Time" shall mean the date at which the Merger
contemplated by this Agreement of Merger becomes effective as provided in
Section 2.2 hereof
1.2 "Interim Common Stock" shall mean the common stock, par value
$.01 per share, of Interim owned by Jacksonville.
1.3 "Company Common Stock" shall mean the common stock par value $.01
per share, of the Company.
1.4 The "Merger" shall refer to the merger of Interim with and into
the Company as provided in Section 2.1 of this Agreement of Company Merger.
1.5 "Stockholder Meeting" shall mean the meeting of the stockholders
of the Company held pursuant to Section 7.1, and the meeting of stockholders of
Jacksonville held pursuant to Section 7.3 of the Merger Agreement,
respectively.
1.6 "Surviving Corporation" shall refer to the Company as the
surviving corporation of the Merger.
1
ARTICLE II
TERMS OF THE MERGER
2.1 The Merger. Subject to the terms and conditions set forth in the
Merger Agreement, on the Effective Time, Interim shall be merged with and into
the Company pursuant and subject to Section 251 of the General Corporation Law
of the State of Delaware ( "DGCL"). The Company shall be the Surviving
Corporation of the Merger and shall continue to be governed by the laws of the
State of Delaware. On the Effective Time, the Surviving Corporation shall be
considered the same business and corporate entity as each of the Merging
Corporations and thereupon and thereafter, all the property, rights, powers,
and franchises of a public as well as a private nature of each of the Merging
Corporations shall vest in the Surviving Corporation and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the debts,
liabilities, obligations and duties of each of the Merging Corporations and
shall have succeeded to all of each of their relationships, fiduciary
or otherwise, as fully and to the same extent as. if such property, right
privileges, powers, franchises, debts, obligations, duties and relationships
had been originally acquired, incurred or entered into by the Surviving
Corporation. In addition, any reference to either of the Merging Corporations
in any contract, will or document, whether executed or taking effect before or
after the Effective Time, shall be considered a reference to the Surviving
Corporation if not inconsistent with the other provisions of the contract, will
or document; and any pending action or other judicial proceeding to which
either of the Merging Corporations is a party, shall not be deemed to have
abated or to have discontinued by reason of the Merger, but may be prosecuted
to final judgment, order or decree in the same manner as if the Merger had not
been made; or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the Merging
Corporations if the Merger had not occurred.
2.2 Effective Time. The Merger shall become effective on the date
and at the time that a Certificate of Merger pursuant to Section 251 of the
DGCL is executed and filed with the Secretary of State of the State of Delaware
pursuant to Section 103 of the DGCL, unless a later date and time is specified
as the Effective Time in the Certificate of Merger.
2.3 Name of the Surviving Corporation. The name of the Surviving
Corporation shall be "LCS Bancorp, Inc."
2.4 Certificate of Incorporation. The Certificate of Incorporation
of the Company as in effect on the Effective Time, shall continue in full force
and effect following the Effective Time as the Certificate of Incorporation of
the Surviving Corporation.
2.5 Bylaws. The Bylaws of the Company, as in effect on the
Effective Time, shall continue in full force and effect as the Bylaws of the
Surviving Corporation until amended in accordance with applicable law.
2
2.6 Directors and Officers of the Surviving Corporation. The
directors and officers of Interim shall become the directors and officers of
the Surviving Corporation as of the Effective Time, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until changed in accordance therewith.
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion of The Company Common Stock and Options to Purchase
Common Stock.
(a) At the Effective Time, each share of Company Common Stock, issued
and outstanding immediately prior to the Effective Time (other than Dissenting
Shares as hereinafter defined) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive $17.75 in cash (such amount hereinafter referred to as the "Purchase
Price").
(b) At or immediately prior to the Effective Time, each outstanding
option to purchase Company Common Stock issued pursuant to the Company's Stock
Option Plans shall be canceled, and each holder of any such option, whether or
not then vested or exercisable, shall be entitled to receive from Jacksonville
at the Effective Time for each option an amount determined by multiplying (i)
the excess, if any, of the Purchase Price over the applicable exercise price
per share of such option by (ii) the number of shares of Company Common Stock
subject to such option.
3.2 Exchange of Shares.
(a) Immediately following the Effective Time and the consummation of
the transaction provided for in the Plan of Complete Liquidation and
Dissolution included as Exhibit C to the Merger Agreement, Jacksonville shall
make available in its role as exchange agent ("Exchange Agent") cash in an
amount equal to the aggregate Purchase Price.
(b) As soon as practicable after the Effective Time, the Exchange
Agent will send to each holder of record of a certificate or certificates
(other than holders of Dissenting Shares) which, immediately prior to the
Effective Time represented outstanding shares of Company Common Stock
("Certificates"), a letter of transmittal for use in exchanging such
Certificates for the Purchase Price. The letter of transmittal shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent. Upon
surrender of a Certificate for exchange and cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to promptly receive in exchange therefor the
Purchase Price as provided in Section 3.1 hereof and the Certificates so
surrendered shall be canceled. The Exchange Agent shall not be obligated to
deliver or cause to be delivered to any holder of Company Common Stock the
Purchase Price to which such holder of Company Common Stock would otherwise be
entitled until such holder surrenders the Certificate for exchange or, in
default thereof, an appropriate Affidavit of Loss and Indemnity Agreement
and/or a bond as may be required in each case by the Surviving Corporation.
3
Neither the Exchange Agent nor any party hereto shall be liable to any holder
of Certificates for any amount paid to a public Official Pursuant to any
applicable abandoned property, escheat or similar law. Except as required by
law, no interest shall be payable with respect to the Purchase Price payable
for the outstanding shares of Company Common Stock.
(c) After the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time and, if any Certifi-
cates representing such shares are presented for transfer to the Company, they
shall be canceled and exchanged for the Purchase Price provided for in Section
3.1 hereof.
(d) If payment of the Purchase Price pursuant to Section 3.1 hereof
for shares of Company Common Stock is to be made in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such payment that the Certificate so surrendered shall be
properly endorsed (or accompanied by an appropriate instrument of transfer)
and otherwise in proper form for transfer, and that the person requesting such
payment shall pay to the Exchange Agent in advance any transfer or other
taxes required by reason of the payment to a person other than that of the
registered holder of the Certificate surrendered or required for any other
reason or shall establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
3.3 Dissenting Shares. Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time, the holder of which has
not voted in favor of the Merger Agreement and this Agreement of Company Merger
and who has properly perfected his dissenters' rights of appraisal by satisfy-
ing all of the applicable requirements of Section 262 of the DGCL, is referred
to herein as a "Dissenting Share." Dissenting Shares owned by each holder
thereof who has not exchanged his Certificates for the Purchase Price or
otherwise has not effectively withdrawn or lost his dissenter's rights, shall
not be converted into or represent the right to receive the Purchase Price
pursuant to Section 3.1 hereof and shall be entitled only to such rights as are
available to such holder pursuant to the applicable provisions of the DGCL.
Each holder of Dissenting Shares shall be entitled to receive the value of such
Dissenting Shares held by him in accordance with the applicable provisions of
the DGCL, provided such holder complies with the procedures contemplated by and
set forth in the applicable provisions of the DGCL. If any holder of
Dissenting Shares shall have failed to perfect or shall have effectively
withdrawn or lost his dissenter's rights under the applicable provisions of the
DGCL, such Dissenting Shares shall be converted into the right to receive the
Purchase Price at the Effective Time in accordance with the provisions of
Section 3.1 hereof. Jacksonville agrees to make, or cause to he made, payment
in cash for any Dissenting Shares.
3.4 Interim Common Stock. Each share of Interim Common Stock which
is issued and outstanding immediately prior to the Effective Time shall be
converted automatically and without any action on the part of the holder
thereof into an issued and outstanding share of Common Stock of the Surviving
Corporation.
4
ARTICLE IV
MISCELLANEOUS
4.1 Conditions Precedent. The respective obligations of each party
under this Plan of Company Merger shall be subject to the satisfaction, or
waiver by the party permitted to do so, of the conditions set forth in Articles
V and VI of the Merger Agreement.
4.2 Stockholder Approval. By executing this Agreement of Company
Merger, Jacksonville shall be deemed to have approved this Agreement of Company
Merger in its capacity as sole stockholder of Interim.
4.3 Termination. This Agreement of Company Merger shall be
terminated upon the termination of the Merger Agreement in accordance with
Article XI thereof; provided, that any such termination of this Agreement of
Company Merger shall not relieve any party hereto from liability on account of
a breach by such party of any of the terms hereof or thereof.
4.4 Amendments. To the extent permitted by law, this Agreement of
Merger may be amended by a subsequent writing signed by all of the parties
hereto upon the approval of the Board of Directors of each of the parties
hereto; provided, however, that the provisions of Article III of this Agreement
of Company Merger relating to the consideration to be paid for the shares of
Company Common Stock shall not be amended after the approval of the
stockholders of the Company referred to in Section 7.1 of stockholders of
Jacksonville referred to in Section 7.3 of the Merger Agreement so as to
decrease the amount or change the form of such consideration without the
approval of the stockholders of the Company.
4.5 Successors. This Agreement of Company Merger shall be binding on
the successors of Jacksonville, Interim and the Company.
5
IN WITNESS WHEREOF, Jacksonville, Interim and the Company have caused this
Agreement of Company Merger to be executed by their duly authorized officers
and their corporate seals to be hereunto affixed as of the date first above
written.
Attest: JACKSONVILLE SAVINGS BANK
By: s/Roger McKinney By: s/Andrew F. Applebee
Roger McKinney, Andrew F. Applebee
Executive Vice President Chairman of the Board and
and Secretary Chief Executive Officer
Attest: JACKSONVILLE ACQUISITION CORP.
By: s/Roger McKinney By: s/ Andrew F. Applebee
Roger McKinney, Andrew F. Applebee
Secretary Chairman of the Board and
Chief Executive Officer
Attest: LCS BANCORP, INC.
By: s/ Rhonda L. Reener By: s/ Carol Radtke
Rhonda L. Reener, Carol Radtke
Secretary President and Chief Executive Officer
6
EXHIBIT B
PLAN OF MERGER
PLAN OF MERGER
BETWEEN
JACKSONVILLE SAVINGS BANK
AND
LITCHFIELD COMMUNITY SAVINGS, S.B.
DATED AS OF ________________, 1996
This Plan of Merger dated as of ____________________, 1996 (the "Merger
Plan") is entered into by and among: (i) JACKSONVILLE SAVINGS BANK, an
Illinois savings bank and a wholly owned subsidiary of Financial
("Jacksonville'); and (ii) LITCHFIELD COMMUNITY SAVINGS, S.B. ("Litchfield"), a
wholly owned Subsidiary of LCS Bancorp, Inc. which is wholly owned by
Jacksonville, an Illinois savings bank. This Merger Plan is being entered into
in connection with the Agreement and Plan of Merger by and among Jacksonville
Savings Bank and LCS Bancorp, Inc. and Litchfield Community Savings, S.B. The
Merger Agreement has been approved by at least a majority vote of the Boards
of Directors of Jacksonville and Litchfield. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Merger Agreement.
In consideration of the mutual covenants and agreements set forth herein
and subject to the terms and conditions of the Merger Agreement, the parties
hereto agree as follows:
Section 1. Definition. Except as otherwise provided herein, the
capitalized terms set forth below shall have the following meanings:
1.1 "Effective Time" shall mean the date at which the Merger
contemplated by this Merger Plan becomes effective as provided in Section 2
hereof.
1.2 "Litchfield Common Stock" shall mean the common stock, par
value $1.00 per share, of Litchfield.
1.3 "Merger" shall refer to the merger of Litchfield with and into
Jacksonville as provided in Section 2 of this Merger Plan.
1.4 "Surviving Institution" shall refer to Jacksonville as the
surviving institution of this Merger.
Section 2. The Merger. At the Effective Time, Litchfield will be merged
with and into Jacksonville with Jacksonville as the Surviving Institution (the
"Merger"). The separate corporate existence of Litchfield shall thereupon
cease. Jacksonville as the Surviving Institution shall continue to be governed
by the laws of the State of Illinois, and its existence with all of its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger.
Section 3. Name of Surviving Institution. The name of the Surviving
Institution shall be Jacksonville Savings Bank.
Section 4. Location of Main Office and Branch Offices. At the Effective
Time, the main office of Jacksonville, and each of its branches, including
Litchfield, shall remain open. The main office and branch locations of
Jacksonville following consummation of the Merger shall be:
Main Office: Branch Office: Branch Office
1211 West Morton Avenue 903 South Main 501 North State
Jacksonville, Illinois Jacksonville, Illinois Litchfield, Illinois
1
Branch Office: Branch Office:
211 West State 100 North Dye
Jacksonville, Illinois Virden, Illinois
Section 5. Assets and Liabilities. At the Effective Time, all assets
and property personal, and mixed, tangible and intangible, choses in action,
rights, and credits), then owned by Litchfield shall immediately become the
property of the Surviving Institution. The Surviving Institution shall be
deemed to be a continuation of Litchfield, the rights and obligations of which
shall Succeed to such rights and obligations and the duties and liabilities
connected therewith.
Section 6. Directors Of Surviving Institution. At the Effective Time,
the directors of Jacksonville shall remain as the directors of the Surviving
Institution. The names and addresses, and terms of such directors are set
forth below.
Name Address Term Expires
Andrew F. Applebee 8 Cardinal Drive 1998
Jacksonville, IL 62650
Richard A. Foss 13 Aaron Drive 1997
Jacksonville, IL 62650
Robert S. Bills 1515 Mound 1996
Jacksonville, IL 62650
1. Newton Mitchell 12 Melrose Ct. 1996
Jacksonville, IL 62650
Roger D. Cannell 211 S. Fayette 1997
Jacksonville, IL 62650
Michael R. Goldasich 12 E. Forest Park 1997
Jacksonville, IL 62650
Emily J. Osburn 8 Forest Hill 1998
Jacksonville, IL 62650
Harvey D. Scott III 15 Pitner Place 1998
Jacksonville, IL 62650
Section 7. Articles of Incorporation and Bylaws. At the Effective Time,
the articles of incorporation and bylaws of Jacksonville shall remain in effect
and shall become the articles of incorporation and bylaws of the Surviving
Institution.
2
Section 8. Counterparts. This Merger Plan may be executed in one or
more counterparts, each of which shall be deemed to be an original and all of
which taken together shall constitute one instrument.
Section 9. Amendments. This Merger Plan may be amended by the
parties hereto, by or pursuant to action taken by their respective boards of
directors. This Merger Plan may not be amended except by an instrument in
writing specifically referring to this Section 9 and signed on behalf of each
of the parties hereto.
Section 10. Severability. Any provision of this Merger Plan which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
Section 11. Governing Law. This Merger Plan shall be governed by, and
interpreted in accordance with, the laws of the State of Illinois, without
regard to conflicts of laws principles.
Section 12. Captions and References. The captions contained in this
Merger Plan are for convenience of reference only and do not form a part of
this Merger Plan.
3
IN WITNESS WHEREOF, the parties hereto have caused this Merger Plan to be duly
executed as of the date first above written.
JACKSONVILLE SAVINGS BANK
By: s/ Andrew F. Applebee
Andrew F. Applebee
Chairman of the Board and
Chief Executive Officer
LITCHFIELD COMMUNITY SAVINGS, S.B.
By: s/ Andrew F. Applebee
Andrew F. Applebee
Chairman of the Board and
Chief Executive Officer
4
EXHIBIT C
PLAN OF COMPLETE LIQUIDATION
AND DISSOLUTION OF LCS BANCORP, INC.
EXHIBIT C
PLAN OF COMPLETE LIQUIDATION
AND DISSOLUTION OF LCS BANCORP, INC.
This Plan of Complete Liquidation and Dissolution (the "Plan") shall
effect the complete liquidation and dissolution of LCS Bancorp, Inc. (the
"Company"), a Delaware corporation, in accordance with Section 332 of the
Internal Revenue Code of 1986, as amended (the "Code"), and Section 275 of the
General Corporation Law of the State of Delaware ("DGCL") as soon as possible
following the merger of Jacksonville Savings Bank ("Jacksonville") and
Litchfield Community Savings, S.B. pursuant to an agreement of merger of even
date herewith ("Agreement of Merger").
1. Adoption of Plan. This Plan shall become effective upon its
approval and adoption by Jacksonville, an Illinois-chartered savings bank,
pursuant to Section 275(c) of the DGCL, following (a) Jacksonville's acquisi-
tion of the stock of the Company meeting the requirements of Section 1504(a)(2)
of the Code and its becoming the sole stockholder of the Company, (b) the
consummation of the Agreement of Merger.
2. Filing of Forms. The officers of Jacksonville are authorized and
directed to execute and file, of cause the Company to execute and file,
a United States Treasury Form 966 pursuant to Section 6043 of the Code within
thirty (30) days after the adoption of this Plan in accordance with Section I
hereof and such additional or other forms and reports with and to the Internal
Revenue Serve as may be necessary, desirable or appropriate in connection with
the implementation of this Plan.
3. Dissolution. Jacksonville shall execute and file a Certificate of
Dissolution for the Company in accordance with Section 275 of the DGCL. After
dissolution, the Company shall carry on no business except for the purpose of
winding up its affairs in accordance with Section 278 of the DGCL.
4. Authorization to Officers. The officers of Jacksonville are
authorized to execute and deliver such agreements, conveyances, assignments,
transfers, certificates and other documents and to take such other actions as
such officers may deem necessary, appropriate or desirable in order to carry
out the provisions of this Plan and effect a complete liquidation and
dissolution of the Company in accordance with Section 332 of the Code and
Section 275 of the DGCL.
* * * * * * *
Adopted by the duly authorized vote of the Board of Directors of
Jacksonville this ________ day of __________________, 1996.
EXHIBIT D
LEGAL OPINION OF
KEMP, GRZELAKOWSKI & LORENZINI, LTD.
[Matters to be covered in Opinion of Counsel to be delivered to Jacksonville
pursuant to Section 8.9 of the Agreement]
(a) Each of the Company, and the Bank is incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation. Each
such entity has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed, qualified or in good standing would not have a material
adverse effect on the business, operations, assets or financial condition of
the Company and its subsidiaries taken as a whole. The Bank is a member in
good standing of the Federal Home Loan Bank of Chicago and all eligible
accounts of depositors in the Bank are insured by the FDIC to the fullest
extent permitted by law. The Company is duly registered as a holding company
under the Bank Holding Company Act.
(b) The authorized capital stock of the Company is as set forth at Section
4.2 of the Agreement.
(c) Each of the Company and the Bank have the corporate power and authority
to execute and deliver the Agreement and the Agreement of Company Merger
included as Exhibit A thereto, and to consummate the Merger and to carry out
all of their respective obligations thereunder. The execution and delivery of
the Agreement and the Agreement of Company Merger included as Exhibit A thereto
and the consummation of the transactions contemplated by the Agreement by the
Company and the Bank have been duly authorized by the boards of directors and
stockholders of each of the Company and the Bank and no other corporate
proceedings on the part of the Company or the Bank are necessary to consummate
the transactions so contemplated. Each of the Agreement and the Agreement of
Company Merger included as Exhibit A thereto have been duly and validly
executed and delivered by the Company and the Bank, as applicable, and
constitute valid and legally binding obligations of the Company and the Bank
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights and except as may be limited by the exercise of judicial discretion in
applying principles of equity.
(d) None of the execution and delivery of the Agreement and the Agreement
of Company Merger included as Exhibit A thereto by the Company and the Bank, as
applicable, nor the consummation by the Company and the Bank of the trans-
actions contemplated thereby in accordance with their respective terms, as
applicable, nor compliance by the Company or the Bank with any of their
respective terms, as applicable, will (i) violate any provision of the
Company's or the Bank's certificate of incorporation, articles of incorporation
or other chartering instrument or bylaws, (ii) violate any federal statute,
code, rule or regulation, or, to the knowledge of such counsel, any judgment,
order, writ, decree or injunction applicable to the Company or the Bank, or any
of their respective properties or assets, or (iii) to the knowledge of such
counsel, violate, conflict with, result in a breach of any provisions of,
constitute a default under (or an event which, with notice or lapse of time,
or both, would constitute a default under), result in the termination of,
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or other encumbrance upon any of the respective
properties or assets of the Company or the Bank, under the terms, conditions or
1
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or the
Bank, is a party, or by which they or any of their respective properties or
assets, may be hound or affected, except, with respect to clauses (ii) and
(iii) above, such as individually or in the aggregate will not have a material
adverse effect on the business, operations, assets or financial condition of
the Company and its subsidiaries taken as a whole and which will not prevent or
delay the consummation of the transactions contemplated by the Agreement.
(e) The provisions of Article XIV of the Company's Certificate of
Incorporation are not applicable to the Reorganization.
(f) All regulatory or governmental approvals and consents which are
necessary to be obtained by the Company and the Bank to permit the execution,
delivery and performance of the Agreement and the Agreement of Company Merger
included as Exhibit A thereto have been obtained.
(g) The Agreement, including consummation of the transactions contemplated
thereby, has been approved by the requisite vote of stockholders of the
Company.
(h) To the knowledge of such counsel, all consents of non-governmental
third parties which are necessary to be obtained by the Company and the Bank
pursuant to contractual provisions by which either of them is bound to permit
the execution, delivery and performance of the Agreement and the Agreement of
Company Merger included as Exhibit A thereto have been obtained.
(i) Assuming due authorization of the Merger by all necessary corporate and
governmental proceedings on the part of parties other than the Company and the
Bank and that such other parties have taken all action required to be taken by
them prior to the Effective Time, upon the proper filing of a [Certificate of
Merger pursuant to Sections 103 and 251 of the DGCL,] the Merger will be
validly consummated in accordance with the Agreement and applicable laws and
regulations and each outstanding share of Common Stock and each outstanding
option to purchase such stock granted pursuant to the Company's Stock Option
Plans will be converted into the right to receive a cash payment in the manner
specified in the Agreement of Company Merger included as Exhibit A to the
Agreement.
(j) To the knowledge of such counsel, there are no judicial, administra-
tive, arbitral or other actions, suits, proceedings or investigations pending
or threatened, which (i) if adversely determined, would result in any material
adverse change in the business, operations, assets or financial condition of
the Company and its subsidiaries taken as a whole or (ii) seek to restrain or
prohibit the transactions completed by the Agreement or monetary damages in
connection therewith.
Such counsel also shall state that it has no reason to believe that the
information relating to the Company, the subsidiaries of the Company and the
transactions contemplated by the Agreement contained in the proxy statement
used to solicit the approval of the stockholders of the Company of the Agree-
ment and the Merger and any other required approval of the transactions
contemplated by the Agreement, as of the date of such proxy statement and up to
and including the meeting of stockholders in connection with which such
documents were used, contained any untrue statement of a material fact or
2
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
In rendering their opinion, such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, upon certificates of
governmental officials and, as to matters of fact, certificates of any officer
or officers of the Company and its subsidiaries. The opinion of such counsel
may include such qualifications and explanations of the basis thereof as may be
reasonably acceptable to Jacksonville.
3
EXHIBIT E
LEGAL OPINION OF
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
[Matters to be covered in Opinion of Counsel to be delivered to LCS Bancorp,
Inc. Pursuant to Section 9.5 of the Agreement]
(a) Jacksonville is a savings bank duly organized, validly existing and in
good standing under the laws of the State of Illinois;
(b) Jacksonville has the corporate power and authority to carry on its
business as now conducted, to own, lease and operate its properties and to
consummate the transactions contemplated by the Agreement;
(c) The Agreement has been duly authorized, executed and delivered by
Jacksonville and constitutes the valid and binding obligation of Jacksonville.
(d) To counsel's knowledge, all corporate acts and proceedings required to
be taken by or on the part of Jacksonville to consummate the transactions
contemplated by the Agreement have been taken, and neither the execution or
delivery of the Agreement, nor the consummation of the transactions
contemplated thereby, with and without the giving of notice or the lapse of
time or both, will violate any provision of the articles of incorporation or
bylaws of Jacksonville.
(e) All regulatory and governmental approvals and consents which are
necessary to be obtained by Jacksonville to permit the execution, delivery and
performance of the transactions contemplated by the Agreement have been
obtained.
Such counsel also shall state that it has no reason to believe that the
information relating to Jacksonville and the transactions completed by the
Agreement contained in the proxy statement used to solicit the approval of
the stockholders of Jacksonville of the Agreement and the Merger and any other
required approval of the transactions contemplated by the Agreement, as of the
date of such proxy statement and up to and including the meeting of
stockholders in connection with which such documents were used, contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
In rendering their opinion, such counsel may rely, to the extent such counsel
deems such reliance necessary or appropriate, upon certificates of governmental
officials and, as to matters of fact, certificates of any officer or officers
of Jacksonville and its subsidiaries. The opinion of such counsel may include
such qualifications and explanations of the basis thereof as may be reasonably
acceptable to Jacksonville.
1
ANNEX II
FAIRNESS OPINION OF RP FINANCIAL, L.P.
RP FINANCIAL, LC.
Financial Services Industry Consultants
August 13, 1996
Board of Directors
LCS Bancorp, Inc.
501 North State Street
Litchfield, Illinois 62056-1567
Dear Sir or Madam:
You have requested RP Financial, LC. ("RP Financial") to provide you with
our opinion as to the fairness from a financial point of view to the
shareholders of LCS Bancorp, Inc., Litchfield, Illinois ("LCS"), the holding
company for Litchfield Community Savings, S.B. ("Litchfield") of the Agreement
and Plan of Merger (the "Agreement"), dated August 13, 1996, by and among
Jacksonville Savings Bank, Jacksonville, Illinois, LCS, and Litchfield.
Summary Description of Consideration
The Agreement is incorporated herein by reference. Unless otherwise
defined, all capitalized terms incorporated herein have the meanings ascribed
to them in the Agreement. At the Effective Time, by virtue of the Company
Merger and without any action except as specified in the Agreement on the part
of the holders of LCS Common Stock, each issued and outstanding share of LCS
Common Stock (except as otherwise provided under Delaware law with respect to
the rights of dissenting shareholders of LCS) shall be converted into the
right to receive $17.75 in cash (the "Purchase Price"). All shares of LCS
Common Stock which are held in the treasury of LCS and any shares of LCS Common
Stock owned by Jacksonville or any direct or indirect wholy owned subsidiary or
Washington Headquarters
Rosslyn Center, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
RP Financial, LC.
Board of Directors
Novemer 29, 1996
Page 2
parent of Jacksonville shall be cancelled. Also at the Effective Time,
Jacksonville shall pay to each holder of an option which has been granted by
LCS to purchase shares of LCS Common Stock, and which is outstanding and
exercisable but unexercised immediately prior to the Effective Time in
accordance with LCS' stock option plans, an amount in cash computed by
multiplying (i) any positive difference obtained by subtracting from (x) the
per share amount of the Purchase Price and (y) the per share exercise price
applicable to such option by (ii) the number of shares of LCS Common Stock
subject to such option, and that such payment shall constitute consideration
for the termination and cancellation of such option.
RP Financial Background and Experience
RP Financial, as part of its financial institution valuation and
consulting practice, is regularly engaged in the valuation of financial
institution securities in connection with mergers and acquisitions of
commercial banks, savings banks and thrift institutions, initial and secondary
offerings, mutual-to-stock conversions of mutual savings institutions, and
business valuations for other corporate purposes for financial institutions.
As specialists in the securities of financial institutions, RP Financial has
experience in, and knowledge of, the Illinois and Midwest U.S. markets for
thrift and bank securities and the institutions operating in Illinois.
Materials Review and Analyses Performed
RP Financial reviewed and analyzed the following material in conjunction
with its analysis of LCS and the Purchase Price: (1) the Agreement and Plan of
Merger dated August 13, 1996, including exhibits; (2) the following informa-
tion for LCS - (a) audited financial statements for the fiscal years ended
December 31, 1993 through 1995, incorporated in Annual Reports to shareholders,
shareholder and internal reports, and quarterly reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996; (b) the most recent proxy
statement, and (c) unaudited internal and regulatory financial reports and
analyses prepared by management regarding various aspects of LCS's assets
and liabilities, particularly rates, volumes, maturities, market values,
trends, credit risk, interest rate risk and liquidity risk of assets,
liabilities, off-balance sheet assets, commitments and contingencies, including
off-balance sheet tax benefits, of the Bank; and, (3) for Jacksonville,
historical financial information as of December 31, 1993 through 1995.
In the course of its evaluation and analyses, RP Financial conducted
discussions with LCS's management regarding past and current business
operations, financial condition, and future prospects.
RP Financial, LC.
Board of Directors
November 29, 1996
Page 3
RP Financial reviewed the trading activity for LCS Common Stock, and
compared it to similar information for savings institutions with comparable
resources, financial condition, earnings, operations and markets as well as for
publicly-traded savings institutions with comparable financial condition,
earnings, operations and markets. RP Financial reviewed LCS's financial,
operational and market area characteristics compared to similar information for
comparable savings institutions and holding companies, evaluated the potential
for growth and profitability for LCS in its market, specifically regarding
competition by other banks, savings institutions, mortgage banking companies
and other financial services companies, economic projections in the local
market area, and the impact of the, regulatory, legislative and economic
environments on operations and the public perception of the savings institution
and banking industries. RP Financial's analyses included: (i) an evaluation of
the transaction terms, including the form and amount of the Purchase Price and
the implied pricing ratios indicated by the Purchase Price relative to LCS's
assets, deposits, book value, earnings, both current and projected; (ii) a
control premium analysis relative to publicly-traded savings institutions and
thrift holding companies in the State of Illinois; (iii) an evaluation of the
financial terms, financial and operating condition and market area of other
recent business combinations among comparable savings institutions and thrift
holding companies both pending and completed, including a comparison of the
implied pricing ratios indicated by the Purchase Price relative to the
comparable transactions; (iv) discounted cash flow analyses for LCS
considering the above factors related to the operating environment and future
prospects; and (v) other such analyses as RP Financial considered relevant.
The results of these analyses and the other factors considered were evaluated
as a whole, with the aggregate results indicating a range of financial
parameters utilized to assess the amount of the Purchase Price.
In rendering our opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
LCS furnished to us for review for purposes of this opinion, as well as
publicly-available information. regarding other financial institutions and
economic data. LCS has not restricted RP Financial as to the material it was
permitted to review. RP Financial has not performed or obtained any
independent appraisals or evaluations of the assets and liabilities and
potential and/or contingent liabilities of LCS or Jacksonville. RP Financial
expresses no opinion on matters of a legal, accounting or tax nature or the
ability of the merger to be consummated as set forth in the Agreement.
Opinion
It is understood that this letter is directed to the Board of Directors of
LCS in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of LCS as to any action that such shareholder
should take in connection with the Agreement, or otherwise.
RP Financial, LC.
Board of Directors
November 29, 1996
Page 4
It is understood that this opinion is based on market conditions and other
circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in any
communication by LCS or its Board of Directors to the stockholders of LCS. It
is also understood that this opinion may be included in its entirety in any
regulatory filing by LCS, Litchfield, or Jacksonville, and that RP Financial
consents to the summary of the opinion in the proxy materials of LCS, and any
amendments thereto. Except as described above, this opinion may not be
summarized, excerpted from or otherwise, publicly referred to without our
prior written consent.
Based upon and subject to the foregoing, and other such matters as we
consider relevant, it is RP Financial's opinion that, as of the date hereof,
the Purchase Price to be received by the LCS shareholders as described in the
Agreement, is fair to such shareholders from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
s/RP Financial, LC.
ANNEX III
EXCERPTS FROM DELAWARE GENERAL
CORPORATION LAW RELATING TO
DISSENTER'S RIGHTS OF APPRAISAL
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
(As Amended)
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares,, who continuously
holds such shares through the effective date of the merger or consolidation,
who has other-wise complied with the provisions of subsection (d) of Section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this Chapter shall be entitled to
an appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section.
As used in this Section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a non-stock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, or 263 of this Chapter;
(1) provided, however, that no appraisal rights under this Section
shall be available for the shares of any class or series of stock which,
at the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of
the surviving corporation as provided in subsection (f) of Section 251 of
this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this
Section, appraisal rights under this Section shall be available for the
shares of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257 and 258 of this
Chapter to accept for such stock anything except (i) shares of stock of
the corporation surviving or resulting from such merger or consolidation;
(ii) shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders; (iii)
cash in lieu of fractional shares of the corporations described in the
foregoing clauses (i) and (ii); or (iv) any combination of the shares of
stock and cash in lieu of fractional shares described in the foregoing
clauses (i), (ii) and (iii) in this subsection.
(3) In the event all of the stock of a subsidiary Delaware corpora-
tion party to a merger effected under Section 253 of this chapter is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this Section, including those set forth in
subsections (d) and (e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be. perfected as follows:
(1) If a Proposed merger or consolidation for which appraisal rights
are provided under this Section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) and (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
Section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation before the taking of the vote on
the merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby
to demand the appraisal of his shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of such merger
or consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with
the provisions of this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved Pursuant to Section
228 or Section 253 of this Chapter, the surviving or resulting corpora-
tion, either before the effective date of the merger or consolidation or
within 10 days thereafter, shall notify each of the stockholders entitled
to appraisal rights of the effective date of the merger or consolidation
and that appraisal rights are available for any or all of the shares of
the constituent corporation, and shall include in such notice a copy of
this Section. The notice shall be sent by certified or registered mail,
return receipt requested, addressed to the stockholder at his address as
it appears on the records of the corporation. Any stockholder entitled
to appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the require-
ments of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statements shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by a duly verified list. The Registry in Chancery, if so ordered
by the Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by one or more publications at least
one week before the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the surviving or
resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders
who have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any stock-
holder entitled to participate in the appraisal proceeding, the Court may, in
its discretion, permit discovery or other pretrial proceedings and may proceed
to trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
Section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under
Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and in the case of holders
of shares represented by certificates upon the surrender to the corporation
of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any other state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceedings, including, without limitation, reasonable attorneys' fees, and the
fees and expenses of experts, to be charged prorata against the value of all
shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, of if such stockholder shall
deliver to the surviving or resulting corporation a written withdrawal of his
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this Section or thereafter with the written
approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
