<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 22, 1999
Damen Financial Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-25484 36-4029638
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
200 West Higgins Road, Schaumburg, Illinois 60195
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(847)882-5320
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
N.A.
- --------------------------------------------------------------------------------
(Former name and address, if changed since last report)
<PAGE> 2
DAMEN FINANCIAL CORPORATION
FORM 8-K
February 23, 1999
Item 5. Other Events
Damen Financial Corporation ("Damen") announced it entered into an
Agreement and Plan of Merger with MidCity Financial Corporation on February 22,
1999, pursuant to which MidCity Financial Corporation will acquire all of the
issued and outstanding shares of Damen at a cash price of $18.35 per share, and
Damen will merge with a wholly owned subsidiary of MidCity Financial Corporation
(the "Merger").
The Merger has been unanimously approved by Damen's Board of Directors.
In reaching its decision, the Board was advised by its financial advisor, Keefe
Bruyette & Woods, Inc., that the per share acquisition price is fair to the
stockholders of Damen from a financial point of view.
Stockholders of Damen will have an opportunity to vote on the Agreement
and Plan of Merger at a Special Meeting of Stockholders expected to take place
in the second quarter of 1999, after a proxy statement providing more details
about the Merger is prepared and sent to stockholders. In addition, completion
of the Merger is subject to customary conditions, including the receipt of
certain regulatory approvals.
In light of the foregoing, Damen postponed its Annual Meeting of
Stockholders. The Annual Meeting has been rescheduled for 9:30 a.m. on Friday,
March 12, 1999, at the Marriott Hotel, located at 50 North Martingale Road,
Schaumburg, Illinois.
Attached hereto are copies of a press release issued by Damen (Exhibit
99.1), as well as a copy of the Agreement and Plan of Merger (Exhibit 2.1) and a
letter to Damen's stockholders advising them of the Merger (Exhibit 99.2).
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(c) Exhibits
2.1 Agreement and Plan of Merger, dated February 22,
1999, by and between Damen Financial Corporation and
MidCity Financial Corporation and a wholly owned
subsidiary of MidCity Financial Corporation.
2
<PAGE> 3
99.1 Press release of Damen Financial Corporation, dated
February 23, 1999.
99.2 Letter to Damen stockholders, dated February 23, 1999.
The following Items are not applicable for this Form 8-K:
Item 1. Changes in Control of Registrant
Item 2. Acquisition or Disposition of Assets
Item 3. Bankruptcy or Receivership
Item 4. Changes in Registrant's Certifying Accountant
Item 6. Resignations of Registrant's Directors
Item 8. Change in Fiscal Year
Item 9. Sales of Equity Securities Pursuant to Regulation S
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Damen Financial Corporation
(Registrant)
/s/ Mary Beth Poronsky Stull
Date: February 23, 1999 ---------------------------------------
Mary Beth Poronsky Stull
President
4
<PAGE> 1
EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 22, 1999
BY AND AMONG
MIDCITY FINANCIAL CORPORATION,
DAMEN FINANCIAL CORPORATION
AND
MIDCITY CFD, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 1 MERGER.................................................................. 1
1.1 Merger.................................................................... 1
1.2 Prior Approvals........................................................... 2
1.3 Effects of the Merger..................................................... 2
1.4 Certificate of Incorporation and By-Laws.................................. 2
1.5 Directors and Officers.................................................... 2
1.6 Effective Date and Time................................................... 2
ARTICLE 2 CONSIDERATION........................................................... 3
2.1 Merger Consideration...................................................... 3
2.2 Effect of Conversion of Shares............................................ 3
2.4 Dissenting Shares......................................................... 4
2.5 Delivery of Consideration................................................. 4
2.6 Transfer.................................................................. 5
2.7 Closing of the Company's Transfer Books................................... 5
2.8 Escheat................................................................... 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF MIDCITY............................... 6
3.1 Organization and Good Standing............................................ 6
3.2 Authority; Binding Effect................................................. 6
3.3 No Conflicts.............................................................. 6
3.4 Consents and Approvals.................................................... 7
3.5 Proxy Materials........................................................... 7
3.6 Broker's and Finder's Fee................................................. 7
3.7 No Litigation............................................................. 7
3.8 No Other Representations or Warranties.................................... 7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 7
4.1 Organization and Good Standing; Books and Records......................... 8
4.2 Capitalization............................................................ 9
4.3 Authority; Binding Effect................................................. 10
4.4 No Conflicts.............................................................. 11
4.5 Consents and Approvals.................................................... 11
4.6 Compliance with Laws; Governmental Regulation............................. 11
4.7 SEC Reports and Financial Statements...................................... 12
4.8 Absence of Certain Changes or Events...................................... 12
4.9 Loan Portfolio; Reports................................................... 14
4.10 Regulatory Examinations................................................... 14
4.11 Properties and Assets..................................................... 14
4.12 No Liabilities............................................................ 15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
4.13 Legal Proceedings......................................................... 15
4.14 Certain Contracts......................................................... 15
4.15 Taxes and Tax Returns..................................................... 16
4.16 Insurance................................................................. 17
4.17 Fiduciary Responsibilities................................................ 17
4.18 Employees and Employee Benefit Plans...................................... 17
4.19 SEC and Depositor Reports................................................. 19
4.20 Affiliate Transactions.................................................... 20
4.21 Environmental Matters..................................................... 20
4.22 Quality of Assets......................................................... 22
4.23 Policies and Procedures................................................... 22
4.24 Fees...................................................................... 23
4.25 Vote Required............................................................. 23
4.26 Indemnification........................................................... 23
4.27 Antitakeover Provisions Inapplicable...................................... 23
4.28 Power of Attorney......................................................... 23
4.29 Information Supplied...................................................... 23
4.30 Labor Matters............................................................. 23
4.31 Trademarks, Patents and Copyrights........................................ 24
4.32 Year 2000 Matters......................................................... 24
4.33 Full Disclosure........................................................... 24
ARTICLE 5 COVENANTS OF THE PARTIES................................................ 25
5.1 Conduct of the Business of the Company and Subsidiaries................... 25
5.2 Negative Covenants........................................................ 25
5.3 No Solicitation........................................................... 28
5.4 Current Information....................................................... 29
5.5 Access to Properties and Records; Confidentiality......................... 30
5.6 Regulatory and Other Matters.............................................. 30
5.7 Notification of Certain Other Matters..................................... 31
5.8 Title Matters............................................................. 31
5.9 Employee Benefits and Employees
5.10 Stockholder Approval...................................................... 33
5.11 Proxy Materials........................................................... 34
5.12 Further Assurances........................................................ 35
5.13 Public Announcements...................................................... 35
5.14 Dissenting Stockholders................................................... 35
5.15 Disclosure Schedules...................................................... 35
ARTICLE 6 CONDITIONS PRECEDENT TO THE MERGER...................................... 36
6.1 Conditions to Each Party's Obligations under this Agreement............... 36
6.2 Conditions to the Obligations of MidCity and NewCo under this Agreement... 37
6.3 Conditions to the Obligations of the Company under this Agreement......... 38
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER....................................... 39
7.1 Termination............................................................... 39
7.2 Effect of Termination by MidCity or the Company........................... 40
7.3 Payment in Lieu of Fees and Expenses and Opportunity Costs................ 40
7.4 Amendment, Extension and Waiver........................................... 41
ARTICLE 8 MISCELLANEOUS........................................................... 41
8.1 Expenses.................................................................. 41
8.2 Notices................................................................... 41
8.3 Governing Law; Jurisdiction............................................... 42
8.4 Whole Agreement........................................................... 43
8.5 Benefit and Binding Effect................................................ 43
8.6 Survival.................................................................. 43
8.7 No Reliance on Headings; Interpretation................................... 43
8.8 Severability.............................................................. 43
8.9 Counterparts.............................................................. 43
8.10 Waiver of Jury Trial...................................................... 43
8.11 Specific Performance...................................................... 44
</TABLE>
iii
<PAGE> 5
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
A [Intentionally Omitted]
B [Intentionally Omitted]
C Certificate of Incorporation
D Form of Exchange Agent Agreement
6.2.4 Form of the Company Counsel Opinions
6.2.9 Form of the Company Officer's Certificates
6.3.2 Form of MidCity Officer's Certificates
SCHEDULES
4.1.4 Affiliates
4.2.1 Warrants, Options, Voting Trusts, Etc.
4.2.2 Capital Structure of Subsidiaries
4.5 Consents and Approvals
4.6.1 Compliance with Laws
4.9 Indebtedness
4.10 Regulatory Examinations
4.11.1 Real Property
4.11.2 Foreclosed Property
4.13 Legal Proceedings
4.14.1 Contracts
4.15.1 Taxes
4.16 Insurance
4.18.2 Employee Benefit Plans
4.18.3 Excise Tax Liability
4.18.5 Severance Pay, Unemployment Compensation, Etc.
4.20 Affiliate Transactions
4.21 Environmental Matters
4.22 Quality of Assets
4.26 Indemnification
4.30 Labor Matters
4.32 Year 2000 Problem Status
5.2.7 Dispositions of Loans, Investments and Assets
5.2.8 Loans and Other Extensions of Credit
5.2.12 Discharges of Liens and Encumbrances and Satisfaction of Obligations
5.2.16 Charitable Donations
5.2.18 Changes in Insurance Coverage
</TABLE>
iv
<PAGE> 6
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
ADA ..................................................................4.11.3
ADAAG ................................................................4.11.3
AGREEMENT ............................................................Preamble
APPLICABLE GOVERNMENTAL AUTHORITIES ..................................1.2
BRANCH PROPERTY ......................................................4.21
CANCELLATION AGREEMENT ...............................................2.3
CERCLA ...............................................................4.21
CERTIFICATE OF MERGER ................................................1.6
CERTIFICATES .........................................................2.5(a)
CODE .................................................................4.18.1
COMFORT LETTER .......................................................5.11.2(i)
COMPANY ..............................................................Preamble
COMPANY COMMON STOCK .................................................2.1(a)
COMPANY DISCLOSURE ...................................................4.0
COMPANY FINANCIAL STATEMENTS .........................................4.7
COMPANY INTERIM FINANCIAL STATEMENTS .................................4.7
COMPANY'S KNOWLEDGE ..................................................4.14.2
COMPANY PREFERRED STOCK ..............................................4.2.1
COMPANY SEVERANCE PLAN ...............................................5.9.2
COMPANY STOCK OPTION/COMPANY STOCK OPTIONS ...........................2.1(a)
COMPANY SYSTEMS ......................................................4.32
DGCL .................................................................1.3
DISSENTING SHARE .....................................................2.4
EFFECTIVE DATE .......................................................1.6
EFFECTIVE TIME .......................................................1.6
ENVIRONMENTAL LAW ....................................................4.21
ERISA ................................................................4.18.2
ERISA AFFILIATE ......................................................4.18.4
ESOP .................................................................2.1(a)
EXCHANGE ACT .........................................................3.4
EXCHANGE AGENT .......................................................2.5(a)
FACILITIES ...........................................................4.11.3
FAIRNESS OPINION .....................................................5.11.2(ii)
FDIC .................................................................1.2
FRB ..................................................................1.2
HAZARDOUS SUBSTANCE ..................................................4.21
MAILING DATE .........................................................5.11.2
MATERIAL ADVERSE EFFECT ..............................................4.1.2
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
TERM SECTION
- ---- -------
<S> <C>
MCNBC ................................................................2.5(a)
MEETING ..............................................................5.10
MERGER ...............................................................Recitals
MERGER CONSIDERATION .................................................2.1(a)
MID CITY .............................................................Preamble
MID CITY BENEFIT PLAN ................................................5.9.3
NEWCO ................................................................Preamble
NEWCO COMMON STOCK ...................................................2.1(a)
OCC ..................................................................1.2
OPTION PAYMENT .......................................................2.3
OPTION PLANS .........................................................2.3
OREO .................................................................4.21
PCBs .................................................................4.21
PERMITS ..............................................................4.6.1
PER SHARE PRICE ......................................................2.1(a)
PLAN/PLANS ...........................................................4.18.2
POLICY ...............................................................4.23
PROXY MATERIALS ......................................................5.11.1
RCRA .................................................................4.21
REAL PROPERTY ........................................................4.21
RELEASE ..............................................................4.21
RETURNS ..............................................................4.15.1
RRP ..................................................................2.1(a)
SEC ..................................................................4.18.6
SEC REPORTS ..........................................................4.19(b)
SECURITIES ACT .......................................................3.4
SUBSIDIARY/SUBSIDIARIES ..............................................4.1.2
SUBSIDIARY BANK ......................................................4.1.1
SURVIVING CORPORATION ................................................1.1
SURVIVING CORPORATION COMMON STOCK ...................................2.1(a)
SWDA .................................................................4.21
TAKEOVER PROPOSAL ....................................................5.3
TAXES ................................................................4.15.2
TRANSFERRED EMPLOYEE .................................................5.9.3
</TABLE>
iv
<PAGE> 8
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of February 22, 1999 (this
"Agreement") is entered into by and among MidCity Financial Corporation, a
Delaware corporation ("MidCity"), Damen Financial Corporation, a Delaware
corporation (the "Company"), and MidCity CFD, Inc., a Delaware corporation and
wholly-owned subsidiary of MidCity ("NewCo").
R E C I T A L S:
WHEREAS, the respective Boards of Directors of MidCity, NewCo and the
Company have determined that it is in the best interests of their respective
stockholders to consummate the transactions contemplated hereby in which NewCo
will merge, subject to the terms and conditions set forth herein, with and into
the Company (the "Merger"), so that the Company is the surviving corporation in
the Merger;
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger;
WHEREAS, the Board of Directors of the Company has approved the execution
and delivery of this Agreement so that the restrictions on "business
combinations" set forth in Section 203 of the DGCL (as hereafter defined) do not
and will not apply to MidCity and NewCo or their affiliates or associates as a
result of the consummation of the transactions contemplated by this Agreement;
and
WHEREAS, the respective Boards of Directors of MidCity, NewCo and the
Company, and MidCity, as the sole stockholder of NewCo, have each approved this
Agreement, upon the terms and subject to other conditions set forth herein and
the Board of Directors of the Company has adopted resolutions recommending that
the Company's stockholders approve and adopt this Agreement and the Merger;
NOW, THEREFORE, in consideration of the premises and mutual covenants,
representations, warranties and agreements herein contained, the receipt and
sufficiency of which are hereby acknowledged, MidCity, NewCo and the Company
agree as follows:
ARTICLE 1
MERGER
1.1 Merger. At the Effective Time (defined in Section 1.6 hereof), (i)
NewCo shall merge with and into the Company, (ii) the separate corporate
existence of NewCo shall cease, and (iii) the Company shall survive and continue
to exist as a Delaware corporation (the Company, as the
<PAGE> 9
surviving corporation in the Merger, is sometimes referred to herein as the
"Surviving Corporation"). With the prior written consent of the Company (which
consent shall not be unreasonably withheld), MidCity may at any time change the
method of effecting the combination with the Company (including, without
limitation, the provisions of this Article 1) if and to the extent MidCity deems
such change to be desirable, including, without limitation, providing for a
merger of the Company with another direct or indirect wholly owned subsidiary of
MidCity in which the Company remains as the surviving corporation; provided,
however, that no such change shall (i) alter or change the amount or kind of
consideration to be paid to the Company's stockholders as provided for in this
Agreement, (ii) adversely affect the tax treatment of the Company's stockholders
as a result of receiving the consideration, or (iii) materially impede or delay
consummation of the transactions contemplated by this Agreement.
1.2 Prior Approvals. The parties hereto acknowledge that requisite
approvals must be received from or notices must be given to certain federal and
state governmental bodies and agencies, including, but not limited to, the Board
of Governors of the Federal Reserve System (the "FRB"), the Office of the
Comptroller of the Currency (the "OCC"), the Federal Deposit Insurance
Corporation (the "FDIC"), and any other regulatory authorities having
jurisdiction (collectively, the "Applicable Governmental Authorities").
1.3 Effects of the Merger. The Merger shall have the effects set forth in
the Delaware General Corporation Law (the "DGCL"). Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and NewCo
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and NewCo shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Certificate of Incorporation and By-Laws. (a) The Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be amended and restated in its entirety as of the Effective Time as
set forth in Exhibit C hereto. As so amended and restated, such Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) The By-laws of the Company shall be amended as of the Effective
Time to read in their entirety as the By-laws of NewCo, as in effect immediately
prior to the Effective Time, until thereafter changed or amended as provided by
the Certificate of Incorporation of the Surviving Corporation, the By-laws of
the Surviving Corporation or by applicable law.
1.5 Directors and Officers. The directors and officers of NewCo
immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation from and after the Effective Time,
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of the Certificate of Incorporation and By-laws of the Surviving Corporation and
the DGCL.
2
<PAGE> 10
1.6 Effective Date and Time. As soon as practicable following satisfaction
or waiver of the conditions set forth in Article 6 hereof, the parties shall
file a Certificate of Merger in such form as is required by the DGCL (and
reasonably acceptable to MidCity and NewCo) with the Secretary of State of
Delaware, and the parties shall take such other actions and make all other
filings as may be required by law to effectuate the Merger. The Merger shall
become effective upon the filing with and acceptance by the office of the
Secretary of State of Delaware of a certificate of merger (the "Certificate of
Merger"), or such later date and time as may be set forth in the Certificate of
Merger, in accordance with the DGCL. The date on which the Merger shall become
effective is referred to as the "Effective Date" and the time on the Effective
Date when the Merger shall become effective is referred to as the "Effective
Time."
ARTICLE 2
CONSIDERATION
2.1 Merger Consideration.
(a) Except as provided in Section 2.4, at the Effective Time, (i) each
then-outstanding share of common stock, par value $.01 per share, of NewCo (the
"NewCo Common Stock") that is issued and outstanding immediately prior to the
Effective Time shall be converted into one share of common stock, par value $.01
per share, of the Surviving Corporation (the "Surviving Corporation Common
Stock") and upon surrender of any certificate formerly representing shares of
NewCo Common Stock, the Surviving Corporation shall promptly issue to the owner
thereof a certificate representing the shares of Surviving Corporation Common
Stock into which such shares of NewCo Common Stock have been converted; (ii)
each issued and outstanding share of common stock, par value $.01 per share, of
the Company (the "Company Common Stock"), including shares of the Company Common
Stock held pursuant to the Company's employee stock ownership plan (the "ESOP")
without further action, will cease to be an issued and outstanding share of the
Company, and will be automatically converted into and shall become the right to
receive Eighteen and 35/100 Dollars ($18.35) in cash, without regard to
withholding Taxes (as defined in Section 4.15.2) and without interest, for each
share (the "Per Share Price") of the Company Common Stock (the "Merger
Consideration") and (iii) all outstanding options (including, but not limited
to, those issued under the Company's 1996 Stock Option and Incentive Plan),
restricted shares issued under the Company's 1996 Recognition and Retention Plan
(the "RRP"), and rights under recognition and retention agreements and similar
agreements, together with any related limited rights on shares of the Company
Common Stock (singularly, a "Company Stock Option" and collectively, the
"Company Stock Options"), shall be canceled on and as of the Effective Time
pursuant to Section 2.3 hereof.
(b) At the Effective Time, each share of Company Common Stock held by the
Company (as treasury stock or otherwise) or held by MidCity, NewCo or any
wholly-owned direct or indirect subsidiary of MidCity, NewCo or the Company
immediately prior to the Effective Time shall, by virtue of the Merger and
without any further action on the part of MidCity, NewCo, the Company or the
holder thereof, be canceled, retired and cease to exist, and no consideration
shall be delivered
3
<PAGE> 11
with respect thereto.
2.2 Effect of Conversion of Shares. After the Effective Time and until
surrendered for payment, each outstanding stock certificate which, prior to the
Effective Time, represented shares of the Company Common Stock, shall for all
purposes represent the right to receive an amount of cash equal to the product
of the Price Per Share multiplied by the number of shares represented by such
certificate, provided that, in any matters relating to such certificates,
MidCity may rely conclusively upon the record of stockholders maintained by the
Company containing the names and addresses of the holders of record of the
Company Common Stock at the Effective Time.
2.3 Stock Option Plans. As promptly as practicable following the date
hereof, the Company shall cause each holder of Company Stock Options to enter
into a binding agreement (a "Cancellation Agreement") in form and substance
reasonably acceptable to MidCity and NewCo evidencing the cancellation of all
Company Stock Options held by such holder as of the Effective Time in exchange
for an amount (the "Option Payment") in cash equal to the Per Share Price
multiplied by the number of vested shares of Company Common Stock represented by
the Company Stock Options held by such holder, less the aggregate applicable
exercise price for such Company Stock Options and less applicable withholding
taxes. Each Cancellation Agreement shall further provide that in consideration
of the Option Payment, such holder's rights under any plan or instrument
governing the Company Stock Options (collectively the "Option Plans") to any
unvested shares of Company Common Stock shall lapse and be of no further effect
as of the Effective Time. The surrender of a vested Company Stock Option in
exchange for the Option Payment shall be deemed a release of any and all rights
the holder had or may have had in the Company Stock Option or under the related
Option Plan. The Company shall take all action as is necessary prior to the
Effective Time to terminate all Option Plans so that on and after the Effective
Time, no current or former employee director, consultant or other person shall
have any option to purchase shares of Company Common Stock, or any other equity
interests in the Company or NewCo under any Option Plan.
2.4 Dissenting Shares. A "Dissenting Share" shall mean a share of the
Company Common Stock held by any person who properly exercises appraisal rights,
if any, under the DGCL with respect to such share and does not vote such share
for the Merger or consent thereto in writing. The holder of any Dissenting
Share shall have the rights provided by Section 262 of the DGCL, subject to the
limitations contained in such law. Notwithstanding any other provision of this
Agreement to the contrary, Dissenting Shares outstanding immediately prior to
the Effective Time shall not be converted into the right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses his right to appraisal. If, after the Effective Time, such holder fails
to perfect or withdraws or loses his right to appraisal, such Dissenting Shares
shall be treated as if they had been converted as of the Effective Time into a
right to receive the Per Share Price payable in respect of such Dissenting
Shares pursuant to Section 2.1.
4
<PAGE> 12
2.5 Delivery of Consideration.
(a) The MidCity National Bank of Chicago ("MCNBC"), or another bank or
trust company designated by MidCity and reasonably acceptable to the Company,
shall act as the exchange agent (in such capacity, the "Exchange Agent") for the
benefit of the holders of shares of the Company Common Stock, for the exchange
of a certificate or certificates which, immediately prior to the Effective Time,
represented shares of the Company Common Stock (the "Certificates") that were
converted into the right to receive the Per Share Price pursuant to Section 2.1,
all in accordance with this Article 2. MidCity will deposit with the Exchange
Agent on the Effective Date the Merger Consideration to be paid in respect of
the shares of the Company Common Stock (other than amounts for Dissenting
Shares) pursuant to an Exchange Agent Agreement between MidCity, the Company and
the Exchange Agent in substantially the form of Exhibit D hereto (together with
such reasonable changes thereto as the Exchange Agent may request to facilitate
among other things the rights, duties and liabilities of the Exchange Agent
thereunder, and the method of accepting and paying for shares of Company Common
Stock in connection with the Merger). Any earnings or interest on amounts so
deposited shall be the sole property of MidCity and shall be distributed to
MidCity from time to time upon its request.
(b) As soon as possible after the Effective Time, MidCity will instruct the
Exchange Agent to mail to each holder of record of the Company Common Stock,
addressed to the most current address of such stockholder according to the
records of the Company, a letter of transmittal for use in exchanging such
holder's Certificate(s) for an amount of cash equal to the product of the Per
Share Price multiplied by the number of shares represented by such
Certificate(s). If a holder of Certificates formerly representing shares of
Company Common Stock surrenders such Certificates and a properly executed letter
of transmittal to the Exchange Agent, then promptly, and in no event later than
five (5) business days after receipt of such Certificates and letter of
transmittal (or the Effective Date, if later), the Exchange Agent shall pay to
such stockholder the consideration to which such stockholder is entitled
pursuant to Section 2.1 hereof with respect to such shares of the Company Common
Stock, less all applicable withholding Taxes (as defined in Section 4.15.2).
Until so surrendered, each such outstanding Certificate formerly representing
shares of the Company Common Stock other than Dissenting Shares shall be deemed
for all purposes to evidence solely the right to receive the Merger
Consideration to which such stockholder is entitled pursuant to Section 2.1
hereof. If any holder of the Company Common Stock is unable to locate any
Certificate evidencing the Company Common Stock such stockholder shall submit to
the Exchange Agent an affidavit of lost Certificate and indemnification
agreement in form acceptable to the Company and MidCity and, if required by
MidCity, a surety bond in an amount equal to the amount to be delivered to such
stockholder, in lieu of such Certificate.
2.6 Transfer. If delivery of all or part of the Merger Consideration is to
be made to a person other than the person in whose name a surrendered
Certificate is registered, it shall be a condition to such delivery or the
exchange of such Certificate that such surrendered Certificate be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such delivery or exchange shall have paid any transfer and other
taxes required by reason of such
5
<PAGE> 13
delivery or exchange in a name other than that of the registered holder of the
Certificate surrendered or shall have established to the reasonable satisfaction
of MidCity that such tax either has been paid or is not payable and shall
provide such endorsements, stock powers or other documents as the Surviving
Corporation or MidCity shall reasonably request.
2.7 Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed, and no transfers of shares
of the Company Common Stock that were outstanding immediately prior to the
Effective Time shall thereafter be made.
2.8 Escheat. Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to a former holder of the Company Common Stock
for any cash delivered to a public official pursuant to applicable escheat or
abandoned property laws.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF MIDCITY
MidCity represents and warrants for itself and NewCo as follows:
3.1 Organization and Good Standing. Each of NewCo and MidCity is a
corporation duly incorporated, validly existing, and in good standing under the
laws of the jurisdiction of its organization. MidCity is a bank holding company
under the Bank Holding Company Act of 1956, as amended. Each of NewCo and
MidCity has full 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.
3.2 Authority; Binding Effect.
3.2.1 MidCity has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby in
accordance with the terms hereof. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors of MidCity. No other
corporate proceedings on the part of MidCity are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by MidCity and NewCo and constitutes a valid and binding
obligation of MidCity and NewCo, enforceable against MidCity and NewCo in
accordance with its terms, subject to the exceptions that such enforceability
may be limited by (i) bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance laws and similar laws affecting creditors' rights
generally, (ii) general principles of equity, regardless of whether asserted in
a proceeding in equity or law, and (iii) approvals of the Applicable
Governmental Authorities.
3.2.2 NewCo has full corporate power and authority to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
consummation of the transactions contemplated hereby have been duly and validly
approved by the Board of Directors and
6
<PAGE> 14
stockholders of NewCo. No other corporate proceedings on the part of NewCo are
necessary to consummate the transactions contemplated hereby.
3.3 No Conflicts. Neither the execution and delivery of this Agreement by
MidCity or NewCo, the consummation by NewCo or MidCity of the transactions
contemplated hereby in accordance with the terms hereof, nor compliance by NewCo
or MidCity with any of the terms or provisions hereof, do or will, after the
giving of notice, the lapse of time or otherwise, (i) conflict with, or result
in a breach of, or constitute a default under, the charter or the by-laws of
NewCo or MidCity, as the case may be, (ii) assuming the consents, approvals,
filings, registrations and notices referred to in Section 1.2 hereof are duly
obtained or made, violate or conflict with any Federal, state or local law,
statute, ordinance, rule, regulation, or court or administrative order or
process or (iii) violate, conflict with, result in a breach of any provisions
of, constitute a default under, result in the termination of or accelerate the
performance required by, any material note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument, commitment or obligation
to which NewCo or MidCity, as the case may be, is a party or by which NewCo or
MidCity, as the case may be, or any of its rights, properties or assets are
subject or bound.
3.4 Consents and Approvals. Except for (i) consents and approvals of,
filings or registrations with or notices to Applicable Governmental Authorities,
(ii) filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended,
(the "Exchange Act"), state securities or "blue sky" laws and the filing of a
Certificate of Merger as required by the DGCL and (iii) the absence of any
notice or response from the United States Department of Justice challenging or
prohibiting the consummation of the transactions contemplated by this Agreement,
no material consents or approvals of, filings or registrations with or notices
to any third party or any public body or authority are necessary on behalf of
MidCity or on behalf of NewCo in connection with the execution and delivery of
this Agreement or the consummation by MidCity and NewCo of the transactions
contemplated by this Agreement. MidCity is not aware of any fact or condition
pertaining to MidCity or NewCo that would prevent receipt of any such consents
or approvals of Applicable Governmental Authorities.
3.5 Proxy Materials. The information regarding MidCity, NewCo and MCNBC to
be furnished by MidCity and to be contained in the Proxy Materials (as defined
in Section 5.11) shall be true in all material respects and shall not, as of the
date of mailing of the Proxy Materials (as defined in Section 5.11), contain any
false or misleading statements of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading.
7
<PAGE> 15
3.6 Broker's and Finder's Fee. MidCity has not incurred any obligation or
liability, contingent or otherwise, for any brokers or finders in respect of the
matters provided for in this Agreement and MidCity agrees to indemnify and hold
the Company harmless with respect to any broker's or finder's fees which any
person may claim or assert arising from any express or implied agreement or
engagement of MidCity.
3.7 No Litigation. On the date hereof, there is no litigation at law or in
equity, no arbitration proceeding and no proceeding or investigation before or
by any commission, agency or other administrative or regulatory body or
authority, pending or, to the actual knowledge of MidCity, threatened, against
MidCity or NewCo which is reasonably likely to have a Material Adverse Effect on
MidCity's ability to consummate the transactions contemplated by this Agreement.
3.8 No Other Representations or Warranties. No representations or
warranties are made by or on behalf of MidCity or NewCo in connection with the
transactions contemplated by this Agreement other than those expressly set forth
in this Agreement. Without limiting the generality of the foregoing, no
representations or warranties are being made with respect to financial
projections or the future financial performance of MidCity or NewCo or their
businesses.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company has delivered to MidCity on the date hereof a disclosure
schedule (the "Company Disclosure") setting forth the items of disclosure
required by this Agreement. The Company Disclosure, attached hereto as
Schedules 4.1.4 to 5.2.18, is incorporated herein and made a part of this
Agreement and the representations and warranties set forth in this Article 4 are
subject to the Company Disclosure. The Company represents and warrants as
follows:
4.1 Organization and Good Standing; Books and Records.
4.1.1 The Company is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware. The Company is a
bank holding company under the Bank Holding Company Act of 1956, as amended.
Damen National Bank ("Subsidiary Bank") is a national banking association duly
organized, validly existing, and in good standing under the laws of the United
States of America. The Company has full 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 its jurisdiction of incorporation, in Illinois and in each other
jurisdiction in which the nature of the business conducted by it or the
character or location of the employees or properties and assets owned or leased
by it makes such licensing or qualification necessary, except where such failure
will not have a Material Adverse Effect (as defined below).
4.1.2 The Company owns 100% of the outstanding capital stock of
Subsidiary Bank
8
<PAGE> 16
and Subsidiary Bank owns 100% of the outstanding capital stock of Dasch, Inc.
Each of the Company's subsidiaries (each a "Subsidiary" and, collectively,
"Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization, and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, each of the Subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed and in good standing would not have,
individually or in the aggregate, a Material Adverse Effect. For purposes of
this Agreement, the term "Material Adverse Effect" means, with respect to either
MidCity or the Company, any condition, event, change or occurrence that has or
may reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), properties, assets, liabilities, business, prospects,
operations or results of operations of such entity on a consolidated basis or on
its ability to consummate the transactions contemplated hereby.
4.1.3 All eligible deposit accounts issued by Subsidiary Bank are
insured by the FDIC through the Savings Association Insurance Fund to the
fullest extent permitted by law.
4.1.4 Schedule 4.1.4 of the Company Disclosure sets forth a true and
correct description of each Subsidiary and its jurisdiction of organization.
Except as set forth on Schedule 4.1.4 of the Company Disclosure, neither the
Company nor any of its Subsidiaries possesses, directly or indirectly, any
equity interest in or controls, directly or indirectly, any other corporation,
company, joint venture, partnership or other entity.
4.1.5 No action has been taken, and neither the Company nor any of its
Subsidiaries is aware of any proposed or threatened action by any Applicable
Governmental Authority, to restrict the operations of the Company or any of its
Subsidiaries in any way, to issue a capital or other directive to the Company or
any of its Subsidiaries, to subject the Company or any of its Subsidiaries to a
supervisory, management, operating or other written agreement, arrangement or
understanding or a cease-and-desist order, or to appoint a manager, conservator
or receiver for the Company or any of its Subsidiaries.
4.1.6 The Company has heretofore delivered to MidCity true and
complete copies of the charter and by-laws of the Company and its Subsidiaries
as in effect on the date hereof. The minute books of the Company and its
Subsidiaries constitute complete and correct records of all corporate actions
taken by the Board of Directors (and each committee thereof) and the
stockholders of the Company and its Subsidiaries. The stock certificate books
and the stock record books of the Company and its Subsidiaries are complete and
correct in all material respects.
4.2 Capitalization.
4.2.1 As of the date hereof, the authorized capital stock of the
Company consists of
9
<PAGE> 17
4,500,000 shares of the Company Common Stock, par value $.01 per share, and
100,000 shares of preferred stock, $.01 par value per share (the "Company
Preferred Stock"). As of the date hereof, (i) (a) 3,981,434 shares of Company
Common Stock are duly authorized and validly issued and 2,820,154 are
outstanding, (b) 1,161,280 shares of Company Common Stock are held in treasury,
(c) 396,750 shares of Company Common Stock are reserved for issuance upon
exercise of outstanding Company Stock Options (other than the RRP), (d) 314,902
shares of Company Common Stock are held of record by the ESOP and 233,920 shares
held by the ESOP have not been allocated to the accounts of the ESOP
participants and (e) 96,015 shares of Company Common Stock are not vested and
are reserved for issuance under the RRP, and (ii) no shares of Company Preferred
Stock are outstanding. All of the shares of Company Common Stock issued and
outstanding or held in treasury are fully paid and non-assessable and are not
subject to any preemptive rights of any stockholder. Schedule 4.2.1 of the
Company Disclosure sets forth a list of each Company Stock Option outstanding on
the date of this Agreement, whether or not fully exercisable, to purchase
Company Common Stock, under the Option Plan, which constitute all options
heretofore granted or assumed by Company. Schedule 4.2.1 of the Company
Disclosure also sets forth with respect to each such Company Stock Option, the
Company Stock Option exercise price, the number of shares subject to Company
Stock Option, any related stock appreciation rights, the dates of grant,
vesting, exercisability and expiration of such Company Stock Option and whether
such Company Stock Option is an incentive stock option or a non-qualified stock
option. Except as set forth on Schedule 4.2.1 of the Company Disclosure, there
are neither outstanding warrants, conversion rights, options, subscriptions,
contracts, rights or other arrangements or commitments obligating the Company to
issue, transfer or sell any shares of the Company's capital stock, nor
outstanding securities, debts, obligations or rights which are convertible into
shares of the Company's capital stock. Except as set forth on Schedule 4.2.1 of
the Company Disclosure, there are no voting trusts or other agreements or
understandings to which the Company is a party with respect to the voting of the
capital stock of the Company. Since April 1997, the Company has not granted or
awarded, as the case may be, any Company Stock Options other than granting of
7,935 shares of Company Common Stock under the RRP to Albert C. Baldermann.
4.2.2 The authorized, issued and outstanding capital stock of
Subsidiary Bank and the Company's other Subsidiaries is disclosed on Schedule
4.2.2 of the Company Disclosure. All of the capital stock of Subsidiary Bank is
owned directly by the Company and all the capital stock of the Company's other
Subsidiaries is owned by Subsidiary Bank, in each case free and clear of all
liens, claims, security interests, charges or other encumbrances. All of the
issued and outstanding capital stock of Subsidiary Bank and the Company's other
Subsidiaries has been duly authorized and validly issued, is fully paid and
nonassessable and is not subject to any preemptive rights. Except as set forth
on Schedule 4.2.2 of the Company Disclosure, there are neither outstanding
warrants, conversion rights, options, subscriptions, contracts, rights or other
arrangements or commitments obligating Subsidiary Bank or the Company's other
Subsidiaries to issue, transfer or sell any shares of its capital stock, nor
outstanding securities, debts, obligations or rights which are convertible into
shares of such capital stock.
4.3 Authority; Binding Effect.
10
<PAGE> 18
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and, subject to the approval of this Agreement and the
transactions contemplated hereby by the stockholders of the Company, to
consummate the transactions contemplated hereby in accordance with the terms
hereof. The execution, delivery and performance of this Agreement has been duly
and validly approved by the Board of Directors of the Company and, except for
the stockholder approval referenced in Section 5.10 hereof, no other corporate
proceedings on the part of the Company are necessary to consummate the
transactions contemplated by this Agreement. Subject to approval by the
stockholders of the Company of the Merger, this Agreement has been duly and
validly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as limited by (i) bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance laws and similar laws affecting creditors'
rights generally, (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or law, and (iii) approvals of the Applicable
Governmental Authorities.
(b) The Board of Directors of the Company has duly and validly approved,
and taken all corporate actions required to be taken by the Board of Directors
of the Company for the consummation of, the transactions contemplated by this
Agreement, including the Merger, and unanimously resolved that this Agreement is
advisable and to recommend that the stockholders of the Company approve and
adopt this Agreement. The Board of Directors of the Company, at a meeting duly
called and held, has taken all actions necessary under the DGCL, including
approving the transactions contemplated by this Agreement, to ensure that the
restrictions on "business combinations" set forth in Section 203 of the DGCL do
not, and will not, apply to the transactions contemplated by this Agreement,
including, without limitation, the Merger.
(c) In furtherance of the representation given in clause (b) above, the
Board of Directors of the Company (at a meeting duly called and held) has by the
unanimous vote of all directors present (i) determined that the Merger is
advisable and in the best interests of the Company and its stockholders, (ii)
approved this Agreement and the transactions contemplated hereby, including the
Merger, and (iii) directed that the Agreement be submitted for consideration by
the Company's stockholders with their unanimous recommendation that such Merger
be approved.
4.4 No Conflicts. Neither the execution and delivery of this Agreement by
the Company, the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof, nor compliance by the Company or any
of its Subsidiaries with any of the terms or provisions hereof, do or will,
after the giving of notice, the lapse of time or otherwise (i) conflict with,
result in a breach of, or constitute a default under, the charter or by-laws of
the Company or its Subsidiaries, (ii) assuming the consents, approvals, filings,
registrations and notices referred to in Section 1.2 hereof are duly obtained or
made, violate or conflict with any Federal, state or local law, statute,
ordinance, rule, regulation, or court or administrative order or process, (iii)
violate, conflict with, result in a breach of any provisions of, constitute a
default under, result in the termination of or accelerate the performance
required by, any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument, commitment or obligation to
11
<PAGE> 19
which the Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries or any of their rights, properties or assets are subject or bound,
or (iv) result in the creation of, or give any party the right to create, any
lien, charge, encumbrance, security interest or any other rights or other
adverse interest upon any right, property or asset of the Company or its
Subsidiaries.
4.5 Consents and Approvals. (i) Except for consents and approvals of,
filings or registrations with or notices to the Applicable Governmental
Authorities, (ii) except for filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Securities Act, the Exchange Act, state securities or "blue sky" laws and the
filing of a Certificate of Merger as required by the DGCL, and (iii) except as
set forth on Schedule 4.5 of the Company Disclosure, no consents or approvals
of, or 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 in connection with the execution and delivery of this
Agreement or for the consummation by the Company of the transactions
contemplated by this Agreement. The Company is not aware of any fact or
condition pertaining to the Company or any of its Subsidiaries that would
prevent receipt of any such consent or approval of a third party, governmental
body or authority.
4.6 Compliance with Laws; Governmental Regulation.
4.6.1 The Company and its Subsidiaries hold all licenses, certificates,
permits, franchises, authorizations, and rights (collectively, the "Permits")
from all appropriate Federal, state, or other public authorities necessary for
the lawful conduct in all material respects of their businesses and ownership of
their properties including all Permits required under applicable Environmental
Laws (as defined in Section 4.21 hereof). The Company and its Subsidiaries have
complied, and are currently in compliance, in all material respects, with all
Federal, state and local statutes, regulations, ordinances or rules applicable
to the ownership of their properties or the conduct of their businesses,
including, but not limited to, all applicable Federal and state banking laws,
Federal and state securities laws, and laws and regulations concerning
truth-in-lending, usury, fair credit reporting, consumer protection,
occupational safety, fair employment practices and fair labor standards. Except
as set forth on Schedule 4.6.1 or as previously disclosed in writing to MidCity,
none of the Company or its Subsidiaries has, during the last three years,
received any notice of such violation, and does not know of any reason for the
assertion of a violation, of any of the above.
4.6.2 Neither (i) the Company or its Subsidiaries has received within
the preceding 24 months a rating, pursuant to the requirements of the Federal
Community Reinvestment Act of 1977, as amended (12 U.S.C. Section Section
2901-2907), of either "needs to improve" or "substantial noncompliance" pursuant
to 12 U.S.C. Section Section 22906 (b)(2)(C) and (D), or been advised that a
rating is forthcoming indicating that the Company or any of its Subsidiaries
does not have an acceptable record of meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent with the
safe and sound operation of such institution, nor (ii) has an application
submitted by the Company or its Subsidiaries to the appropriate federal
regulatory agency, which application involves an assessment of the performance
of the Company or its
12
<PAGE> 20
Subsidiaries in meeting the credit needs of its community or communities, not
been approved or has been delayed because of an unacceptable record in meeting
such credit needs.
4.6.3 Neither the Company nor its Subsidiaries is a party to any
written order, agreement or memorandum of understanding with any Federal, state
or other public authorities charged with the supervision or regulation of
financial institutions, savings and loans or engaged in the insurance of
deposits which restricts the conduct of its business, or in any manner relates
to its capital adequacy, credit policies or its management.
4.6.4 No Subsidiary of the Company has been advised by any federal
regulatory agency that it is or may be in violation of the Equal Credit
Opportunity Act or Fair Housing Act.
4.7 SEC Reports and Financial Statements. The Company has delivered to
MidCity consolidated audited financial statements of the Company and its
Subsidiaries, which includes the audited statements of financial condition,
statements of earnings, changes in stockholders' equity, and cash flows, all of
a consolidated basis for the years ended September 30, 1995, 1996, 1997, and
1998 (the "Company Financial Statements"). All such financial statements have
been audited by Cobitz, VandenBerg & Fennessy, independent certified public
accountants, whose report thereon is included with such Financial Statements.
The Company has delivered to MidCity the consolidated statements of financial
condition and statements of earnings of the Company and its Subsidiaries, as at,
and for the quarter ended, December 31, 1998 (the "Company Interim Financial
Statements"). All such financial statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
(except for changes, if any, required by generally accepted accounting
principles or regulatory instructions or interpretations and disclosed therein)
for the periods covered and the financial statements present fairly the
financial condition and results of operations of the Company and its
Subsidiaries for the periods covered as of their respective dates, except that
the Company Interim Financial Statements are subject to normal year-end
adjustments. As of the date hereof, there has been no material adverse change
in the Company's or Subsidiary Bank's tangible, core or risk-based capital
levels from the levels stated in the Company Interim Financial Statements.
4.8 Absence of Certain Changes or Events. Since September 30, 1998 to the
date hereof, the business and affairs of the Company and its Subsidiaries have
been conducted and carried on only in the ordinary and regular course, except
for responding to the proxy contest related to the Company's annual election of
directors launched by Paul J. Duggan and his affiliates. Except as disclosed in
the Company Interim Financial Statements or the Company Disclosure, there has
not been:
4.8.1 any material adverse change in the financial condition,
properties, assets, liabilities, rights, business or prospects of the Company
and its Subsidiaries or in the relationships of the Company or its Subsidiaries
with respect to employees, creditors, suppliers, distributors, licensees,
customers or others with whom it has business relationships and no fact or
condition exists which is likely to have a Material Adverse Effect on the
Company or its Subsidiaries;
13
<PAGE> 21
4.8.2 any declaration, setting aside or payment of any dividend or
other distribution with respect to the Company Common Stock (other than the
quarterly dividends of $.12 per share declared on October 20, 1998 (and paid on
November 16, 1998) and January 19, 1999 (and paid on February 16, 1999) for the
quarters ended September 30, 1998 and December 31, 1998, respectively) or any
repurchase, redemption or other acquisition thereof or any agreement to do so,
except for the repurchase by the Company of 137,000 shares of common stock for
an average cost of $14.43 per share;
4.8.3 any amendment or any termination of any material contract to
which the Company or its Subsidiaries is a party;
4.8.4 any purchase or other acquisition or sale, mortgage, pledge or
other disposition of any of the Company's or any of its Subsidiaries' properties
or assets, except for the purchase or other acquisition or sale or other
disposition of property in the ordinary and regular course of business;
4.8.5 any change, amendment or other modification made in the charter
or by-laws of the Company or its Subsidiaries; 4.8.6 any changes made in the
accounting methods or practices of the Company or its Subsidiaries;
4.8.7 any (i) grant by the Company or its Subsidiaries to any officer
of the Company or its Subsidiaries of any increase in compensation, except as
was required under employment agreements in effect as of September 30, 1998 or
as were made in the ordinary course of business consistent with past practice or
(ii) any grant by the Company or its Subsidiaries to any such officer of any
increase in severance or termination pay, except as part of a standard
employment package to any person promoted or hired, or as was required under
employment, severance or termination agreements in effect as of September 30,
1998; or
4.8.8 any agreement to take any of the actions specified in the
preceding subsections 4.8.2 through 4.8.7.
4.9 Loan Portfolio; Reports. As of the date hereof, except as set forth on
Schedule 4.9 of the Company Disclosure, all evidences of indebtedness reflected
as assets on the September 30, 1998 Company Financial Statements are in all
material respects binding obligations of the respective obligors named therein
and no material amount thereof is subject to any defenses which may be asserted
against the Company or its Subsidiaries.
4.10 Regulatory Examinations. The last three (3) examinations of the
Company and its Subsidiaries by any Applicable Governmental Authorities prior to
the date of this Agreement were performed as of the dates described on Schedule
4.10 of the Company Disclosure. If the Company or any of its Subsidiaries was
notified of any deficiencies as a result of said examinations or any
14
<PAGE> 22
prior examinations by any Applicable Governmental Authority, it has taken action
to correct such deficiency, which action to their knowledge is to the
satisfaction of such Applicable Governmental Authority, and they have not
received notice of any kind that such action is inadequate, and if any changes
in operating methods or organization were required by reason of such
examinations, or such other examinations, such changes have been made.
4.11 Properties and Assets.
4.11.1 Schedule 4.11.1 of the Company Disclosure sets forth a list of
all real property owned or leased by the Company and its Subsidiaries.
4.11.2 The Company and its Subsidiaries have good (and as to owned
real property, marketable) title to all assets and properties, whether real or
personal, tangible or intangible, including, without limitation, all material
assets and properties reflected as owned in the Company Interim Financial
Statements or owned and acquired subsequent thereto (except to the extent that
such assets and properties have been disposed of for fair value in the ordinary
course of business since such financial statements), free and clear of all
encumbrances, liens, claims, charges, mortgages, security interests or pledges,
except (i) those items that secure liabilities that are reflected in such
financial statements or incurred in the ordinary course of business after the
date of such financial statements, (ii) statutory liens for amounts not yet
delinquent or which are being contested in good faith, and (iii) such
encumbrances, liens, mortgages, security interests, pledges and title
imperfections that are not material to the value of the assets and properties of
the Company or its Subsidiaries, and which do not materially interfere with or
impair the present, intended and continued use of any such property or asset. As
of the date hereof, Schedule 4.11.2 of the Company Disclosure identifies each
parcel of real estate including the legal description thereof that is owned or
has been acquired by the Company or its Subsidiaries in a foreclosure or similar
action and is currently being held by the Company or its Subsidiaries for
disposition as required by law and the date that each such parcel of real estate
was acquired by the Company or its Subsidiaries. To the best of the Company's
knowledge, as of the date hereof, except as identified on Schedule 4.11.2 of the
Company Disclosure, all properties of the Company and its Subsidiaries are in
good operating condition and repair (normal wear and tear excepted) and, at the
time of origination of the loan that related to each property acquired through
foreclosure, such property conformed in all material respects with all
applicable ordinances, regulations and zoning laws.
4.11.3 The Company has provided for inspection by MidCity true and
correct copies of surveys and the lender's title insurance policies and title
opinions issued in connection with each parcel of real property owned by the
Company or its Subsidiaries. The Company represents and warrants that nothing
has been done to impair the state of title to any of the parcels of owned real
property. All "alterations" (as such term is defined in the Americans With
Disabilities Act and the regulations issued thereunder (collectively, "ADA")) to
the Company's facilities including, without limitation, automatic teller
machines (collectively, the "Facilities") undertaken after January 26, 1992
comply in all material respects with ADA and the ATBCB Accessibility Guidelines
for Buildings and Facilities ("ADAAG"). Effective as of January 26, 1992, all
plans and designs for
15
<PAGE> 23
new construction to be utilized by the Company and its Subsidiaries complied and
continue to comply with ADA and ADAAG in all material respects. The Company
warrants that after due inquiry, there are no material investigations,
proceedings, or complaints, formal or informal, pending or overtly threatened
against the Company or its Subsidiaries in connection with the Facilities under
ADA, ADAAG, or any local, state or federal law concerning accessibility for
individuals with disabilities.
4.12 No Liabilities. Neither the Company nor any of its Subsidiaries has
any liability (whether known or unknown, due or to become due, actual,
contingent, accrued or otherwise) which would be required in accordance with
generally accepted accounting principles, consistently applied, to be set forth
in a balance sheet or in the footnotes thereto of either the Company or any of
its Subsidiaries on a stand-alone basis, except liabilities incurred since
October 1, 1998 in the ordinary course of business and in accordance with past
practices.
4.13 Legal Proceedings. Except as set forth on Schedule 4.13 of the
Company Disclosure, there is no litigation at law or in equity, no arbitration
proceeding and no proceeding or investigation before or by any commission,
agency or other administrative or regulatory body or authority, pending or, to
the Company's Knowledge, threatened, against or affecting the properties,
assets, rights or business of the Company or any of its Subsidiaries challenging
the validity or propriety of any of the transactions contemplated by this
Agreement. The Company knows of no basis for any such litigation, proceeding or
investigation. Neither the Company nor any of its Subsidiaries is, or has been
within the last 24 months, a party to, or bound by, any existing or proposed
order, judgment, decree, writ, injunction or arbitration award which Materially
Adversely Effects, or reasonably might be expected to affect in any material
respect, the business, financial condition, results of operation, properties,
assets, liabilities or prospects of or their ability to conduct their business
as it is currently being conducted or their ability to acquire property or
conduct business in any area in which they currently do business.
4.14 Certain Contracts.
4.14.1 Except as disclosed on Schedule 4.14.1 of the Company
Disclosure and except for any other agreements entered into without violating
the provisions of Section 5.2, neither the Company nor any of its Subsidiaries
is a party to or bound by (i) any agreement, contract, or indenture relating to
the borrowing of money by the Company or any of its Subsidiaries, excluding
borrowings made in the normal course of business in a manner and amount
consistent with past practices; (ii) any lease or license with respect to any
real property where the Company or any of its Subsidiaries is the lessor; (iii)
any agreement that is not terminable on less than 30 days written notice by the
Company or any of its Subsidiaries, as the case may be, but excluding deposit
account contracts; (iv) any contract, commitment, agreement or other instrument
or arrangement made in the ordinary course of business which involves annual
payments of more than $5,000 or aggregate future payment of more than $20,000,
but excluding deposit account contracts; (v) any contract, commitment, agreement
or other instrument or arrangement which is material to the business, financial
condition, results of operations, properties, assets, liabilities or prospects
of the Company
16
<PAGE> 24
or any of its Subsidiaries and which was entered into other than in the ordinary
course of business; (vi) any contract, commitment, agreement or other instrument
or arrangement which limits the freedom of the Company or any of its
Subsidiaries to compete in any line of business or with any persons; or (vii)
any collective bargaining agreement.
4.14.2 Each of the contracts, commitments, agreements or other
instruments or arrangements described on Schedule 4.14.1 of the Company
Disclosure pursuant to this Section 4.14 hereof is valid, binding and
enforceable against the Company or any of its Subsidiaries, as the case may be,
and no breach, default or condition (which condition, with notice or the passage
of time or both, could become a breach or default) by the Company or any of its
Subsidiaries, or, to the Company's Knowledge, any third party, exists with
respect to any such contract, commitment, agreement or other instrument or
arrangement, except for any such breach, default or condition that would not
have a Material Adverse Effect on the Company. For purposes of this Agreement,
the term "Company's Knowledge" means the knowledge, after due inquiry, of any
director or executive officer of the Company or any of its Subsidiaries.
4.15 Taxes and Tax Returns.
4.15.1 The Company has made available to MidCity true and correct
copies of the federal income tax and information returns, state income,
franchise or bank returns, state sales tax returns and any other material
federal, state, local or foreign tax returns filed by the Company and its
Subsidiaries for each of the fiscal years ended September 30, 1995, 1996, 1997
and 1998. The Company and any of its Subsidiaries have duly and timely filed
(and until the Effective Date will so file) all returns, declarations, reports,
information returns, statements and other material (the "Returns") required to
be filed or sent by or with respect to any of them in respect of any Taxes (as
hereinafter defined), and have duly paid (and until the Effective Date will so
pay) all Taxes due and payable in respect of the periods covered by such Returns
other than Taxes or other charges which are being contested in good faith (and
which are disclosed on Schedule 4.15.1 of the Company Disclosure). All Returns
of the Company and its Subsidiaries that are open to potential audit or
examination by a taxing authority are true and correct in all material respects.
The Company and its Subsidiaries have established (and until the last day of the
calendar month preceding the Effective Date will establish) on their books and
records reserves that are adequate for the payment of all accrued Taxes not yet
due and payable, whether or not disputed, with respect to the periods covered
thereby. The Company and its Subsidiaries have withheld and paid all Taxes
required to be withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party. There are
neither audits or other administrative or court proceedings currently pending,
any other disputes pending, or claims asserted for, Taxes or assessments upon
the Company or any of its Subsidiaries, nor any currently outstanding waivers or
comparable consents given by the Company or any of its Subsidiaries regarding
the application of the statute of limitations with respect to any Taxes or
Returns. There are no liens with respect to Taxes (except for liens with
respect to real property taxes not yet due) upon any of the properties or assets
of the Company or any of its Subsidiaries. No claim is currently pending or has
been made in the last three (3) years by any authority or in any jurisdiction
where the Company or any of its Subsidiaries does
17
<PAGE> 25
not file Returns that it is or may be subject to taxation by that jurisdiction.
4.15.2 For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment (including
withholding, payroll and employment taxes required to be withheld with respect
to income paid to employees), excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any foreign or domestic Federal, state or local
taxing authority upon the Company or its Subsidiaries.
4.15.3 The Company and its Subsidiaries have complied in all material
respects with all applicable laws, statutes, rules and regulations regarding
taxpayer identification number verification and related backup withholding, if
applicable.
4.16 Insurance. The Company and its Subsidiaries are, and continuously
since at least September 30, 1995 have been, insured against all risks and in
such amounts normally insured against by companies of the same type and in the
same line of business. All of the insurance policies or bonds maintained by the
Company and its Subsidiaries as of the date of this Agreement are listed on
Schedule 4.16 of the Company Disclosure with the policy number, type and amount
of coverage, term, expiration date and premium and are in full force and effect.
Neither the Company nor its Subsidiaries (i) is in default thereunder in any
respect or (ii) has received any notice of cancellation or intended cancellation
of any such insurance policy or bond. All material claims thereunder have been
filed in a timely fashion.
4.17 Fiduciary Responsibilities. Each of the Company and its Subsidiaries
has performed all of its duties as trustee, executor, administrator, registrar,
guardian, custodian, escrow agent, receiver or other fiduciary in a manner which
complies in all material respects with all applicable laws, regulations, orders,
agreements, instruments and common law standards.
4.18 Employees and Employee Benefit Plans.
4.18.1 The Company and its Subsidiaries (i) are in compliance with
all applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours (including, but not limited to, the Workers Adjustment Retraining
Notification Act) in each case, with respect to employees and former employees
of the Company and its Subsidiaries, (ii) have withheld from the wages, salaries
and other payments to the employees, former employees, directors and former
directors of the Company and its Subsidiaries, and have filed all federal,
foreign, state and local returns and reports with respect to employee income tax
withholding and social security and unemployment taxes, in compliance with the
tax withholding provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and all applicable federal, state and local laws, rules and regulations
and (iii) are not liable for any arrears of wages or any taxes or any penalty
for failure to comply with any of the foregoing or
18
<PAGE> 26
unemployment compensation benefits, social security or other benefits for
employees or former employees of the Company and its Subsidiaries.
4.18.2 Schedule 4.18.2 of the Company Disclosure contains a true and
complete list of each compensation, consulting, employment, termination or
collective bargaining agreement, each stock option, stock purchase, stock
appreciation right, recognition and retention agreement, life, health, accident
or other insurance, bonus, deferred or incentive compensation, severance or
separation agreement, or any agreement providing any payment or benefit
resulting from a change in control, profit sharing, retirement, or other
employee benefit plan, practice, policy or arrangement of any kind, oral or
written, covering employees, former employees, directors or former directors of
the Company or any ERISA Affiliate (as defined in Section 4.18.4) or their
respective beneficiaries, including, but not limited to, any employee benefit
plans within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") which the Company or any ERISA
Affiliate maintains, to which the Company or any ERISA Affiliate contributes or
is obligated to contribute, or under which any employee, former employee,
director or former director of the Company or any ERISA Affiliate is covered or
has benefit rights and pursuant to which any liability of the Company or any
ERISA Affiliate exists or is reasonably likely to occur (the "Plans"). The term
"Plan" or "Plans" is used in this Agreement for convenience only and does not
constitute an acknowledgment that a particular arrangement is an employee
benefit plan within the meaning of Section 3(3) of ERISA.
4.18.3 (i) Each Plan is in compliance in all material respects with
applicable law and has been administered and operated in all material respects
in accordance with its terms; (ii) each Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and, to the Company's
Knowledge, no event has occurred and no condition exists which could reasonably
be expected to adversely affect the qualified status of any such Plan; (iii) no
Plan is subject to Title IV of ERISA, or to Section 412 of the Code; (iv)
neither the Company nor its Subsidiaries nor any Plan fiduciary has engaged in
any "prohibited transactions" as defined in Code Section 4975(c) or described in
ERISA Section 406, or in any breach of fiduciary duty under ERISA; (v) no
material liability, claim, action or litigation has been made, commenced or, to
the Company's Knowledge, threatened with respect to any Plan involving any
employees of the Company or any of its Subsidiaries (other than for benefits
payable in the ordinary course); (vi) no Plan is a multiemployer plan, and
neither the Company nor any ERISA Affiliate has ever been required to contribute
to any multiemployer plan as defined in Section 3(37) of ERISA; (vii) neither
the Company nor any of its Subsidiaries has been advised by any multiemployer
plan that it has any withdrawal liability under Section 4201 or 4204 of ERISA
with respect to any multiemployer plan, nor is the Company or any of its
Subsidiaries aware of any such withdrawal liability nor has the Company or any
of its Subsidiaries engaged in a transaction that could subject any of them to
liability under Title IV of ERISA; (viii) except to the extent described in
Schedule 4.18.3 of the Company Disclosure, there is no contingent liability with
respect to any post-retirement benefit under any employee welfare benefit plan,
other than health plan continuation coverage described in Part 6 of Title I of
ERISA; (ix) except to the extent described in Schedule 4.18.3 of the Company
Disclosure, neither the Company nor any ERISA
19
<PAGE> 27
Affiliate has any liability for excise taxes under Code Section 4999, and the
transactions contemplated by this Agreement will not directly or indirectly
trigger the payment of any "excess parachute payments" as defined in Code
Section 280G; (x) no compensation arrangement or Plan of the Company or any
ERISA Affiliate has given rise to or will give rise to any liability under Code
Section 162(m); and (xi) all contributions required to be made to any Plan have
been timely made or properly accrued for on the financial statements of the
Company and its ERISA Affiliates.
4.18.4 For purposes of this Agreement, "ERISA Affiliate" shall mean
any corporation, person or trade or business which is a member of a controlled
group, a group of trades or businesses under common control with the Company, or
an affiliated service group within the meaning of Section 414 of the Code, and,
if applicable, Sections 4001(a)(14) and (b) of ERISA.
4.18.5 Except as set forth on Schedule 4.18.5 of the Company
Disclosure, neither the execution of nor the consummation of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of any
additional acts or events) (i) entitle any current or former employee, director
or independent contractor of the Company or any of its Subsidiaries (or any of
their dependents or beneficiaries) to severance pay, unemployment compensation
or any other payment, benefit or award, or (ii) accelerate the time of payment
or vesting, or increase the amount of any benefit, award or compensation due any
such person.
4.18.6 As to each Plan, the Company has provided MidCity with a copy
(i) of the Plan and any related funding instrument, with all amendments; (ii)
the summary plan description or other general description for participants and
each summary of material modification; (iii) each filing made with the
Securities and Exchange Commission ("SEC"); (iv) the three most recent annual
reports (Form 5500 Series) and/or other financial statements for the three most
recent years; (v) any communication from a government entity relating to any
item under investigation; (vi) any insurance, administrative or other
third-party agreement; (vii) any determination letter or exemption letter; and
(viii) any agreement with a participant.
4.19 SEC and Depositor Reports. (a) The Company has made available to
MidCity a complete copy of all materials of the following types which have been
generated since September 30, 1995: (i) each final registration statement,
offering circular, private placement memorandum, report, schedule and proxy
statement filed by the Company or any of its Subsidiaries with the Applicable
Governmental Authorities; (ii) each material communication mailed by the Company
or any of its Subsidiaries to its stockholders in their capacities as
stockholders; and (iii) each material communication mailed by the Company or any
of its Subsidiaries to their depositors. Each registration statement, offering
circular, private placement memorandum, report, schedule, proxy statement or
communication referred to in clauses (i), (ii) or (iii) above, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations enforced or promulgated by the applicable regulatory agency and did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
20
<PAGE> 28
(b) The Company has timely filed all required forms, reports,
schedules and registration statements and documents with all applicable
Governmental Authorities, including (without limitation) the SEC since September
30, 1995 (such SEC filings being the "SEC Reports"), and each of the SEC Reports
have complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act (and the rules and regulations promulgated
thereunder) and the other reports have complied in all material respects with
the statutes, rules and regulations applicable to such filings. The Company has
delivered to MidCity, in the form filed with the SEC (including any amendments
thereto), (i) its Annual Report on Form 10-K for the fiscal year ended September
30, 1998, (ii) all definitive proxy statements relating to the Company's
meetings of stockholders (whether annual or special) held since September 30,
1995 and (iii) all other SEC Reports filed by the Company with the SEC since
September 30, 1995. None of the SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has
delivered to MidCity a complete and correct copy of any amendments or
modifications, which have not yet been filed with the SEC, to agreements,
documents or other instruments which previously had been filed by the Company
with the SEC pursuant to the Exchange Act.
4.20 Affiliate Transactions. Schedule 4.20 of the Company Disclosure sets
forth all contracts, loans or other transactions of the Company or any of its
Subsidiaries with any officer or director since September 30, 1996 required to
be disclosed pursuant to any rule or regulation of any Applicable Governmental
Authorities, including Regulation O promulgated by the FRB. Except as set forth
on Schedule 4.20 of the Company Disclosure, no executive officer, director or
principal stockholder of the Company or any of its Subsidiaries (or any of their
affiliates) (i) has any loan, credit or other contractual arrangement
outstanding with the Company or any of its Subsidiaries, or (ii) has any
material interest in any material property (real or tangible) used in or
pertaining to the business of the Company or any of its Subsidiaries. Schedule
4.20 of the Company Disclosure sets forth, as to all transactions referred to
therein, the amounts thereof and the obligor or obligers thereon and identifies
the agreements or instruments evidencing the transactions, true and complete
copies of which have been made available to MidCity.
4.21 Environmental Matters. (a) For purposes of this Section 4.21, the
following terms shall have the indicated meaning:
"Branch Property" means all real property presently or formerly owned
or operated by the Company or any Subsidiary on which the main office, branches
or facilities are or were located.
"Environmental Law" means any applicable federal, state or local
statute, law, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction, directive, requirement
or agreement with any governmental entity, now existing,
21
<PAGE> 29
relating to: (a) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource), or to human health or safety, or (b) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, Release or disposal of Hazardous
Substances, in each case as amended. The term Environmental Law includes,
without limitation, (x) the following statutes, each as amended: (i) the
federal Clean Air Act; (ii) the federal Water Pollution Control Act; (iii) the
federal Solid Waste Disposal Act ("SWDA"); (iv) the federal Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"); (v) the
federal Toxic Substances Control Act; (vi) the federal Occupational Safety and
Health Act; (vii) the federal Emergency Planning and Community Right-to-Know
Act; (viii) the federal Safe Drinking Water Act; (ix) the Federal Insecticide,
Fungicide and Rodenticide Act; and (y) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance, whether liquid, solid or
gas, listed, defined, designated, classified or regulated as hazardous, toxic,
radioactive or dangerous, under any applicable Environmental Law, including,
without limitation (i) any "hazardous substance" as defined in CERCLA, (ii) any
"hazardous waste" as defined in SWDA, and (iii) any toxic waste, pollutant,
contaminant, toxic substance, special waste or petroleum, crude oil or any
fraction, derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead
and polychlorinated biphenyls ("PCBs").
"Real Property" means the Branch Property, all real property
classified by the Company or any Subsidiary as other real estate owned ("OREO")
and all real property (including property held as trustee or in any other
fiduciary capacity) over which the Company or any Subsidiary currently or
formerly has exercised dominion, management or control.
"Release" shall have the meaning set forth in Section 101(22) of
CERCLA, 42-USC Section 9601(22).
(b) Except as set forth on Schedule 4.21 of the Company Disclosure, or
as would not individually or in the aggregate have a Material Adverse Effect on
the Company: (i) each of the Company and its Subsidiaries is and has been in
compliance with all applicable Environmental Laws; (ii) to the Company's
Knowledge, the Real Property does not contain any Hazardous Substance in
violation of any applicable Environmental Law and no Release of any Hazardous
Substance has occurred or, to the Company's Knowledge, is threatened to occur
at, upon or under any of the Real Property; (iii) neither the Company nor any
Subsidiary has received any written notices, demand letters or written requests
for information from any governmental entity or any third party indicating that
the Company or such Subsidiary may be in violation of, or liable under any
Environmental Law or that the Real Property has been or is listed as a site
containing Hazardous Substances pursuant to any Environmental Law; (iv) there
are no civil, criminal or administrative
22
<PAGE> 30
actions, suits, demands, claims, hearings, investigations or proceedings pending
or, to the Company's Knowledge, threatened against the Company or any Subsidiary
with respect to the Company or any of its Subsidiaries or the Real Property
(which with respect to any Real Property previously but not currently owned by
the Company, shall be the Company's Knowledge) relating to any violation or
liability, or alleged violation or liability, of or arising under any
Environmental Law; (v) no reports have been filed, or are required to be filed,
by the Company or any subsidiary of the Company concerning the Release of any
Hazardous Substance or the threatened or actual violation of any Environmental
Law on or at the Real Property; (vi) to the Company's Knowledge, there are no
underground storage tanks on, in or under any of the Branch Property and no
underground storage tanks have been closed or removed from any Branch Property
while such Branch Property was owned or operated by the Company or any of its
Subsidiaries; and (vii) to the Company's Knowledge, neither the Company nor any
Subsidiary has incurred, and none of the Real Property is presently subject to,
any liabilities (fixed or, to the Company's Knowledge, contingent) relating to
any suit, settlement, court order, administrative order, judgment or claim
asserted or arising under any Environmental Law.
(c) All environmental audits, analyses or surveys of Real Property
have been made available to MidCity for its review.
(d) There are no permits, registrations, notifications or licenses
required under any Environmental Law in respect of the Branch Property presently
operated by the Company or any Subsidiary or in respect of any OREO presently
held by the Company or to the Company's Knowledge in respect of any real
property held as trustee or in any other fiduciary capacity, that are not held
and the absence of which could, individually or in the aggregate, have a
Material Adverse Effect on the Company.
4.22 Quality of Assets. Except as set forth on Schedule 4.22 of the
Company Disclosure, and to the Company's Knowledge, the principal due and
interest accrued on the outstanding loans reflected as assets on the December
31, 1998 Company Financial Statements are, in the aggregate collectible in full,
less the amount of the "Allowance for Losses" reflected therein. The Company
has disclosed on Schedule 4.22 of the Company Disclosure all amounts of loans
(by reference to loan number and not customer name) or other assets of the
Company and its Subsidiaries that have been classified as of the date hereof by
management of Subsidiary Bank as "Special Mention," "Substandard," "Doubtful,"
"Loss," "Other Real Estate Owned" or words of similar import in the case of
loans (or that would have been so classified, in the case of other
interest-bearing assets, had they been loans). No material amounts of loans or
other assets that have been classified as of the date hereof by any regulatory
examiner as "Other Loans Specially Mentioned," "Special Mention," "Substandard,"
"Doubtful," "Loss" or words of similar import in the case of loans (or that
would have been so classified, in the case of other assets, had they been
loans), are excluded from the amounts disclosed as so classified by management
of the Company or any of its Subsidiaries as described in the preceding
sentence.
4.23 Policies and Procedures. The Company has made available to MidCity a
complete
23
<PAGE> 31
and correct copy of Subsidiary Bank's loan and investment policy, underwriting
guidelines and appraisal guidelines, as in effect on the date hereof including
such policies as may be set forth in the minutes of the meetings of the
Company's and its Subsidiaries' Board of Directors (the "Policy"). There are no
other written policies, manuals, directives or guidelines relating to the
present conduct of lending, investment or borrowing activities by the Company or
any of its Subsidiaries. The Company and any of its Subsidiaries are conducting
their lending, investment or borrowing activities in all material respects in
accordance with the Policy.
4.24 Fees. Except for fees of Keefe, Bruyette & Woods, Inc. (whose fees
and expenses have been disclosed in writing to MidCity and will be paid by the
Company in accordance with the Company's agreement with such firm), neither the
Company nor any Subsidiary has paid or become obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement.
4.25 Vote Required. The affirmative vote of the holders of a majority of
issued and outstanding shares of the Company Common Stock entitled to vote
thereon is the only vote of the holders of any class or series of the Company's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
4.26 Indemnification. Except as set forth on Schedule 4.26 of the Company
Disclosure, neither the Company nor any Subsidiary is a party to any
indemnification agreement with any of its present or future directors, officers,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of the Company.
4.27 Antitakeover Provisions Inapplicable. The action of the Board of
Directors of the Company in approving the Merger, this Agreement and the
transactions contemplated by this Agreement, is sufficient to render (i) the
restrictions on business combinations set forth in Section 203 of the DGCL and
(ii) the supermajority stockholder vote requirements set forth in Articles
FOURTH, EIGHTH AND TENTH of the Company's Certificate of Incorporation
irrevocably inapplicable to the Merger, this Agreement and the transactions
contemplated hereby. To the Company's Knowledge, other than the RRP and the
ESOP, there are no other stockholder, voting trust or other similar agreements
restricting the voting or transfer of the shares of Company Common Stock.
4.28 Power of Attorney. No power of attorney or similar authorization
given by either the Company or its Subsidiaries is currently outstanding other
than powers of attorney issued in the ordinary course of business with respect
to routine matters.
4.29 Information Supplied. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in (i) the Proxy Materials or (ii) any other document filed or to be
filed with the SEC or any other governmental entity in connection with the
Merger will, at the respective times that they or any amendments or supplements
thereto are filed with the SEC and are first published or sent or given to
holders of the Company
24
<PAGE> 32
Common Stock, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.
4.30 Labor Matters. Except as set forth on Schedule 4.30 of the Company
Disclosure, no employees of the Company or any of its Subsidiaries are
represented by any labor union or any collective bargaining organization. No
labor organization or group of employees of the Company or any of its
Subsidiaries has made a pending demand for recognition or certifications, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's Knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
any other labor relations tribunal or authority.
4.31 Trademarks, Patents and Copyrights. The Company and the Subsidiaries
own or possess adequate licenses or other valid rights to use all patents,
trademarks, trade names, trade dress, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, mask works, know-how and
other proprietary rights and information used or held for use in connection with
the business of the Company and its Subsidiaries as currently conducted or as
contemplated to be conducted and the Company is unaware of any assertion or
claim challenging the validity of any of the foregoing, which, individually or
in the aggregate, could have a Material Adverse Effect. The conduct of the
business of the Company and its Subsidiaries as currently conducted and as
contemplated to be conducted did not, does not and will not infringe in any way
with any patent, license, trademark, trade dress, trade name, service mark, mask
work or copyright of any third party that, individually or in the aggregate,
could have a Material Adverse Effect. There are no infringements of any
proprietary rights owned by or licensed by or to the Company or any Subsidiary
which, individually or in the aggregate, could have a Material Adverse Effect.
Neither the Company nor any Subsidiary has licensed or otherwise authorized the
use by any third party of any proprietary information on terms or in a manner
which, individually or in the aggregate, could have a Material Adverse Effect.
4.32 Year 2000 Matters. Schedule 4.32 of the Company Disclosure summarizes
the status of the Company's dealings and communications with third-party service
providers with respect to ensuring that all computer systems used in connection
with its business (the "Company Systems") do not, or will not following
modification thereof, be deficient with respect to formatting for the computer
programming problem commonly referred to as the "Year 2000 Problem" and that
such third-party service providers and the Company Systems are, or will be,
following modification thereof in material compliance with all regulations and
trade organization guidelines concerning the Year 2000 Problem. The Company has
made available to MidCity copies of all correspondence between the Company and
its third-party service providers concerning Year 2000 Problem compliance
relating to the Company Systems. Except as set forth in Schedule 4.32 of the
Company Disclosure, the Company has no other contracts with, or commitments to,
any third-party with respect to the Company Systems. All issues and
modifications, if any, regarding Year 2000 Problem compliance by the Company
with respect to the Company Systems have been resolved and undertaken and, will
in the future be resolved and undertaken, by third-party service providers and
25
<PAGE> 33
the Company. The Company is not aware of any inability on the part of any
customer of or service provider to the Company's business to timely remedy their
own deficiencies in respect to the Year 2000 Problem, which inability,
individually or in the aggregate, reasonably could be expected to have a
Material Adverse Effect.
4.33 Full Disclosure. No representation or warranty made by the Company
herein, and no written statement, affidavit, document, instrument or certificate
furnished by it or on its behalf pursuant hereto or in connection herewith,
including, without limitation, the Proxy Materials, contains any false or
misleading statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading.
ARTICLE 5
COVENANTS OF THE PARTIES
5.1 Conduct of the Business of the Company and Subsidiaries. During the
period from the date of this Agreement to the Effective Time, the Company
covenants as follows:
5.1.1 The Company shall and shall cause its Subsidiaries to conduct
their business and engage in transactions only in the ordinary course and
consistent with prudent banking practice;
5.1.2 The Company shall and shall cause its Subsidiaries to use their
commercially reasonable efforts to maintain all of their assets in good
operating condition and repair subject to ordinary wear and tear, and maintain
insurance upon all of their assets;
5.1.3 Except as otherwise previously consented to or approved by
MidCity in writing or as contemplated or required by this Agreement, the Company
will not (and will cause its Subsidiaries not to) take any action that would
cause any of its representations or warranties contained in this Agreement to
not be true and correct at the Effective Time; and
5.1.4 The Company will and will cause its Subsidiaries to use
commercially reasonable efforts to (i) preserve its business organization
intact, (ii) keep available to itself and MidCity the present services of the
employees of the Company and its Subsidiaries and (iii) preserve for itself and
MidCity the good will of the customers of the Company and its Subsidiaries and
others with whom business relationships exist.
5.2 Negative Covenants. The Company agrees that from the date hereof to
the Effective Time, except as otherwise approved by MidCity in writing (which
approval shall be given if at all, no earlier than two business days after
actual receipt by MidCity of a request for approval) or as contemplated or
required by this Agreement, it will not and it will not permit any of its
Subsidiaries to:
26
<PAGE> 34
5.2.1 change any provision of its charter or by-laws or any similar
governing documents;
5.2.2 change the number of shares of its authorized or issued capital
stock or issue or grant any option, warrant, call, commitment, subscription,
right to purchase or agreement of any character relating to its authorized or
issued capital stock or any securities convertible into shares of such stock, or
split, combine or reclassify any shares of its capital stock, or declare, set
aside or pay any dividend, or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock (other than
to declare and pay in accordance with its past practices a quarterly dividend
not to exceed $.12 per share of Company Common Stock for quarters ending on or
after March 31, 1999) or redeem or repurchase or otherwise acquire any shares of
such capital stock (other than pursuant to the exercise of stock options granted
under the Option Plan which are outstanding on the date hereof, the ESOP, the
RRP or any qualified retirement plan sponsored by the Company as in existence on
the date hereof, each in the ordinary course of business consistent with past
practices);
5.2.3 materially increase or decrease the number of its employees or
grant any severance or termination pay (other than as required pursuant to
agreements or policies in effect on the date hereof and disclosed pursuant
hereto) to, or enter into or amend any employment or severance agreement with,
any of its current or former directors, officers, employees, consultants or
independent contractors; adopt any new director, officer, employee, consultant
or independent contractor benefit plan or arrangement of any type; or award any
increase in compensation or benefits to its current or former directors,
officers, employees, consultants or independent contractors except for normally
scheduled increases in compensation for employees who are not officers which are
made in the ordinary course of business consistent with past practice;
5.2.4 enter into any transaction or incur or agree to incur any
obligation or liability, except (i) liabilities incurred and obligations entered
into in the ordinary course of business consistent with past practices
(including legal and other professional services) and (ii) for fair and
reasonable legal services in connection with this Agreement and the transactions
contemplated hereby;
5.2.5 except as recommended by a regulatory authority and reported to
MidCity change its lending, investment, liability, management and other material
policies concerning its banking business, unless required by statute, regulation
or order;
5.2.6 incur or commit to any capital expenditures which exceed $10,000
individually or $25,000 in the aggregate;
5.2.7 except as expressly contemplated by this Agreement or except as
provided on Schedule 5.2.7 of the Company Disclosure or except in the ordinary
course of business in accordance with past practices, sell, assign, transfer,
pledge, mortgage or otherwise dispose of (i) any loans made prior to the date
hereof, (ii) any investment from the respective investment portfolios, or (iii)
any
27
<PAGE> 35
assets;
5.2.8 make, or commit to make, any loan or other extension of credit
except for (i) loans or extensions of credit made pursuant to binding
commitments of the Company on the date hereof and set forth on Schedule 5.2.8 of
the Company Disclosure, (ii) residential and one-to-four family residential real
estate loans not in excess of the Federal National Mortgage Association (FNMA or
Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
limits, as the case may be, per loan made in accordance with past practices and
as long as the Company receives a first mortgage on the underlying property, the
loan to value ratio is not greater than 80% and other prudent steps are take to
document and ensure the Company's first priority mortgage lien on the applicable
property (provided, that the Company delivers to MidCity bimonthly written
notice of the numbers and status of such loans and extensions of credit); (iii)
commercial real estate loans not in excess of $175,000 per loan made in
accordance with past practices and so long as the Company receives a first
mortgage on the underlying property, the loan to value ratio is not greater than
80% and other prudent steps are taken to document and insure the Company's first
priority mortgage lien on the applicable property (provided, that the Company
delivers to MidCity bimonthly written notice on the number and status of such
loans and extensions of credit); and [(iv)] other loans and extensions of
credits to which the Company has received the consent of MidCity;
5.2.9 purchase or make any commitment to purchase any participation in
any loan, except for refinancings of outstanding loans in the ordinary course of
business, which is secured by undeveloped land or not consistent with prudent
banking practice;
5.2.10 invest its funds other than in Federal funds and securities of
the United States Government or instrumentalities or agencies thereof with
maturities of three years or less;
5.2.11 increase the rate of interest offered for time and demand
deposits to customers of Subsidiary Bank other than increases consistent with
increases offered by competitive institutions and otherwise consistent with
prudent banking practices;
5.2.12 except as set forth on Schedule 5.2.12 of the Company
Disclosure, discharge or satisfy any lien or encumbrance or pay or satisfy any
obligation or liability (whether absolute, accrued, contingent or otherwise) in
whole or in part other than in the ordinary course of business and consistent
with prudent banking practice;
5.2.13 commit any act or omission which constitutes a material breach
or default under any contract or license to which the Company or any of its
Subsidiaries is a party or by which it or any of its properties is bound;
5.2.14 fail to comply with any laws, regulations, ordinances, or
governmental actions applicable to it or the conduct of its business in a manner
material and adverse to its business, or take any action to cause the
termination or cancellation by the FDIC of insurance in respect of Subsidiary
Bank's deposits;
28
<PAGE> 36
5.2.15 make any change in the method of accounting from the method
currently applied;
5.2.16 pledge or otherwise commit to make any contributions or
donations to any political, charitable, social or other committee, group,
association or organization, other than as disclosed on Schedule 5.2.16 of the
Company Disclosure;
5.2.17 file any applications or enter into any contract, agreement,
commitment or understanding with respect to branching or site location or
relocation;
5.2.18 cancel, change or reduce the insurance coverage of any policy
to which it is the named insured, or omit to pay any premiums thereunder, other
than as disclosed on Schedule 5.2.18 of the Company Disclosure;
5.2.19 waive any material rights or claims against any person or
persons, except with respect to any acceptance of prepayments of loans in
anticipation of other financings, refinancings, foreclosures, workouts of loans
and other negotiations of loans;
5.2.20 commence any foreclosure proceeding, workout or other
renegotiation of outstanding loans;
5.2.21 except as required in accordance with the exercise of the Board
of Directors' fiduciary duties or as otherwise required by law, and except as
contemplated by this Agreement, convene any meeting of the Company's
stockholders, or determine to submit any matter for stockholder action, except
to provide for the approval of this Agreement and the Merger or to conduct other
usual and customary business at the annual stockholders' meeting.
5.2.22 take any action, or knowingly omit to take any action, that
would or that would reasonably be expected to, (i) result in any of the
conditions to closing set forth in Article 6 not being satisfied, (ii) delay or
adversely affect the ability of the Company to obtain any approvals required to
permit consummation of the Merger, or (iii) adversely affect its ability to
perform its obligations under this Agreement; and
5.2.23 authorize, recommend, propose or announce an intention to do
any of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
5.3 No Solicitation. The Company shall, and shall cause its executive
officers, directors, authorized representatives and authorized agents to,
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to any Takeover Proposal. The Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it permit any of its executive
officers, directors, authorized representatives or authorized agents to,
directly or indirectly, (i) solicit, initiate or knowingly encourage (including
by way of furnishing non-public information)
29
<PAGE> 37
any inquiries or the making of any proposal which constitutes, or may reasonably
be expected to lead to, any Takeover Proposal, (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; or (iii) agree to
or enter into any agreement with respect to any Takeover Proposal; provided,
however, that if, at any time prior to the approval by the Company's
stockholders of this Agreement, the Board of Directors of the Company determines
in good faith, after receipt of a written opinion from Hinshaw & Culbertson,
that its fiduciary responsibilities to the Company's stockholders under
applicable law would so require, the Company may, in response to a Takeover
Proposal which was not solicited subsequent to the date hereof, furnish
information with respect to the Company to any person pursuant to a
confidentiality agreement on terms no less restrictive than those contained in
that certain Confidentiality Agreement dated October 23, 1998 between MidCity
and Keefe, Bruyette & Woods, Inc. For purposes of this Agreement, "Takeover
Proposal" means (x) any bona-fide cash proposal from any third party relating to
a direct or indirect acquisition of the shares of Company Common Stock, a cash
tender or exchange offer for the shares of Company Common Stock then
outstanding, or a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries in each case at a per share price in cash higher than the Per
Share Price and for which financing, to the extent required, is in the good
faith judgment of the Board of Directors of the Company reasonably capable of
being obtained by such third party, and in each case other than the transactions
contemplated by this Agreement or (y) any other transaction the consummation of
which could reasonably be expected to impede, interfere with, prevent or
materially delay the Merger or which would reasonably be expected to dilute
materially the benefits to MidCity of the transactions contemplated by this
Agreement. The Company shall promptly inform MidCity of any inquiry (including
the terms thereof and the identity of the third party making such inquiry) which
it may receive in respect of a Takeover Proposal, and furnish to MidCity a copy
of any such written inquiry; provided, however, that the Company may not, in any
event, provide to such person any information which it has not provided to
MidCity. The Company shall promptly notify MidCity orally and in writing in the
event it receives any such inquiry or proposal and shall provide reasonable
detail of all relevant facts relating to such inquiries. This Section shall not
prohibit accurate disclosure by the Company in any document, including the Proxy
Materials (as defined below), or other disclosure in each case to the extent
required by applicable law if, in the opinion of the outside counsel to the
Company, disclosure is required under applicable law as to transactions
contemplated hereby.
5.4 Current Information. During the period from the date of this Agreement
to the Effective Time, the Company shall (i) cause one or more of its officers
or other appropriate representatives to confer on a regular and frequent basis
(not less frequently than monthly until a more frequent schedule is requested by
MidCity and thereafter not less frequently than weekly) with representatives of
MidCity and to report the general status of the ongoing operations of the
Company and its Subsidiaries; (ii) promptly notify MidCity of any material
change in the normal course of business or in the operation of the properties of
the Company and its Subsidiaries, and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of significant litigation
involving the Company or its Subsidiaries, and will keep MidCity fully informed
of such events; (iii) as promptly as practicable but in no event later than ten
(10) business days following the end of each calendar
30
<PAGE> 38
month, deliver to MidCity (A) a balance sheet and income statement of the
Company, (B) an analysis of the asset quality of Subsidiary Bank by
classification under such categories as "Special Mention," "Substandard,"
"Doubtful," "Other Real Estate Owned" or terms of like import used by any
internal bank examiner (or Subsidiary Bank's loan review department), and (C)
all other financial and operating data and other information concerning its
business, properties and personnel as MidCity may reasonably request, all of the
above as of the end of such month and for such monthly period; (iv) deliver to
MidCity all documents and information furnished to the Applicable Governmental
Authorities by the Company or any stockholder (solely in its capacity as a
stockholder of the Company) or Subsidiary of the Company within two business
days after such documents or information are furnished to such agency or
authority; (v) deliver to MidCity all correspondence (including a written
summary of any oral communication) from any Applicable Governmental Authority
which is adverse to the Company or its Subsidiaries; and (vi) as promptly as
practicable following their issuance, deliver to MidCity any subsequent audited
or unaudited reports of the Company's or its Subsidiaries' financial
information. The Company shall not be required to provide access to or to
disclose information where such access or disclosure would violate the rights of
any customer or would contravene any law, rule, regulation, order or judgment,
or where such access would unreasonably interfere with or be materially
disruptive to the conduct of business and operations of the Company or its
Subsidiaries. The parties will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
5.5 Access to Properties and Records; Confidentiality.
5.5.1 During the period from the date of this Agreement to the
Effective Time, the Company shall permit MidCity and its authorized
representatives full and complete access to its properties (and its
Subsidiaries' properties) between the hours of 9:00 a.m. and 5:00 p.m. of any
business day and shall disclose and make available to MidCity all books, papers
and records relating to its assets, stock, ownership, properties, operations,
obligations and liabilities, including, but not limited to, all books of account
(including the general ledger), tax records, minute books of directors' and
stockholders' meetings, organizational documents, by-laws, material contracts
and agreements, filings and correspondence with and notices or other documents
from any regulatory authority, accountants' reports to management, litigation
files, plans affecting employees, and any other business activities or prospects
in which MidCity may have a reasonable interest. The Company shall not be
required to provide access to or to disclose information where such access or
disclosure would violate the rights of any customer or would contravene any law,
rule, regulation, order or judgment, or where such access would unreasonably
interfere with or be materially disruptive to the conduct of business and
operations of the Company or its Subsidiaries. The parties will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
5.5.2 In the event that this Agreement is terminated, each party shall
return all nonpublic documents furnished hereunder, shall destroy all documents
or portions thereof prepared by such other party that contain nonpublic
information furnished by the other party pursuant hereto
31
<PAGE> 39
and, in any event, shall hold all nonpublic information received pursuant hereto
in the same degree of confidence with which it maintains its own like
information unless or until such information is or becomes a matter of public
knowledge or is or becomes known to the party receiving the information through
persons other than the party providing such information. No investigation by
either MidCity, NewCo or the Company shall affect the representations and
warranties of the other party and all such representations and warranties shall
survive any such investigation. Each party shall keep confidential all such
information, and shall not directly or indirectly use or disclose such
information for any competitive or other commercial purposes. The obligation to
keep such information confidential shall continue after the date of termination
of this Agreement but shall not apply to (i) any information which (A) was known
to the party receiving the information prior to the disclosure thereof by the
party furnishing the information, (B) was then generally known to the public,
(C) became known to the public through no fault of the party receiving the
information, or (D) was disclosed to the party receiving the information by a
third party not bound by an obligation of confidentiality; or (ii) disclosures
pursuant to a legal requirement or in accordance with an order of a court of
competent jurisdiction.
5.6 Regulatory and Other Matters. Within sixty (60) days of the date of
execution of this Agreement (provided that MidCity continues to reasonably
believe that the other closing conditions herein can still be met), MidCity
shall file or cause to be filed applications to fulfil all governmental,
regulatory and other requirements (including, without limitation, obtaining the
approval of the Board of Governors of the Federal Reserve System, if necessary,
and/or any other governmental entity having jurisdiction over MidCity and pay
all fees and expenses associated therewith) and requests for consents or
approvals of any third party required to be fulfilled by MidCity for the
completion of the transactions contemplated by this Agreement. The Company
shall be provided with substantially final draft applications for its review
prior to the filings required above to the extent such application are material
and time reasonably permits such review. MidCity shall furnish to the Company
copies of all such regulatory filings and requests and all related
correspondence, and shall use commercially reasonable efforts to obtain all such
regulatory approvals and third party consents at the earliest practicable time;
provided, however, that nothing in this Section 5.6 shall be construed to
obligate MidCity to take any action to meet any condition required to obtain any
prior regulatory approval if such condition would reduce the benefits of the
transactions contemplated by this Agreement in such a material manner that
MidCity, in its good faith and reasonable judgment, would not have entered into
this Agreement had such condition or requirement been known at the date hereof.
5.7 Notification of Certain Other Matters.
5.7.1 Each party shall give prompt notice to the other party of (i) the
occurrence or failure to occur of any event or the discovery of any information,
which occurrence, failure or discovery would be likely to cause any
representation or warranty on its part contained in this Agreement to be untrue,
inaccurate or incomplete in any material respect after the date hereof or, in
case of any representation or warranty given as of a specific date, would be
likely to cause any such representation on its part contained in this Agreement
to be untrue, inaccurate or incomplete in
32
<PAGE> 40
any material respect as of such specific date, (ii) any material failure of such
party to comply with or satisfy any covenant or agreement to be complied with or
satisfied by it hereunder, and (iii) any event or series of events which is
likely to result in a Material Adverse Effect on it (but in the case of MidCity,
only if such event is likely to adversely affect the ability of MidCity to
complete the transactions contemplated herein).
5.7.2 From time to time on or prior to the Effective Time and further
subject to the requirements of Section 5.15, the Company shall promptly propose
in writing any supplements or amendments to any of its representations and
warranties relating to the period after the date hereof with respect to any
matter hereafter arising which would render any such representation or warranty
after the date of this Agreement materially inaccurate or incomplete. The
information contained in any such proposed supplement or amendment shall not be
deemed to have modified the representations and warranties of the Company or be
binding on MidCity unless accepted in writing.
5.8 Title Matters.
5.8.1 As soon as practicable after the date hereof and at least 30
days prior to the Effective Time, the Company shall, at its own expense, obtain
and deliver to MidCity:
(i) With respect to the real estate described on Schedule
4.11.1 of the Company Disclosure (other than real estate subject to leases or
real estate acquired in a foreclosure or similar action), an owner's preliminary
report on title covering a date subsequent to the date hereof, issued by a title
insurance company reasonably acceptable to MidCity, which preliminary report
shall contain a commitment of such title insurer to issue an owner's title
insurance policy on ALTA 1992 Owner's Form B insuring the fee simple title of
the Company or its Subsidiaries in such real estate in an amount equal to the
fair market value of such real estate subject only to (A) liens of current state
and local property taxes which are not delinquent or subject to penalty; and (B)
such other matters as may be disclosed that are reasonably approved in writing
by MidCity; and
(ii) Surveys certified in accordance with ALTA land survey
standards by a registered land surveyor licensed in the state in which such real
estate is located as of a date subsequent to the date hereof of the real estate
described in Schedule 4.11.1 (i) showing with respect to such real estate: (A)
the legal description; (B) all buildings, structures and improvements thereon
and all "setback" lines, restrictions of record and other restrictions that have
been established by any applicable zoning or building code or ordinance and all
easements or rights of way; (C) no encroachments upon such parcel or adjoining
parcels by buildings, structures, improvements or easements; (D) legal access to
such parcel from a public street; and (E) no easements which materially and
adversely affect the use of such parcel or the improvements located thereon.
5.8.2 At least (5) business days prior to the Effective Time, the
Company shall, at its own expense, obtain and deliver to MidCity owner's title
insurance policies dated the Effective Date on ALTA 1992 Owner's Form B with an
extended coverage endorsement guaranteeing over the standard exceptions to title
customarily contained in such policies, covering the real estate
33
<PAGE> 41
covered by the commitments referred to in Section 5.8.1(i) hereof issued by the
insurer which issued such commitments insuring the fee simple estate of
Subsidiary Bank (or such other entity reasonably acceptable to MidCity) in the
real estate in the amount reasonably satisfactory to MidCity subject only to the
matters set forth in Section 5.8.1(i) hereof or Schedule 4.11.2 of the Company
Disclosure.
5.9 Employee Benefits and Employees.
5.9.1 The parties understand that, as MidCity will ultimately be the
surviving corporation of a merger with the Surviving Corporation which is
intended to be consummated immediately after the effectiveness of the Merger,
those Plans sponsored by the Company immediately before the Effective Time will,
as a matter of law, continue to be sponsored by MidCity from and after the
Effective Time, and that, from and after the Effective Time, MidCity will
continue to be vested with all of the powers, rights, duties, obligations and
liabilities vested in the Company with respect to each such Plan immediately
before the Effective Time. Notwithstanding the foregoing, from and after the
date of this Agreement and prior to the Effective Time, the Company and its
representatives will use commercially reasonable efforts to cause the Company to
(i) amend its ESOP to provide for applying so much as is necessary of the Merger
Consideration received by the ESOP with respect to unallocated shares of Company
Common Stock to repay in full the outstanding balance of the ESOP loan and
allocating the remainder, if any, of the Merger Consideration received by the
ESOP with respect to unallocated shares of Company Common Stock as earnings to
the accounts of ESOP participants and former participants in proportion to their
account balances; (ii) amend the ESOP to provide for its termination effective
as of the Effective Time; and (iii) submit to the appropriate office of the
Internal Revenue Service an application for determination on termination of the
ESOP; and (iv) otherwise maintain the status of the ESOP as a plan qualified
under Sections 401(a) and 4975 of the Code. The application for determination
on termination will be subject to approval by counsel for MidCity, which
approval will not be unreasonably withheld. At the Effective Time, the Company
will cause the outstanding balance of the ESOP loan to be repaid in full with
the Merger Consideration received by the ESOP as to unallocated shares of
Company Common Stock. If the Internal Revenue Service issues a favorable
determination letter with respect to the termination of the ESOP (including the
proposed allocation of Merger Consideration), the Company will, as soon
thereafter as it deems practicable, (A) make the proposed allocation of the
amount of Merger Consideration received by the ESOP as to unallocated shares and
not needed to repay the ESOP loan balance to the accounts of currently employed
ESOP participants; (B) terminate the ESOP; (C) cause all accrued benefits in the
ESOP to become fully vested and nonforfeitable as of the Effective Time; and (D)
distribute all ESOP accounts to the current and former participants (or, in the
case of deceased participants, their beneficiaries) entitled to them, in
accordance with the terms of the ESOP.
5.9.2 MidCity shall assume and honor the Damen Federal Bank for Savings
Employee Severance Compensation Plan (the "Company Severance Plan").
Notwithstanding the foregoing, effective at the Effective Time, further
participation in the Company Severance Plan shall be frozen, and no individual
who is not already a participant in the Company Severance Plan at the Effective
Time will become one after the Effective Time. Moreover, no individual who is
a
34
<PAGE> 42
participant in the Company Severance Plan at the Effective Time or who would
then be a participant in the Company Severance Plan but for the fact that he or
she has entered into an employment contract, change of control agreement or
severance agreement with the Company or any affiliate of the Company, shall be
entitled to participate in any plan of MidCity or any of its affiliates offering
severance benefits.
5.9.3. If and to the extent Plans sponsored by the Company are
terminated as of or after the Effective Time, and Transferred Employees are
instead covered after the Effective Time under employee benefit plans maintained
by MidCity or its subsidiaries (each a "MidCity Benefit Plan"), they will be
given credit for service with the Company or its Subsidiaries in determining
eligibility for and vesting in benefits under the MidCity Benefit Plans, but not
for purposes of benefit accrual. A "Transferred Employee" is an individual who
is an employee of the Company immediately before the Effective Time. The
parties do not intend that Transferred Employees be covered under more than one
employee benefit plan of a given type (for example, under both a Company medical
plan and a MidCity medical plan).
5.10 Stockholder Approval. The Company shall cause a meeting of its
stockholders (the "Meeting") to be duly called and held as soon as practicable
after the date hereof for the purpose of approving the transactions contemplated
herein. The Company will cooperate and consult with MidCity with respect to the
foregoing matters. The Company shall use commercially reasonable efforts to
obtain the necessary approvals of this Agreement and the transactions
contemplated hereby and thereby. Neither the Board of Directors of the Company
nor any committee thereof shall withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to MidCity, the approval or
recommendation by such Board of Directors or such committee of the Merger or
this Agreement (or any transaction contemplated thereby or hereby); provided,
that, the Board of Directors of the Company may withdraw or modify such
recommendation, but only if the Board of Directors of the Company determines in
good faith by majority vote, based on the written opinion of Hinshaw &
Culbertson, that it would be a breach of its fiduciary duties not to so withdraw
or modify such recommendation. Subject to the requirements of applicable laws,
nothing contained in this Section 5.10 shall limit the Company's obligation to
hold and convene the Meeting (regardless of whether the unanimous recommendation
of the Board of Directors of the Company shall have been withdrawn or modified).
5.11 Proxy Materials.
5.11.1 As soon as practicable following but in no event more than
thirty (30) days after the date of this Agreement, the Company will prepare and
file with the SEC the appropriate proxy material (the "Proxy Materials") for
mailing to the holders of the Company Common Stock, including a notice of the
Meeting, proxy statement and form of proxy that comply with the Exchange Act and
the applicable regulations of the SEC promulgated thereunder. MidCity will
furnish to the Company all information concerning MidCity and MCNBC required for
inclusion in the Proxy Materials and such information will not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact or
35
<PAGE> 43
omits to state any material fact necessary in order to make the statement
therein not misleading. The Company shall file the Proxy Material in
preliminary form with the SEC as promptly as practicable, in any event no later
than thirty (30) days after the date of this Agreement, and shall in good faith
respond as promptly as practicable to all comments thereon of the SEC with a
view toward mailing definitive Proxy Materials at the earliest practicable date
(which the Company anticipates should be no later than thirty (30) days and in
any event no later than sixty (60) days thereafter). In the Proxy Materials,
the Company shall present this Agreement and the transactions contemplated
hereby for approval by the holders of the Company Common Stock at the Meeting.
Subject to Section 5.10, the Company shall include in the Proxy Materials the
unanimous recommendation of its Board of Directors to the holders of the Company
Common Stock that they approve this Agreement. Prior to submitting the Proxy
Materials and any amendment, supplement or revision thereof to the SEC or the
stockholders of the Company, the Company shall submit such material to MidCity
and its counsel and provide MidCity and its counsel with a reasonable
opportunity to review and comment upon such materials. Prior to responding to
any comments of any regulatory or supervisory authority relating to the Proxy
Materials, the Company shall review any proposed responses with MidCity and its
counsel. The Company covenants to MidCity that the Proxy Materials (i) will
comply in all material respects with the provisions of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder and (ii) will not
contain any statement which, at the time and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact or
omit to state any material fact necessary in order to make the statements
therein not false or misleading; in no event, however, shall the Company be
liable for any untrue statement of a material fact or omission to state a
material fact in the Proxy Materials made in reliance upon, and in conformity
with, written information concerning MidCity or MCNBC furnished by MidCity
specifically for use in Proxy Materials.
5.11.2 The definitive Proxy Materials shall not be mailed (the
"Mailing Date") to the holders of the Company Common Stock until all of the
following conditions have been satisfied, except as MidCity waives such
condition in writing:
(i) the Company shall have received a comfort letter, dated the
date of its delivery, addressed to it from Cobitz, VandenBerg & Fennessy, in
standard industry form with respect to transactions of this nature (the "Comfort
Letter"). MidCity shall have the reasonable right to approve the substance of
the Comfort Letter prior to the Mailing Date;
(ii) Keefe, Bruyette & Woods, Inc. shall have delivered to the
Board of Directors of the Company for inclusion in the Proxy Materials an
opinion (which shall be reaffirmed as of the date of mailing) to the effect that
the Merger Consideration is fair to the stockholders of the Company from a
financial point of view (the "Fairness Opinion"), dated within two days of the
Mailing Date, in standard industry form with respect to transactions of this
nature and as appropriate to satisfy the provisions of applicable law with
respect to the ESOP; and
(iii) the Company shall have given not less than three days'
notice to MidCity of the Mailing Date.
36
<PAGE> 44
5.11.3 The Company further covenants that it will cause the trustee of
the Company's ESOP and profit sharing plan to agree that MidCity's legal counsel
must approve the package of proxy information to be sent by the trustee to plan
participants, to assist in achieving all parties' desire that the information
given to participants will be sufficiently complete to support the trustee's
pass-through of voting power to plan participants and its use of mirror voting
on unallocated shares of Company Common Stock in either plan; the approval of
MidCity's legal counsel will not be unreasonably withheld and neither MidCity
nor its legal counsel will have any liability with respect to the content of any
Proxy Materials.
5.12 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its commercially 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 satisfy the conditions precedent referred to in Article 6 and to
consummate and make effective the transactions contemplated by this Agreement.
In case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
5.13 Public Announcements. MidCity and the Company shall approve in advance
the substance of, and cooperate with each other in the development and
distribution of, all news releases and other public information disclosures with
respect to this Agreement or any of the transactions contemplated hereby, except
as may be otherwise required by law, advice of counsel or regulation.
5.14 Dissenting Stockholders. The Company shall give MidCity (a) prompt
notice of any demands received from holders of Dissenting Shares, and (b) the
opportunity to participate in all negotiations and proceedings with respect to
any such demands. The Company shall not, except with the prior written consent
of MidCity, make or offer to make any payment with respect to, or settle or
offer to settle, any such demand for payment.
5.15 Disclosure Schedules. The Company shall propose updates to the
Company Disclosure and deliver such updates to MidCity no later than two (2)
business days before any anticipated Effective Date, with respect to any matter
hereafter arising which, if existing, occurring or known on the date of this
Agreement, would have been required to be set forth or described in such Company
Disclosure or which is necessary to correct any information in such Company
Disclosure which has been rendered materially inaccurate thereby. MidCity shall
be under no obligation to accept such updates and shall not be deemed to have
done so except pursuant to a written acceptance agreement.
5.16 Tail Insurance. On or before the Effective Date, MidCity shall
purchase (or permit the Company to purchase) at a cost not to exceed $50,000
tail director and officer insurance for the directors and officers of the
Company which insurance shall provide coverage for at least two (2) years
substantially equivalent to the coverage currently in effect (but without any
deductible applicable to any such officer or director) relating to acts or
omissions occurring on or before the
37
<PAGE> 45
Effective Date.
5.17 Indemnification. Except as may be limited by applicable law, MidCity
hereby agrees to cause the Company to maintain all rights of indemnification
currently provided by the Company in favor of their current and former directors
and officers on terms not materially less favorable than those provided in the
certificate of incorporation, articles of association or by-laws of the Company
or Subsidiary Bank or otherwise in effect on December 31, 1998 for a period of
two years from the Effective Time with respect to matters occurring prior to the
Effective Time. In the event MidCity or any of its successors or assigns (a)
reorganizes or consolidates with or merges into or enters into another business
combination transaction with any other person or entity and is not the
resulting, continuing or surviving corporation or entity of such reorganization,
consolidation, merger or transaction, or (b) liquidates, dissolves or transfers
all or substantially all of its properties and assets to any person or entity,
then, and in each such case, proper provision will be made so that such
surviving corporation or transferee and its successors and assigns assume the
obligations set forth in this Section 5.17.
ARTICLE 6
CONDITIONS PRECEDENT TO THE MERGER
6.1 Conditions to Each Party's Obligations under this Agreement. The
respective obligations of each party under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
6.1.1 All necessary regulatory or governmental approvals and consents
required to consummate the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect, and all statutory waiting
periods in respect thereof shall have expired.
6.1.2 None of MidCity, NewCo, the Company or any of its Subsidiaries
shall be subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins, restrains or prohibits any of the
transactions contemplated hereby.
6.1.3 This Agreement and the transactions contemplated hereby,
including, without limitation, the Merger, shall have been approved by (a) the
requisite vote of the stockholders of the Company in accordance with applicable
law and (b) the Board of Directors of MidCity.
6.1.4 The Company shall have received the Fairness Opinion referred
to in Section 5.11 and such opinion shall not have been withdrawn or materially
and negatively modified.
6.2 Conditions to the Obligations of MidCity and NewCo under this
Agreement. The obligations of MidCity and NewCo under this Agreement shall be
further subject to the satisfaction, at the Effective Time, of the following
conditions, any one or more of which may be waived, in writing, in whole or in
part by MidCity.
38
<PAGE> 46
6.2.1 This Agreement and the transactions contemplated hereby shall
have been approved by the requisite vote of the stockholders of the Company in
accordance with applicable law and stockholders holding not more than five
percent (5%) of the outstanding shares of Company Common Stock shall have
properly exercised appraisal rights with respect to their shares of Company
Common Stock.
6.2.2 Each of the obligations of the Company required to be performed
by it at or prior to the Effective Time pursuant to the terms of this Agreement
shall have been duly performed and complied with in all material respects and
the representations and warranties of the Company contained in this Agreement
shall have been true and correct in all material respects as of the date of this
Agreement and as of the Effective Time as though made at and as of the Effective
Time, except that those representations and warranties which specifically relate
to an earlier specified date shall continue to be true and correct in all
material respects as of such specified date.
6.2.3 Any and all material permits, consents, waivers, clearances,
approvals and authorizations of all third parties and governmental bodies which
are necessary in connection with the consummation of the transactions
contemplated hereby (including the approvals and consents referenced in Section
1.2 hereof) shall have been obtained, and none of such permits, consents,
waivers, clearances, approvals or authorizations shall contain any term or
condition which MidCity reasonably determines to be materially burdensome to
MidCity or its present or intended operations.
6.2.4 MidCity shall have received an opinion(s), dated the Effective
Date, from Hinshaw & Culbertson, counsel for the Company, or such other counsel
as shall be acceptable to MidCity, in substantially the form attached hereto as
Exhibit 6.2.4.
6.2.5 No legal, administrative, arbitration or other proceedings shall
have been instituted or, in the reasonable opinion of MidCity, be imminent by or
before a court or any governmental authority to enjoin, restrain or prohibit any
of the transactions contemplated hereby or which, in the reasonable opinion of
MidCity, could materially reduce or impair the value of the Company and its
Subsidiaries, and no judgement, order or decree of any court shall be in effect,
and no statute or rule, order or regulation of any governmental agency shall be
in effect that, in the reasonable opinion of MidCity, materially reduces or
impairs the value of the Company and its Subsidiaries.
6.2.6 From September 30, 1998 to the Effective Time, the Company shall
not have suffered a Material Adverse Effect.
6.2.7 MidCity shall have received certificates, dated as of a date as
close as practicable to the Effective Date, from appropriate authorities as to
the valid existence and good standing of the Company and its Subsidiaries.
6.2.8 MidCity shall have received the resignations and releases,
effective as of the Effective Time, of Janine M. Poronsky, Kenneth D. Vanek,
Mary Beth Poronsky Stull and Gerald
39
<PAGE> 47
J. Gartner in form and substance acceptable to MidCity.
6.2.9 The Company shall have furnished MidCity with a certificate of
its officers to evidence fulfillment of the conditions set forth in this Section
6.2 in substantially the form as is attached hereto as Exhibit 6.2.9.
6.2.10 No more than two percent (2%) of Subsidiary Bank's total
loans, by an aggregate principal amount, shall be past due ninety (90) days.
6.2.11 MidCity shall have received the proposed updates to the
Company Disclosure in form and substance reasonably acceptable to MidCity.
6.2.12 MidCity shall have received evidence satisfactory to it of the
termination of all litigation against the Company, its Subsidiaries (and their
officers and directors).
6.2.13 MidCity shall have received (i) documentation in form and
substance reasonably acceptable to MidCity evidencing the termination of the
Option Plan and Company Stock Options and (ii) the termination amendment for the
ESOP (which will be effective) in form and substance reasonably acceptable to
MidCity.
6.2.14 MidCity shall have received original counterparts of the
Cancellation Agreements from each holder of Company Stock Options and such
agreements shall be and remain in full force and effect.
6.3 Conditions to the Obligations of the Company under this Agreement.
The obligations of the Company under this Agreement shall be further subject to
the satisfaction, at the Effective Time, of the following conditions, any one or
more of which may be waived, in writing, by the Company in whole or in part.
6.3.1 Each of the obligations of MidCity and NewCo required to be
performed at or prior to the Effective Time pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of MidCity and NewCo contained
in this Agreement shall have been true and correct in all material respects as
of the date of this Agreement and as of the Effective Time as though made at and
as of the Effective Time except that those representations or warranties which
are stated as of a specified earlier date shall continue to be true and correct
in all material respect as of such specified date.
6.3.2 MidCity and NewCo shall have furnished the Company with a
certificate of their officers to evidence fulfillment of the conditions set
forth in this Section 6.3 in substantially the form as is attached hereto as
Exhibit 6.3.2.
6.3.3 Evidence of receipt by the Exchange Agent of the Merger
Consideration in immediately available funds as required by Section 2.5(a).
40
<PAGE> 48
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
7.1.1 by mutual written consent of the Company and MidCity;
7.1.2 by MidCity if:
(i) The Effective Date shall not have occurred on or prior to
December 1, 1999;
(ii) any condition set forth in Sections 6.1 and 6.2 of this
Agreement has not been substantially satisfied or waived in writing by September
30, 1999, unless the failure to satisfy such condition is due to a breach of
this Agreement by MidCity;
(iii) any warranty or representation made by the Company is
discovered to be or to have become untrue, incomplete or misleading in any
material respect, and such breach (if capable of cure) remains uncured for a
period of thirty (30) days after notice thereof is given;
(iv) the Company shall have breached one or more covenants of
this Agreement in any material respect and such breach (if capable of cure)
remains uncured for a period of thirty (30) days after notice thereof is given;
or
(v) if the Company's Board of Directors shall have failed to
recommend, or shall have withdrawn, modified or amended in any manner adverse to
MidCity or NewCo, its approval or recommendation of the Merger or shall have
recommended acceptance of any Takeover Proposal, or shall have resolved to do
any of the foregoing.
7.1.3 by the Company if:
(i) The Effective Date shall not have occurred on or prior to
December 1, 1999;
(ii) any condition set forth in Sections 6.1 and 6.3 of this
Agreement has not been substantially satisfied or waived in writing by September
30, 1999, unless the failure to satisfy such condition is due to a breach of
this Agreement by the Company;
(iii) any warranty or representation made by MidCity is
discovered to be or to have become untrue, incomplete or misleading in any
material respect, and such breach (if capable of cure) remains uncured for a
period of thirty (30) days after notice thereof is given;
41
<PAGE> 49
(iv) MidCity shall have breached one or more covenants of this
Agreement in any material respect and such breach (if capable of cure) remains
uncured for a period of thirty (30) days after notice thereof is given; or
(v) The Company shall have received a Takeover Proposal that
the Board of Directors determines, after receiving the advice of its outside
counsel, that to proceed with the Merger, in light of such proposal, would
violate the fiduciary duties of the Board of Directors to the Company's
stockholders; provided, however, that the Company shall not be permitted to
terminate this Agreement pursuant to this clause (v) unless it (a) delivers at
least five (5) business days written notice to MidCity of its intent to so
terminate and (b) complies with the provisions of Section 7.3.
7.2 Effect of Termination by MidCity or the Company. In the event of
termination of this Agreement by MidCity or the Company as provided in Section
7.1 hereof, this Agreement shall forthwith become void (other than Sections
5.5.2 and 7.3 hereof, which shall remain in full force and effect) and there
shall be no further liability on the part of MidCity, NewCo or the Company or
their respective officers or directors except for the liability of MidCity and
the Company under Sections 5.5.2 and 7.3. Notwithstanding the prior sentence,
in the event of termination of this Agreement caused by (i) willful breach by a
party of any agreement, covenant, or undertaking of such party contained herein
or in any exhibit hereto; or (ii) any uncured material misrepresentations or
breach of warranty in any material respect by a party herein; or (iii) the
failure of any condition set forth in Article 6 hereof which has failed because
a party did not exercise good faith and commercially reasonable efforts towards
the fulfillment of such condition, then the other party shall in addition to any
other rights herein be entitled to all its legal and equitable remedies with
respect to such termination and the causes thereof.
7.3 Payment in Lieu of Fees and Expenses and Opportunity Costs. If this
Agreement is terminated by the Company pursuant to Section 7.1.3(v) or by
MidCity pursuant to Section 7.1.2(v) and prior thereto or within 24 months after
such termination:
(i) the Company shall have entered into an agreement amounting to a
Takeover Proposal or arising in connection with a Takeover Proposal, or a
Takeover Proposal shall have occurred (other than as contemplated by and in
connection with this Agreement), or
(ii) the Board of Directors of the Company shall have authorized or
approved a Takeover Proposal or shall have publicly announced an intention to
authorize or approve or shall have recommended that the stockholders of the
Company approve or accept any Takeover Proposal in each case other than as
contemplated by this Agreement,
then the Company shall promptly, but in no event later than one day after the
first of such events shall have occurred, pay MidCity (to the extent it has not
already paid at the time of termination) (i) a fee equal to One Million Dollars
($1,000,000) plus (ii) the amount of the reasonable out-of-pocket expenses of
MidCity and NewCo incurred or arising in connection with the Merger, this
Agreement, and the transactions contemplated thereby and hereby (including,
without limitation,
42
<PAGE> 50
fees, expenses or any other amounts paid or payable to banks, financial
institutions, investment bankers, attorneys, accountants, consultants and
printers).
7.4 Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the consummation of the transactions contemplated herein,
MidCity, NewCo and the Company may (i) amend this Agreement, (ii) extend the
time for the performance of any of the obligations or other acts of any other
party hereto, (iii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or (iv) waive
compliance with any of the agreements or conditions contained herein; provided,
however, that following the approval of the stockholders, without the approval
of the stockholders of the Company there can be no further amendments that would
require the approval of the stockholders under the DGCL. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. Any agreement on the part of a party hereto to any extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party, but any waiver or failure to insist on strict compliance
with any obligation, covenant, agreement or condition hereof shall not operate
as a waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE 8
MISCELLANEOUS
8.1 Expenses. Each party to this Agreement will pay its respective fees
and expenses incurred in connection with the preparation and performance of this
Agreement, including fees and expenses of its counsel, accountants, and other
experts and advisors.
8.2 Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or certified mailed, first-class postage prepaid or by facsimile (with
receipt confirmed), as follows:
(a) If to the Company, to:
Mary Beth Poronsky Stull
Chairman of the Board and President
Damen Financial Corporation
200 West Higgins Road
Schaumburg, IL 60195-3788
Fax: (847) 882-5346
43
<PAGE> 51
With a copy to:
Gary E. Medler, Esq.
Hinshaw & Culbertson
222 North LaSalle Street
Suite 300
Chicago, IL 60601
Fax: (312) 704-3001
(b) If to MidCity or NewCo, to:
Mr. Kenneth A. Skopec
MidCity Financial Corporation
801 West Madison Street
Chicago, IL 60607
Fax: (312) 421-7750
With a copy to:
James M. Neis, Esq.
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Fax: (312) 558-5700
or to such other address as the parties hereto may designate in writing as
aforesaid.
8.3 Governing Law; Jurisdiction.
(a) THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED ACCORDING TO THE
LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW THEREOF, EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE OF
DELAWARE SHALL APPLY TO THE MERGER.
(b) In addition, each of the parties hereto (i) consents to submit itself
to the personal jurisdiction of any federal or state court located in Cook
County, Illinois (and elsewhere with respect to appellate courts with
jurisdiction over such matter) in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, and consents to
service of process by notice as provided in this Agreement, (ii) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated hereby in any court other than a federal or state court sitting in
the State of Illinois.
44
<PAGE> 52
8.4 Whole Agreement. All schedules, exhibits and lists referred to in this
Agreement are integral parts hereof, and this Agreement, together with the
agreement contemplated herein, schedules, exhibits and related lists constitutes
the entire contract between the parties and no understandings or agreements,
verbal or otherwise, with respect to the subject matter hereof exists between
the parties.
8.5 Benefit and Binding Effect. This Agreement shall be binding upon and
inure to the benefit of only the parties named herein or therein and their
respective successors and assigns and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement; provided, however, that neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties hereto except that
NewCo may assign any or all of its rights and obligations under this Agreement
to any wholly owned direct or indirect subsidiary of MidCity.
8.6 Survival. The respective representations and warranties of the parties
to this Agreement shall not survive the Effective Time but shall terminate as of
the Effective Time. All covenants contained in this Agreement which by their
terms survive or are to be performed after the Effective Time shall survive for
their respective periods indicated.
8.7 No Reliance on Headings; Interpretation. Article headings and Section
headings as contained in this Agreement are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this Agreement.
Article, section, exhibit, schedule, annex, party, preamble and recital
references are to this Agreement unless otherwise stated. No party, or its
respective counsel, shall be deemed the drafter of this Agreement for purposes
of construing the provisions hereof, and all provisions of this Agreement shall
be construed according to their fair meaning and not strictly for or against any
party.
8.8 Severability. If any provision hereof shall be held invalid or
unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect of any other provision hereof.
8.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY OR DISPUTE THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY
CERTIFIES AND
45
<PAGE> 53
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS OF THIS SECTION 8.10.
8.11 Specific Performance. The parties acknowledge that irreparable
damage would result if this Agreement were not specifically enforced, and they
therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such remedy shall, however, not be exclusive and
shall be in addition to any other remedies, including arbitration, which any
party may have under this Agreement or otherwise.
[REST OF PAGE LEFT INTENTIONALLY BLANK]
46
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
MIDCITY FINANCIAL CORPORATION
By:
--------------------------
Name:
Title:
DAMEN FINANCIAL CORPORATION
By:
--------------------------
Name:
Title:
MIDCITY CFD, INC.
By:
--------------------------
Name:
Title:
47
<PAGE> 1
EXHIBIT 99.1
For Immediate Release February 23, 1999
For Information, Contact:
Mary Beth Poronsky Stull, President
Damen Financial Corporation
847-882-5320
DAMEN FINANCIAL CORPORATION
AGREES TO BE ACQUIRED FOR $18.35 PER SHARE
BY MIDCITY FINANCIAL CORPORATION
AND RESCHEDULES ANNUAL MEETING OF STOCKHOLDERS
SCHAUMBURG, ILLINOIS - Damen Financial Corporation (Nasdaq: DFIN) announced
today that it has entered into an Agreement and Plan of Merger with MidCity
Financial Corporation pursuant to which MidCity will acquire all of the
outstanding shares of Damen at a cash price of $18.35 per share by causing Damen
to merge with a wholly owned subsidiary of MidCity.
Detailed information and the Agreement and Plan of Merger will be provided to
all stockholders before the Special Meeting expected to be held in the second
quarter of 1999. The Agreement calls for the cancellation of all unvested Stock
Options and unvested Recognition and Retention Plan shares at the closing of the
transaction. The total cash consideration to Damen stockholders is anticipated
to be $51.9 million.
There were no modifications to existing employment agreements or employee
benefit plans. It is not anticipated that Damen's Board of Directors or senior
management will continue service with MidCity Financial Corporation after the
Merger.
Chairman Mary Beth Poronsky Stull commented, "This combination provides
excellent results for all Damen stockholders. MidCity is a leading banking
company with a successful history of integrating companies similar to ours into
their franchise. Customers of Damen National Bank will benefit from new and
expanded services and products that the merged banks will provide."
The Merger was unanimously approved by Damen's Board of Directors. In reaching
its decision, Damen's Board was advised by its financial advisor, Keefe Bruyette
& Woods, Inc., that the per share acquisition price is fair to the stockholders
of Damen from a financial point of view.
Damen stockholders will have an opportunity to vote on the Agreement and Plan of
Merger at a Special Meeting of Stockholders expected to take place in the second
quarter of 1999, after a proxy statement providing more details about the Merger
is prepared and sent to stockholders. In addition, completion of the Merger is
subject to customary conditions, including the receipt of certain regulatory
approvals.
A letter containing additional information regarding the Agreement and Plan of
Merger will be filed with the SEC and mailed to stockholders shortly. SEC
filings are available to the public on the Internet at http://www.sec.gov.
Ms. Poronsky Stull also commented, "A stockholder who made an initial $10.00
investment when we went public in September 1995 will receive, including
dividends, a total return on their investment of approximately 95%, or 24%
annualized. This is a remarkable achievement by any standard."
<PAGE> 2
In light of the foregoing, after consultation with the SEC, Damen also announced
today that it has postponed its Annual Meeting of Stockholders. The Annual
Meeting has been rescheduled for 9:30 a.m. on Friday, March 12, 1999, at the
Marriott Hotel, located at 50 North Martingale Road, Schaumburg, Illinois.
Damen Financial Corporation is a $220 million bank holding company. Damen is
headquartered in Schaumburg, Illinois, and operates additional offices in
Chicago and Burbank, Illinois.
# # #
Contact: Mary Beth Poronsky Stull
2
<PAGE> 1
EXHIBIT 99.2
LETTER TO STOCKHOLDERS
February 24, 1999
Dear Fellow Stockholder:
Damen Financial Corporation ("Damen") entered into an Agreement and Plan of
Merger with MidCity Financial Corporation ("MidCity") on February 22, 1999. The
Agreement and Plan of Merger (the "Merger Agreement") provides that MidCity
will acquire all of the issued and outstanding shares of Damen Common Stock for
$18.35 per share in cash, pursuant to a merger between Damen and a wholly owned
subsidiary of MidCity (the "Merger").
The Merger has been unanimously approved by Damen's Board of Directors. In
reaching its decision, the Board was advised by its financial advisor, Keefe
Bruyette & Woods, Inc. ("Keefe Bruyette"), that the per share acquisition price
is fair to the stockholders of Damen from a financial point of view.
Stockholders will have an opportunity to vote on the proposed Merger at a
Special Meeting of Stockholders (the "Special Meeting") expected to take place
in the second quarter of 1999 after a proxy statement providing more details
about the proposed Merger is prepared and sent to stockholders.
You should, however, be aware of the following information concerning the
proposed Merger:
- - As of the date hereof, the directors and executive officers of Damen
collectively own 280,990 shares (9.50%) of the issued and outstanding
Common Stock, as well as vested options to acquire an additional
137,351 shares (4.64%) of the Common Stock. It is anticipated that the
directors and executive officers will vote their shares in favor of the
Merger Agreement. The Merger Agreement provides (as do Damen's stock
option plans) that upon the consummation of the Merger, the holders of
unexercised vested options will receive the difference between the
exercise price and the $18.35 per share cash price for each share
covered by an option. The average exercise price for the options held
by the executive officers and directors is $11.71. It is anticipated
that options held by directors and executive officers covering another
77,626 shares will vest prior to the consummation of the Merger.
Options representing 167,835 shares of Damen Common Stock, which will
not have vested prior to the consummation of the Merger, will be
cancelled upon the consummation of the Merger. Damen's stock option
plans and the awards to the nine directors and executive officers were
approved by stockholders in May of 1996. See discussion under the
headings, "EXECUTIVE COMPENSATION" and "DIRECTOR COMPENSATION" in
Damen's Proxy Statement for this year's Annual Meeting (the "Annual
Meeting Proxy Statement") which was mailed to stockholders on or about
January 28, 1999.
- - It is anticipated that the directors and executive officers of Damen
will hold 66,657 unvested shares of Common Stock under Damen's
Recognition and Retention Plan ("RRPs") prior to the consummation of
the Merger. The Merger Agreement provides that these shares will be
cancelled upon the consummation of the Merger. The RRPs and the awards
to the nine directors and executive officers were approved by
stockholders in May of 1996.
- - As disclosed in the Annual Meeting Proxy Statement, the
executive officers are entitled to receive certain severance payments
under their employment agreements upon their termination following a
change-in-control of Damen National Bank. The consummation of
1
<PAGE> 2
the Merger will constitute a change-in-control of Damen National Bank.
MidCity has indicated that it will terminate employment of these
officers following the consummation of the Merger, which will result in
payment of severance. These executive officers will be prohibited from
competing with Damen National Bank for a one-year period following
their termination. See the discussion under the heading "EXECUTIVE
COMPENSATION," in the Annual Meeting Proxy Statement.
- - The affirmative vote of the holders of a majority of the issued and
outstanding shares of Damen Common Stock is required to approve the
Merger. If stockholders holding more than 5% of the Common Stock
dissent from the Merger, MidCity will have the right to terminate the
Merger, if it so chooses.
- - The Merger must be approved by the Board of Governors of the Federal
Reserve System. In addition, the consummation of the Merger is subject
to the satisfaction of other conditions customary for transactions like
the Merger. The business of Damen until the consummation of the Merger
will be conducted in accordance with certain guidelines contained in
the Merger Agreement.
- - The Merger Agreement permits Damen to pay its regular quarterly
dividend of $.12 per share until the consummation of the Merger.
- - The Merger Agreement requires the Board of Directors of Damen to
recommend that stockholders approve the Merger at the Special Meeting,
subject to the Board's fiduciary duties.
- - The obligations of Damen under the Merger Agreement, and the fiduciary
duties of the Board of Directors in making determinations relating to
the Merger Agreement (including any termination of, or recommendation
that stockholders approve, the Merger Agreement), will be the same
whether the incumbent Directors or the stockholder nominees (or any
combination) are elected to the Board of Directors at the Annual
Meeting.
- - Damen has no general right to terminate the Merger Agreement except
under certain specified circumstances. The Merger Agreement provides
customary termination provisions which allow Damen to terminate the
Merger Agreement in limited circumstances, including if the Board
receives a Takeover Proposal (as defined in the Merger Agreement)
which is, in the opinion of Damen's Board of Directors, more favorable
from a financial point of view to the stockholders, and the Board
determines, after receiving advice of counsel, that to proceed with
the Merger would violate the Board's fiduciary duties to stockholders.
Damen will have to pay a "Termination Fee" to MidCity of $1.0 million
plus reimburse MidCity for its reasonable out-of-pocket expenses if it
terminates the Merger Agreement for the reasons indicated. The
foregoing provisions apply regardless of whether the incumbent
Directors or the stockholder nominees (or any combination) are elected
to the Board of Directors at the Annual Meeting.
- - In addition, if the Merger Agreement is terminated because (i) Damen
receives a Takeover Proposal which the Board elects to pursue or (ii)
the Board fails to recommend that the stockholders approve the Merger,
or withdraws, modifies or amends, in any manner adverse to MidCity, its
approval or recommendation or recommends that stockholders accept a
Takeover Proposal, and within the following two years Damen enters into
a Takeover Proposal or Damen's Board shall have approved a Takeover
Proposal, Damen will be required to pay MidCity a "Termination Fee" of
$1.0 million as well as reimburse its reasonable out-of-pocket
expenses. Either party may be liable for damages if it breaches the
Merger Agreement which leads to the termination of the Merger. More
detailed provisions concerning the termination provisions of the Merger
Agreement are contained in the Merger
2
<PAGE> 3
Agreement, which will be filed by Damen with the Securities and
Exchange Commission (the "SEC") as an exhibit to a Form 8-K on or about
February 24, 1999. Damen's SEC filings are available to the public on
the Internet at http://www.sec.gov.
- - The Merger Agreement prohibits Damen, its executive officers,
directors, representatives and agents from: (i) soliciting any Takeover
Proposals from any persons which could reasonably be expected to lead
to an acquisition of Damen, and (ii) entering into negotiations with
any person for any such Takeover Proposal. Subject to certain
limitations, the Merger Agreement permits Damen to provide information
to any person who makes an unsolicited proposal to acquire Damen if
the Board determines in good faith, after consultation with counsel,
that its fiduciary duties require it to provide such information.
These restrictions will apply without regard to whether the incumbent
Directors or the stockholder nominees (or any combination) are elected
to the Board of Directors at the Annual Meeting.
- - Damen's investment banker has advised the Board that, in its opinion,
the per share cash price is fair to the stockholders of Damen from a
financial point of view. This opinion will be updated immediately prior
to the distribution of Damen's proxy statement for the Special Meeting.
In order to give stockholders time to consider the above information so as to be
able to make an informed decision before the Annual Meeting, and after
consultation with the SEC, Damen determined that it is appropriate to postpone
its Annual Meeting of Stockholders. As a consequence, the Annual Meeting has
been rescheduled to Friday, March 12, 1999, at 9:30 a.m., at the Marriott Hotel,
located at 50 North Martingale Road, Schaumburg, Illinois.
As you are aware, a group of dissident stockholders (the "Committee") is
conducting a disruptive proxy contest.
The Board believes Damen has made, and continues to make, significant
improvements in its business through a combination of hard work and disciplined
investment of your capital. Above all else, your Board is committed to enhancing
the value of your investment in Damen. Damen has continued its successes of
fiscal 1998 throughout the first quarter of this fiscal year. The following are
some of the highlights for the quarter ended December 31, 1998, compared with
the quarter ended December 31, 1997:
- Diluted Earnings - $0.18 per share, up from $0.15 - 20% increase
- Average Interest Spread - 2.01%, up from 1.85% - 8.6% increase
- Return on Assets (ROA) - .87%, up from .79% - more than 10% increase
- Quarterly Dividend - $0.12 per share, up from $0.06 - 100% increase -
66% of quarterly earnings
- Book Value per Share - $15.31, improved from $14.97
- Non-interest Income - $126,000, up from $45,000 - 280% increase
- Damen's Efficiency Ratio - Improved to 69.19% from 72.85%
The Committee has continually criticized Damen's stock price. As indicated in
the Annual Meeting Proxy Statement, Damen's return on investment for the period
from October of 1995 through December 31, 1998 was 73.5%, which your Board
believes is a fair return on your investment. Furthermore, comparing the
proposed purchase price of $18.35 per share offered by MidCity against Damen's
initial offering price of $10.00 indicates that the return on Damen's shares has
been 83.5% for the period from October of 1995 until February 22, 1999,
exclusive of dividends. Adding in the dividends paid of $1.00 per share since
January 1, 1996, improves the return to 93.5%. The Board
3
<PAGE> 4
believes that an 93.5% return on an investment in Damen's Common Stock, a small
bank holding company, which has a thinly-traded stock, represents a fair return
on your investment.
Your Board of Directors has always recognized its primary duty to be the
maximization of stockholder value. As a consequence, your Board engaged an
investment banking firm in March of 1998 to assist it in exploring its strategic
options, including a possible sale of Damen. Keefe Bruyette, pursuant to the
instructions given by your Board, held discussions with other companies to
determine if there is any interest in acquiring Damen. These discussions led to
the proposal made by MidCity which is embodied in the Merger Agreement.
The Committee has been critical of the compensation paid to management. The
facts are, however, that no bonuses were awarded for 1997 or 1998 and no pay
raises were granted for 1998 and 1999 (with the exception of a modest salary
increase for one officer). In addition, the executive officers took voluntary
pay cuts during the first quarter of 1997.
The Board would also note that the stock awards under its stock option plans and
recognition and retention plan were submitted to the stockholders and
overwhelmingly approved by them in May of 1996. In fact, Duggan advised Damen
management that he voted to approve these plans. In Damen's initial public
offering, Damen disclosed that it intended to enter into employment agreements
with its officers and disclosed the terms of these agreements. Damen has
disclosed all compensation paid to these officers in its proxy materials. As
noted in the Report of the Compensation Committee contained in the Annual
Meeting Proxy Statement, the Compensation Committee (which consists of four
outside directors) looked at a number of factors when setting executive
compensation, including compensation reviews prepared by third parties. Your
Board believes that the Committee's criticism of executive compensation is
unwarranted.
Your Board is urging you to vote "FOR" three current directors (Messrs. Tybor
and Caputo and Ms. Poronsky) who collectively have faithfully served the
interests of Damen and its stockholders, depositors and customers for over 60
years. See discussion in the Annual Meeting Proxy Statement, "PROPOSAL I --
ELECTION OF DIRECTORS." Your Board is also urging you to vote "AGAINST" a
proposal supported by the Committee. See discussion in the Annual Meeting Proxy
Statement, "PROPOSAL III -- STOCKHOLDER PROPOSAL."
FOR THE REASONS DISCUSSED ABOVE AND IN THE ANNUAL MEETING PROXY
STATEMENT, THE BOARD URGES YOU TO SUPPORT YOUR BOARD. IF YOU HAVE NOT ALREADY
DONE SO, PLEASE PROMPTLY SIGN, DATE AND MAIL THE ENCLOSED WHITE PROXY CARD
INDICATING YOUR VOTE FOR DAMEN'S NOMINEES FOR DIRECTORS AND THE SELECTION OF
DAMEN'S AUDITORS AND YOUR VOTE AGAINST THE STOCKHOLDER PROPOSAL.
THE BOARD ALSO UNANIMOUSLY AND VIGOROUSLY OPPOSES THE COMMITTEE'S
SOLICITATION OF PROXIES AND URGES YOU NOT TO SIGN ANY PROXY YOU MAY RECEIVE FROM
THE COMMITTEE.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER NOMINEE,
WE URGE YOU TO CONTACT THE PARTY RESPONSIBLE FOR YOUR ACCOUNT AND DIRECT HIM OR
HER TO VOTE "FOR" DAMEN'S NOMINEES AND "AGAINST" THE STOCKHOLDER PROPOSAL ON
DAMEN'S WHITE PROXY CARD.
4
<PAGE> 5
I strongly urge you to support your current Board of Directors by signing,
dating and returning the enclosed WHITE proxy card in the postage-paid overnight
mail envelope provided.
Very truly yours,
/s/ Mary Beth Poronsky Stull
----------------------------
Mary Beth Poronsky Stull
President
and Chief Executive Officer
IF YOU HAVE ANY QUESTIONS OR REQUIRE ANY ASSISTANCE, PLEASE CONTACT OUR PROXY
SOLICITOR, D.F. KING & CO. , INC. AT 1-800-628-8538.
5
<PAGE> 6
IMPORTANT
Your vote is important, no matter how many shares you own. Please
support your Board of Directors by signing, dating and promptly mailing your
enclosed WHITE proxy card. Remember, only your latest dated card will count. DO
NOT SIGN ANY CARD SENT TO YOU BY THE SO-CALLED COMMITTEE.
If you have already submitted a proxy to the Committee, you may change
your vote to a vote "FOR" the election of the Company's nominees and "AGAINST"
the Stockholder Proposal by signing, dating and returning the WHITE proxy card,
which must be dated after the proxy you submitted to the Committee. Only your
latest proxy for the Meeting will count at the Meeting.
If your shares are held in a brokerage firm, bank, bank nominee or
other institution, only it can vote your shares and only after receiving
specific instructions. Accordingly, please call the person responsible for your
account and instruct that person to execute the WHITE card on your behalf.
If you have any questions or need assistance, please call us at
847-882-5320 and ask to speak to Janine Poronsky or Mary Beth Poronsky Stull.
You may also call D.F. King, which is assisting us, toll-free at:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
1-800-628-8538
6
