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Exhibit 2
AGREEMENT AND PLAN OF MERGER
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AGREEMENT AND PLAN OF MERGER
dated as of
May 26, 2000
by and between
FARMERS NATIONAL BANC CORP.
and
SECURITY FINANCIAL CORP.
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TABLE OF CONTENTS
PAGE
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ARTICLE I - Definitions...........................................................................................3
1.01 Definitions.........................................................................................3
ARTICLE II - The Merger...........................................................................................6
2.01 The Merger..........................................................................................6
2.02 Effectiveness of Merger.............................................................................6
2.03 Effective Date and Effective Time...................................................................6
2.04 Bank Merger.........................................................................................6
ARTICLE III - Consideration; Exchange Procedures..................................................................7
3.01 Merger Consideration................................................................................7
3.02 Rights as Shareholders; Stock Transfers.............................................................7
3.03 Fractional Shares...................................................................................7
3.04 Exchange Procedures.................................................................................7
3.05 Anti-Dilution Provisions............................................................................8
ARTICLE IV Actions Pending Acquisition...........................................................................8
4.01 Forbearances of Security............................................................................8
4.02 Forbearances of Farmers............................................................................10
ARTICLE V Representations and Warranties........................................................................10
5.01 Disclosure Schedules...............................................................................10
5.02 Standard...........................................................................................10
5.03 Representations and Warranties of Security.........................................................10
5.04 Representations and Warranties of Farmers..........................................................16
ARTICLE VI Covenants............................................................................................17
6.01 Reasonable Best Efforts............................................................................17
6.02 Carry on Business in Normal Manner.................................................................17
6.03 Shareholder Approval...............................................................................18
6.04 Registration Statement.............................................................................18
6.05 Press Releases.....................................................................................18
6.06 Access; Information................................................................................18
6.07 Acquisition Proposals..............................................................................19
6.08 Affiliate Agreements...............................................................................19
6.09 Takeover Laws......................................................................................19
6.10 Farmers Common Stock Listing.......................................................................19
6.11 Regulatory Applications............................................................................20
6.12 Cooperation with Filings...........................................................................20
6.13 Indemnification....................................................................................20
6.14 Opportunity of Employment; Employee Benefits.......................................................20
6.15 Notification of Certain Matters....................................................................21
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6.16 Dividend Coordination..............................................................................21
6.17 Security Common Stock Options......................................................................21
6.18 Accounting and Tax Treatment.......................................................................21
6.19 No Breaches of Representations and Warranties......................................................21
6.20 Consents...........................................................................................21
6.21 Insurance Coverage.................................................................................21
6.22 Correction of Information..........................................................................21
6.23 Supplemental Assurances............................................................................21
6.24 Farmers Acquisition Proposal.......................................................................21
ARTICLE VII Conditions to Consummation of the Merger............................................................21
7.01 Conditions to Each Party's Obligation to Effect the Merger.........................................21
7.02 Conditions to Obligation of Security...............................................................22
7.03 Conditions to Obligation of Farmers................................................................23
ARTICLE VIII Termination........................................................................................23
8.01 Termination........................................................................................23
8.02 Effect of Termination and Abandonment; Enforcement of Agreement....................................24
ARTICLE IX Miscellaneous........................................................................................24
9.01 Survival...........................................................................................24
9.02 Waiver; Amendment..................................................................................24
9.03 Counterparts.......................................................................................24
9.04 Governing Law......................................................................................24
9.05 Expenses...........................................................................................24
9.06 Notices............................................................................................24
9.07 Entire Understanding; No Third Party Beneficiaries.................................................25
9.08 Interpretation; Effect.............................................................................25
9.09 Waiver of Jury Trial...............................................................................25
9.10 Successors and Assigns.............................................................................25
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AGREEMENT AND PLAN OF MERGER, dated as of May 26, 2000 (this
"Agreement"), is by and between Farmers National Banc Corp. ("Farmers") and
Security Financial Corp. ("Security").
RECITALS
A. Security. Security is an Delaware corporation, having its principal
place of business in Niles, Ohio.
B. Farmers. Farmers is an Ohio corporation, having its principal place
of business in Canfield, Ohio.
C. Intentions of the Parties. It is the intention of the parties to
this Agreement that the business combination contemplated hereby be accounted
for under the "pooling-of-interests" accounting method and that it be treated as
a "reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
D. Board Action. The respective Boards of Directors of each of Farmers
and Security have determined that it is in the best interests of their
respective companies and their shareholders to consummate the strategic business
combinations provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms are used in this Agreement with
the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving Security or
any of its subsidiaries or any proposal or offer to acquire in any manner
20% or more of the outstanding shares of any class of voting securities of,
or 15% or more of the assets or deposits of, Security or any of its
subsidiaries, other than the transactions contemplated by this Agreement.
"Affiliate" means with respect to any Person, any other Person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the first Person, including
without limitation all directors and executive officers of the first
Person.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Average Closing Price" has the meaning set forth in Section 8.01(e).
"Bank" means Security Dollar Bank, a wholly-owned subsidiary of
Security.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" has the meaning set forth in Section
5.03(m).
"Consultants" has the meaning set forth in Section 5.03(m).
"Costs" has the meaning set forth in Section 6.13(a).
"DGCL" means the Delaware General Corporation Law.
"DSS" means Office of the Secretary of State of the State of Delaware.
"Determination Date" has the meaning set forth in Section 8.01(e).
"Directors" has the meaning set forth in Section 5.03(m).
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Dissenting Shares" means any shares of Security Common Stock held by a
holder who properly demands and perfects appraisal rights with respect to such
shares in accordance with applicable provisions of the DGCL and any shares of
Farmers Common Stock held by a holder who properly demands and perfects
appraisal rights with respect to such shares in accordance with applicable
provisions of the OGCL.
"Effective Date" means the date on which the Effective Time occurs.
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"Effective Time" means the effective time of the Merger, as provided
for in Section 2.03.
"Employees" has the meaning set forth in Section 5.03(m).
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Federal Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Clean Water Act, the Federal Clean Air Act, and the Federal Occupational
Safety and Health Act, each as amended, regulations promulgated thereunder, and
state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Fund" has the meaning set forth in Section 3.04.
"Exchange Ratio" has the meaning set forth in Section 3.01.
"Farmers" has the meaning set forth in the preamble to this Agreement.
"Farmers Articles" means the Articles of Incorporation of Farmers, as
amended.
"Farmers Bank" means Farmers National Bank of Canfield.
"Farmers Board" means the Board of Directors of Farmers.
"Farmers Code" means the Code of Regulations of Farmers, as amended.
"Farmers Common Stock" means the common shares, without par value, of
Farmers.
"Farmers SEC Documents" has the meaning set forth in Section 5.04(f).
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Hazardous Substances" means (a) any "hazardous substance" as defined
in Section 101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act or regulations promulgated thereunder, (b) any "solid waste,"
"hazardous waste," or "infectious waste," as such terms are defined in any other
Environmental Law as of the date of this Agreement; and (c) asbestos,
urea-formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel or material,
chemical waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products, and other dangerous, toxic or hazardous pollutants,
contaminants, chemical, materials or substances listed or identified in, or
regulated by, any Environmental Law.
"Indemnified Party" has the meaning set forth in Section 6.13(a).
"IRS" has the meaning set forth in Section 5.03(m).
The term "knowledge" means, with respect to a party hereto, actual
knowledge after undertaking a reasonable investigation of any officer of that
party with the title of not less than a senior vice president and that party's
in-house counsel, if any.
"Lien" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to Farmers or Security,
any effect, change, event, occurrence or state of facts that (i) is material and
adverse to the financial position, results of operations or business of Farmers
and its subsidiaries taken as a whole, or Security and its subsidiaries taken as
a whole, respectively, or (ii) would materially impair the ability of either
Farmers or Security to perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of the Merger and the
other transactions contemplated by this Agreement; provided, however, that
Material Adverse Effect shall not be deemed to include the impact of (a) changes
in banking and similar laws of general applicability or interpretations thereof
by courts or governmental authorities or other changes affecting depository
institutions generally, changes in prevailing interest and deposit rates, (b)
any modifications or changes to valuation policies and practices in connection
with the Merger directed by Farmers or restructuring charges taken in connection
with the Merger directed by Farmers, in each case in accordance with generally
accepted accounting principles, (c) changes resulting from expenses (such as
legal, accounting and investment bankers' fees) incurred and Previously
Disclosed in connection with this Agreement or the transactions contemplated
herein, and (d) actions or omissions of a party which have been waived in
accordance with Section 9.02 hereof.
"Merger" has the meaning set forth in Section 2.01.
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"Merger Consideration" has the meaning set forth in Section 2.01.
"New Certificate" has the meaning set forth in Section 3.04.
"ODFI" means The Ohio Division of Financial Institutions.
"OGCL" means the Ohio General Corporation Law.
"Old Certificate" has the meaning set forth in Section 3.04.
"OSS" means the Office of the Secretary of State of the State of Ohio.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any individual, bank, corporation, partnership, limited
liability company, association, joint-stock company, business trust or
unincorporated organization.
"Pension Plan" has the meaning set forth in Section 5.03(m).
"Previously Disclosed" by a party shall mean information set forth in
its Disclosure Schedule.
"Proxy/Prospectus" has the meaning set forth in Section 6.04.
"Proxy Statement" has the meaning set forth in Section 6.04.
"Registration Statement" has the meaning set forth in Section 6.04.
"Regulatory Authority" has the meaning set forth in Section 5.03(i).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Security" has the meaning set forth in the preamble to this Agreement.
"Security Articles" means the Articles of Incorporation of Security,
and any amendment thereto.
"Security Affiliate" has the meaning set forth in Section 6.08(a).
"Security Board" means the Board of Directors of Security.
"Security Bylaws" means the bylaws adopted by the directors of Security
and any amendments thereto.
"Security Common Stock" means the common stock, no par value per share,
of Security.
"Security SEC Documents" has the meaning set forth in Section 5.03(g).
"Security Meeting" has the meaning set forth in Section 6.03.
"Security Properties" has the meaning set forth in Section 5.03(p).
"Security Special Event" has the meaning set forth in Section 6.07(b).
"Security Common Stock Option" and collectively "Security Common Stock
Options" have the meanings set forth in Section 6.17.
"Security Common Stock Option Plans" has the meaning set forth in
Section 6.17.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 of Regulation S-X of the SEC.
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"Superior Proposal" shall have the meaning set forth in Section 6.07
(c).
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Takeover Laws" has the meaning set forth in Section 5.03 (o).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom 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 taxing authority whether
arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean issued shares of Security Common Stock held
by Security or any of its subsidiaries other than in a fiduciary capacity or as
a result of debts previously contracted in good faith.
ARTICLE II
THE MERGER
2.01 THE MERGER. At the Effective Time, Security shall merge with and
into Farmers (the "Merger"), the separate corporate existence of Security shall
cease and Farmers shall survive and continue to exist as an Ohio corporation
(Farmers, as the surviving corporation in the Merger, sometimes being referred
to herein as the "Surviving Corporation"). Farmers may at any time prior to the
Effective Time change the method of effecting the Merger (including, without
limitation, the provisions of this Article II) if and to the extent it deems
such change to be necessary, appropriate or desirable; provided, however, that
no such change shall (i) alter or change the amount or kind of consideration to
be issued to holders of Security Common Stock as provided for in this Agreement
(the "Merger Consideration"), (ii) adversely affect the tax treatment of
Security's shareholders as a result of receiving the Merger Consideration or the
Merger qualifying for "pooling-of-interests" accounting treatment or (iii)
materially impede or delay consummation of the transactions contemplated by this
Agreement.
2.02 EFFECTIVENESS OF MERGER. Subject to the satisfaction or waiver of
the conditions set forth in Article VII, the Merger shall become effective upon
the occurrence of the filing in the offices of the OSS and the DSS certificates
of merger in accordance with the OGCL and the DGCL or such later date and time
as may be set forth in such filings. The Merger shall have the effects
prescribed in the OGCL and the DGCL.
2.03 EFFECTIVE DATE AND EFFECTIVE TIME. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall cause the
effective date of the Merger (the "Effective Date") to occur on (i) the day
designated by Farmers which day shall not be earlier than the third business day
to occur after the last of the conditions set forth in Article VII shall have
been satisfied or waived in accordance with the terms of this Agreement or later
than the last business day of the month in which such third business day occurs;
provided, no such election shall cause the Effective Date to fall after the date
specified in Section 8.01(c) hereof or after the date or dates on which any
Regulatory Authority approval or any extension thereof expires, or (ii) such
other date to which the parties may agree in writing. The time on the Effective
Date when the Merger shall become effective is referred to as the "Effective
Time."
2.04 BANK MERGER. Farmers intends to merge Bank with and into Farmers
Bank resulting in a single national banking association which shall be Farmers
Bank ("Bank Merger") after the Effective Time. The Bank Merger will be effective
pursuant to a Merger Agreement (the "Bank Merger Agreement") in the form
required by the National Bank Act, as amended and the laws in the State of Ohio,
and by any other applicable laws, containing terms and conditions by Farmers,
not inconsistent with this Agreement. The Bank Merger shall only occur if the
Merger is consummated, and it shall become effective immediately after the
effective time or such later time as may be determined by Farmers. To obtain the
necessary regulatory approval for the Bank Merger to occur immediately after the
Effective Time, Security and Bank shall approve, adopt, execute and deliver the
Bank Merger Agreement and take all other reasonable steps requested by Farmers
prior to the Effective Time to effect the Bank Merger; provided that neither
Security nor the Bank shall be required to incur any material cost or take any
irrevocable action in connection with its obligations under this section.
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ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any Person:
(a) OUTSTANDING SECURITY COMMON STOCK AND SECURITY RIGHTS. Each share,
excluding Treasury Stock, of Security Common Stock issued and outstanding
immediately prior to the Effective Time and each share of Security Common Stock
covered by a Security Common Stock Option exercised as of or prior to the
Effective Time shall be cancelled and extinguished and, in substitution and
exchange therefor, the holders shall be entitled to receive that number of
shares of Farmers Common Stock (the "Exchange Ratio") equal to a number (rounded
to the nearest thousandth) obtained by dividing $90.00, by the Farmers Common
Stock Average Closing Price; provided however, that the Exchange Ratio shall not
be less than 7.200, nor greater than 9.742, shares of Farmers Common Stock for
each one share of Security Common Stock, subject to adjustment as set forth in
Section 3.05. Security Common Stock held by Farmers or any of its subsidiaries
for its own account, and not in a fiduciary or representative capacity for a
person other than Farmers or any of its subsidiaries shall be cancelled and no
consideration shall be issuable or payable with respect to any such share.
(b) TREASURY STOCK. Each share of Security Common Stock held as
Treasury Stock immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
(c) OUTSTANDING FARMERS COMMON STOCK. Each share of Farmers Common
Stock issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding and unaffected by the Merger.
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of Security Common Stock shall cease to be, and shall have no rights as,
shareholders of Security, other than to receive any dividend or other
distribution with respect to such Security Common Stock with a record date
occurring prior to the Effective Time and the consideration provided under this
Article III, and appraisal rights in the case of Dissenting Shares. After 3
business days prior to the Effective Time, there shall be no transfers on the
stock transfer books of Security or the Surviving Corporation of any shares of
Security Common Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Farmers Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger. Such
fractional share interests shall not entitle the owner thereof to vote or to any
rights of a shareholder of the Surviving Corporation. Farmers shall pay to each
holder of Security Common Stock who would otherwise be entitled to a fractional
share of Farmers Common Stock (after taking into account all Old Certificates
delivered by such holder) an amount in cash (without interest) determined by
multiplying such fractional share of Farmers Common Stock to which the holder
would be entitled by the Average Closing Price of Farmers Common Stock.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time,
Farmers shall deposit, or shall cause to be deposited, with Farmers National
Bank of Canfield (in such capacity, the "Exchange Agent"), for the benefit of
the holders of certificates formerly representing shares of Security Common
Stock ("Old Certificates"), for exchange in accordance with this Article III,
certificates representing the shares of Farmers Common Stock ("New
Certificates") and an estimated amount of cash (such cash and New Certificates,
together with any dividends or distributions with a record date occurring on or
after the Effective Date with respect thereto (without any interest on any such
cash, dividends or distributions), being hereinafter referred to as the
"Exchange Fund") to be paid pursuant to this Article III in exchange for
outstanding shares of Security Common Stock.
(b) As promptly as practicable after the Effective Date, Farmers shall
send or cause to be sent to each former holder of record of shares of Security
Common Stock immediately prior to the Effective Time transmittal materials for
use in exchanging such shareholder's Old Certificates for the consideration set
forth in this Article III. The transmittal material shall include material for
use in exchanging Old Certificates for New Certificates or book entry shares
registered on Security's stock transfer record (Book Entry Shares) for new stock
certificates representing the number of shares of Farmers' stock to which such
holders shall be entitled. Such materials shall also include enrollment
materials in the Farmers dividend reinvestment plan and related instructions for
enrollment therein. Farmers shall cause the New Certificates into which shares
of a shareholder's Security Common Stock are converted on the Effective Date
and/or any check in respect of any fractional share interests or dividends or
distributions which such person shall be entitled to receive to be delivered to
such shareholder upon delivery to the Exchange Agent of Old Certificates
representing such shares of Security Common Stock (or security or an indemnity
affidavit reasonably satisfactory to Farmers and the Exchange Agent, if any Old
Certificates are lost, stolen or destroyed) owned by such shareholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person
shall be entitled to receive pursuant to this Article III upon such delivery.
Farmers shall cause the exchange agent to promptly register the shares of
Farmers common stock issuable to Security's holders of record in such manner, in
the names and to the addresses that appear on Security stock records as of the
Effective Time or in such other name to such other address as may be specified
by the holder of record in transmittal documents received by the exchange agent;
provided, however, that with respect to each Security stockholder, the exchange
agent shall have received all of the Old Certificates held by that stockholder,
or an affidavit of loss and indemnity bond for such certificate or such
certificates, together with properly executed transmittal materials; and such
certificates, transmittal materials, affidavits and bonds in a form and
condition reasonably acceptable to Farmers and the exchange agent.
(c) Notwithstanding the foregoing, neither the Exchange Agent, if any,
nor any party hereto shall be liable to any former holder of Security Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) No dividends or other distributions with respect to Farmers Common
Stock with a record date occurring on or after the Effective Date shall be paid
to the holder of any unsurrendered Old Certificate representing shares of
Security Common Stock converted in the Merger into the
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right to receive shares of such Farmers Common Stock until the holder thereof
shall be entitled to receive New Certificates in exchange therefor in accordance
with the procedures set forth in this Section 3.04. After becoming so entitled
in accordance with this Section 3.04, the record holder thereof also shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Farmers Common Stock such holder had the right to receive upon surrender of the
Old Certificates.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Security for six months after the Effective Time shall be
delivered to Farmers. Any shareholders of Security who have not theretofore
complied with this Article III shall thereafter look only to Farmers for payment
of the shares of Farmers Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on Farmers Common Stock deliverable in
respect of each share of Security Common Stock such shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
(f) Farmers may from time to time, in the case of one or more Persons,
waive one or more of the rights provided to it in this Article III of this
Agreement to withhold certain payments, deliveries and distributions; and no
such waiver shall constitute a waiver of its rights thereafter to withhold any
such payment, delivery or distribution in the case of any Person.
(g) Anything contained in this Agreement or elsewhere to the contrary
notwithstanding, if any person shall perfect dissenters' rights in respect of
one or more Dissenting Shares in accordance with Section 1701.85 of the OGCL
(sometimes hereafter called the "Ohio Dissenter's Statute") or Section 262 of
the DGCL (sometimes hereafter called the "Delaware Dissenter's Statute"), then:
(a) Each such Dissenting Share shall nevertheless be deemed to
be extinguished at the Effective Time as provided elsewhere
in this Agreement;
(b) Each person perfecting such dissenter's rights with respect
to Security Common Stock shall thereafter have only such
rights (and shall have such obligations) as are provided in
the Delaware Dissenter's Statute, and unless such rights
and such obligations of such person are terminated in
accordance with the provisions of the Delaware Dissenter's
Statute Farmers shall not be required to deliver any
Farmers Common Stock or cash payments to such person in
substitution for each such Dissenting Share in accordance
with this Agreement.
(c) Each person perfecting such dissenter's rights with respect
to Farmers' Common Stock shall thereafter have only such
rights (and shall have such obligations) as are provided in
the Ohio Dissenter's Statute.
No person entitled to relief as a dissenting shareholder with respect
to Security Common Stock shall be entitled to submit a letter of
transmittal, and any letter of transmittal submitted by such a
dissenting shareholder shall be invalid.
3.05 ANTI-DILUTION PROVISIONS. In the event Farmers changes (or
establishes a record date for changing) the number of shares of Farmers Common
Stock issued and outstanding between the date hereof and the Effective Date as a
result of a stock split, stock dividend, recapitalization, reclassification,
split up, combination, exchange of shares, readjustment or similar transaction
with respect to the outstanding Farmers Common Stock and the record date
therefor shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted. Shares issued pursuant to the requirements of the
Farmers Dividend Reinvestment Plan shall not effect the Exchange Ratio.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 FORBEARANCES OF SECURITY. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement and/or disclosed on the
Security Disclosure Schedule, without the prior written consent of Farmers,
Security will not, and will cause each of its subsidiaries not to:
(a) Ordinary Course. Except as otherwise provided in this Section 4.01,
conduct the business of Security and its subsidiaries other than in the ordinary
and usual course including compliance with the internal policies, lending
limits, authorizations and conduct as was established and adopted immediately
prior to execution of this Agreement and which are not inconsistent with the
Policies of Farmers as are previously disclosed, or fail to use reasonable
efforts to perform its obligations, to preserve intact their business
organizations and assets and maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates, or
voluntarily take any action which, at the time taken, is reasonably likely to
have an adverse effect upon Security's ability to perform any of its obligations
under this Agreement or enter into new activities or lines of business not
consistent with past practices.
(b) Capital Stock. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
Security Common Stock or any Rights, (ii) enter into any agreement with respect
to the foregoing, or (iii) permit any additional shares of Security Common Stock
to become subject to new Security Common Stock Options, other Rights or similar
stock-based employee Rights.
(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment any
dividend, other than (A) quarterly cash dividends on Security Common Stock in an
amount not to exceed $0.32 per share, with record and payment dates as indicated
in Section 6.16 hereof, and (B) dividends from wholly owned subsidiaries to
Security, or (ii) directly or indirectly adjust, split, combine, redeem,
reclassify, exchange, purchase or otherwise acquire, any shares of its capital
stock.
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(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of Security or its
subsidiaries, or grant any salary or wage increase or increase any employee
benefit, (including incentive or bonus payments) except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are required
by applicable law, or (iii) to satisfy Previously Disclosed contractual
obligations existing as of the date hereof.
(e) Benefit Plans. Enter into, establish, adopt or amend any pension,
retirement, stock option (except that Security may amend its Stock Option Plan
to provide that the execution of this Agreement shall constitute an "Applicable
Event" as defined is such plan), stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement (or similar arrangement) related thereto, in respect of any director,
officer or employee of Security or its subsidiaries, or take any action to
accelerate the vesting or exercisability of stock options, restricted stock or
other compensation or benefits payable thereunder; provided that Security may
(i) take such actions in order to satisfy either applicable law or Previously
Disclosed contractual obligations existing as of the date hereof or regular
annual renewal of insurance contracts; (ii) pay cash bonuses on the Closing Date
in the amounts accrued by Security as of the Closing Date as set forth in
Section 401(e) of the Disclosure Schedule; (iii) terminate its defined
contribution 401k plan at any time before the Effective Time, with benefit
distributions deferred until the IRS issues a favorable determination with
respect to the terminating plan's tax-qualified status upon termination and with
Security and Farmers to cooperate in good faith to apply for such approval and
to agree upon associated plan termination amendments that shall, among other
things, provide for the application of all assets of a terminating plan for its
participants, and allow plan participants not only to receive lump-sum
distributions of their benefits, but also to transfer those benefits to the
tax-qualified 401k plan that Farmers maintains for its employees.
(f) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its assets, deposits, business or properties
except in the ordinary course of business.
(g) Acquisitions, Reorganizations. Acquire (other than by way of
foreclosures or acquisitions of control in a bona fide fiduciary capacity or in
satisfaction of debts previously contracted in good faith, in each case in the
ordinary and usual course of business consistent with past practice) all or any
portion of, the assets, business, deposits or properties of any other entity; or
merge or consolidate with any other Person or otherwise reorganize.
(h) Governing Documents. Amend the Security Articles, Security Bylaws
or adopt regulations for Security or amend the articles of incorporation or code
of regulations (or similar governing documents) of any of Security's
subsidiaries.
(i) Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(j) Contracts. Enter into or terminate any contract requiring the
payment or receipt of $10,000 or more in any 12 month period or amend or modify
in any material respect any of its existing material contracts, other than loans
and contracts of deposit made by the Bank. Farmers will not unreasonably
withhold its consent to a request by Security for Security to enter into,
terminate, amend or modify such a contract.
(k) Claims. Settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for other material
claims, actions or proceedings and which involves solely money damages in an
amount, individually, not exceeding $10,000.
(l) Adverse Actions. (a) Take any action that would, or is reasonably
likely to, prevent or impede the Merger from qualifying (i) for
"pooling-of-interests" accounting treatment or (ii) as a reorganization within
the meaning of Section 368(a) of the Code; or (b) take any action that is
intended or is reasonably likely to result in (i) any of its representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Time, (ii) any of the
conditions to the Merger set forth in Article VII not being satisfied or (iii) a
violation of any provision of this Agreement except, in each case, as may be
required by applicable law or regulation.
(m) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate risk
management and other risk management policies, procedures or practices; (ii)
fail to follow its existing policies or practices with respect to managing its
exposure to interest rate and other risk; or (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure to
interest rate risk.
(n) Indebtedness. Incur any indebtedness for borrowed money or incur
any material obligation or liability other than in the ordinary course of
business.
(o) Capital Expenditures. Make any capital expenditures in excess of
$25,000 in the aggregate or for any item in excess of $5,000.
(p) Maintenance of Insurance. Fail to maintain insurance described in
Section 5.03(t).
(q) Maintenance of Property. Fail to maintain its property and
facilities in their present condition and working order, ordinary wear and tear
excepted.
(r) Compliance with Agreements. Take any action that would not or is
reasonably likely not to comply in all material respects with all laws,
regulations, agreements, court orders, administrative orders, memorandums of
understanding and formally adopted internal policy and procedures applicable to
the conduct of its business.
(s) Commitments. Agree or commit to do any of the foregoing.
12
4.02 FORBEARANCES OF FARMERS. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Security, Farmers will not, and will cause each of its
subsidiaries not to:
(a) Performance of Obligations. Take any action which, at the time
taken, is reasonably likely to have a material adverse affect upon Farmers's
ability to perform any of its material obligations under this Agreement.
(b) Adverse Actions. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(i) for "pooling of interests" accounting treatment or (ii) as a reorganization
within the meaning of Section 368(a) of the Code; or (b) knowingly take any
action that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied, or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, Security has
delivered to Farmers a schedule (respectively, its "Disclosure Schedule")
setting forth, among other things, items, the disclosure of which are necessary
or appropriate either in response to an express disclosure requirement contained
in a provision hereof or as an exception to one or more representations or
warranties contained in Section 5.03 or to one or more of its respective
covenants contained in Article IV and Article VI; provided, that (a) no such
item is required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence would not be reasonably likely to
result in the related representation or warranty being deemed untrue or
incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to have or result in a Material Adverse Effect on the
party making the representation. Security's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue,
incorrect or to have been breached as a result of effects on Security arising
solely from actions taken in compliance with a written request of Farmers.
5.02 STANDARD. No representation or warranty of Security or Farmers
contained in Section 5.03 or 5.04 (other than those paragraphs for which this
standard shall not apply) shall be deemed untrue or incorrect, and no party
hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
breach of representation or warranty contained in Section 5.03 or 5.04 has had,
or is reasonably likely to have, a Material Adverse Effect. The standard set
forth in this Section 5.02 shall not apply to paragraphs (a), (b), (c), (d) or
(g) of Section 5.03 or paragraphs (a), (b), (d) or (f) of Section 5.04.
5.03 REPRESENTATIONS AND WARRANTIES OF SECURITY. Subject to Sections
5.01 and 5.02 and except as Previously Disclosed in a paragraph of its
Disclosure Schedule corresponding to the relevant paragraph below, Security
hereby represents and warrants to Farmers:
(a) ORGANIZATION, STANDING AND AUTHORITY. Security is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and any foreign jurisdictions where its ownership or leasing
of property or assets or the conduct of its business requires it to be so
qualified. Security is registered as a bank holding company under the BHCA. Bank
is an Ohio chartered state banking corporation duly organized, validly existing
and in good standing under the laws of the state of Ohio. As a state bank, Bank
is qualified to do business where it does business. Security has delivered to
Farmers accurate and complete copies of the Security Articles and Security
Bylaws and the Bank's articles of incorporation and code of regulations.
(b) CAPITAL STRUCTURE OF SECURITY. The authorized capital stock of
Security consists solely of 1,500,000 shares of Security Common Stock, no par
value, of which 361,780 shares are outstanding. The outstanding shares of
Security Common Stock have been duly authorized, are validly issued and
outstanding, fully paid and nonassessable, and were not issued in violation of
any preemptive rights. Except as Previously Disclosed in its Disclosure
Schedule, (i) there are no shares of Security Common Stock authorized and
reserved for issuance, (ii) Security has no Rights issued or outstanding with
respect to Security Common Stock, and (iii) Security has no commitment to
authorize, issue or sell any Security Common Stock or Rights, except pursuant to
this Agreement. All Security Common Stock has been issued in full compliance
with all applicable federal and state securities laws.
(c) SUBSIDIARIES. (i)(A) Security has Previously Disclosed a list of
all of its subsidiaries together with the jurisdiction of organization of each
such subsidiary, (B) except as Previously Disclosed, Security owns of record and
beneficially all the issued and outstanding equity securities of each of its
subsidiaries, (C) except as Previously Disclosed, no equity securities of any of
its subsidiaries are or may become required to be issued (other than to it or
its wholly-owned subsidiaries) by reason of any Right or otherwise, (D) except
as Previously Disclosed, there are no contracts, commitments, understandings or
arrangements by which any of such subsidiaries is or may be bound to sell or
otherwise transfer any equity securities of any such subsidiaries (other than to
it or its wholly-owned subsidiaries), (E) except as Previously Disclosed, there
are no contracts, commitments, understandings, or arrangements relating to
Security's rights to vote or to dispose of such securities and (F) except as
Previously Disclosed, all the equity securities of each subsidiary held by
Security or its subsidiaries are fully paid and nonassessable and are owned by
Security or its subsidiaries free and clear of any Liens.
(ii) Each of Security's subsidiaries has been duly organized
and is validly existing in good standing under the laws of the jurisdiction of
its organization, and is duly qualified to do business and in good standing in
the jurisdictions where its ownership or leasing of property or the conduct of
its business requires it to be so qualified.
13
(d) CORPORATE POWER. Each of Security and its subsidiaries has full
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Security has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.
(e) CORPORATE AUTHORITY; AUTHORIZED AND EFFECTIVE AGREEMENT. Subject to
receipt of the requisite adoption of this Agreement by the holders of a majority
of the outstanding shares of Security Common Stock entitled to vote thereon,
this Agreement and the transactions contemplated hereby have been authorized by
all necessary corporate action of Security and the Security Board prior to the
date hereof. This Agreement is a valid and legally binding obligation of
Security, enforceable in accordance with its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by Security or any of its subsidiaries
in connection with the execution, delivery or performance by Security of this
Agreement or to consummate the Merger except for (A) filings of applications and
notices, as applicable, with and the approval of certain federal and state
banking authorities, (B) filings with the SEC and state securities authorities,
and (C) the filing of the certificates of merger with the OSS and DSS pursuant
to the OGCL and the DGCL. As of the date hereof, Security is not aware of any
reason why the approvals set forth in Section 7.01(b) will not be received
without the imposition of a condition, restriction or requirement of the type
described in Section 7.01(b).
(ii) Subject to receipt of the regulatory and shareholder
approvals and other actions referred to in paragraphs 5.03(e) and (f) above and
expiration of related regulatory waiting periods, and required filings under
federal and state securities laws, the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
thereby do not and will not (A) constitute a breach or violation of, or a
default under, or give rise to any Lien, any acceleration of remedies or any
right of termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument of
Security or of any of its subsidiaries or to which Security or any of its
subsidiaries or properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the Security Articles or the Security Code, or
(C) require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement, indenture or
instrument.
(g) FINANCIAL REPORTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
Security's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999, Security's Quarterly Report on Form 10-QSB for the quarters ended March
31, 2000, and all other reports, registration statements, definitive proxy
statements or other statements filed or to be filed by it or any of its
subsidiaries with the SEC subsequent to December 31, 1999 under the Securities
Act, or under Section 13, 14 or 15(d) of the Exchange Act, in the form filed or
to be filed (collectively, "Security SEC Documents") as of the date filed, (A)
complied or will comply in all material respects with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (B) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets or statements of condition
contained in or incorporated by reference into any such Security SEC Document
(including the related notes and schedules thereto) fairly presents, or will
fairly present, the consolidated financial position of Security and its
subsidiaries as of its date, and each of the statements of income or results of
operations and changes in shareholders' equity and cash flows or equivalent
statements in such Security SEC Documents (including any related notes and
schedules thereto) fairly presents, or will fairly present, the consolidated
results of operations, changes in shareholders' equity and cash flows, as the
case may be, of Security and its subsidiaries for the periods to which they
relate, in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments and the absence of
footnotes in the case of unaudited statements.
(ii) Since March 31, 2000, Security and its subsidiaries have
not incurred any material liability not disclosed in Security's SEC Documents,
other than in the ordinary course of business consistent with past practice.
(iii) Since March 31, 2000, except as disclosed in the
Security SEC Documents, (A) Security and its subsidiaries have conducted their
respective businesses in the ordinary and usual course consistent with past
practice (excluding matters related to this Agreement and the transactions
contemplated hereby); (B) no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and events
(described in any paragraph of Section 5.03 or otherwise), is reasonably likely
to have a Material Adverse Effect with respect to Security or the Bank; and (C)
neither Security nor any of its subsidiaries has taken any action or failed to
take any action which would have violated Section 4.01 if this Agreement had
been entered into on March 31, 2000.
(iv) Since January 1, 1997, Security and its subsidiaries have
timely filed all material reports and statements, together with any amendments
required to be made with respect thereto, that it is required to file with any
applicable federal or state securities or bank authorities, except failures to
file which are not reasonably likely to have, individually or in the aggregate,
a material adverse effect on Security. As of their respective dates, each of
such reports and documents, including the financial statements, exhibits and
schedules thereto, and including call reports, complied in all material with
respects to all applicable laws. As of its respective date, each such report and
document did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
(h) LITIGATION. Except as Previously Disclosed, no litigation, claim or
other proceeding before any court or governmental agency is pending against
Security or any of its subsidiaries and, to Security's knowledge, no such
litigation, claim or other proceeding has been threatened. Security has provided
a copy of each audit letter response received by Security from Attorneys for
Security or its subsidiaries in connection with the preparation of the financial
statements of Security or otherwise since December 31, 1997, relating to any
litigation pending as of the date of this
14
Agreement, to which Security or its subsidiaries is a party and which names
Security or a subsidiary as a defendant, cross defendant or a brief summary
report of any such litigation that is not discussed in such audit letter
responses.
(i) REGULATORY MATTERS. Except as Previously Disclosed, neither
Security nor any of its subsidiaries or Security's or their properties is a
party to or is subject to any order, judgment, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, or extraordinary supervisory letter from, any court or federal or
state governmental agency or authority, including any such agency or authority
charged with the supervision or regulation of financial institutions (or their
holding companies) or issuers of securities or engaged in the insurance of
deposits (including, without limitation, the Ohio Division of Financial
Institutions, the Federal Reserve System and the FDIC) or the supervision or
regulation of it or any of its subsidiaries (collectively, the "Regulatory
Authorities").
(j) COMPLIANCE WITH LAWS. Each of Security and its subsidiaries:
(i) has been in compliance with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or
to the employees conducting such businesses, including,
without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair
lending laws and other laws relating to discriminatory
business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and
registrations with, all Governmental Authorities that are
required in order to permit them to own or lease their
properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of
authority, orders and approvals are in full force and
effect and, to Security's knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received no notification or communication from any
Governmental Authority (A) asserting that Security or any
of its subsidiaries is not in compliance with any of the
statutes, regulations, or ordinances which such
Governmental Authority enforces or (B) threatening to
revoke any license, franchise, permit, or governmental
authorization (nor, to Security's knowledge, do any grounds
for any of the foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS. Except for this Agreement and as
Previously Disclosed, neither Security nor any of its subsidiaries is a party
to, bound by or subject to any agreement, contract, arrangement, commitment or
understanding (whether written or oral) (i) that is a "material contract" within
the meaning of Item 601(b)(10) of the SEC's Regulation S-K or (ii) that
restricts or limits in any way the conduct of business by it or any of its
subsidiaries (including without limitation a non-compete or similar provision)
or (iii) constitutes a power of attorney. Neither Security nor any of its
subsidiaries, nor any other party to such contracts, is in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its respective assets, business, or
operations may be bound or affected in any way, or under which it or its
respective assets, business, or operations receive benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default.
(l) NO BROKERS. Except for the engagement of Austin Associates, Inc.,
no action has been taken by Security that would give rise to any valid claim
against any party hereto for a brokerage commission, finder's fee or other like
payment with respect to the transactions contemplated by this Agreement.
(m) EMPLOYEE BENEFIT PLANS. (i) Section 5.03(m)(i) of Security's
Disclosure Schedule contains a complete and accurate list of all bonus,
incentive, deferred compensation, pension (including, without limitation,
Pension Plans), retirement, profit-sharing, thrift, savings, employee stock
ownership, stock bonus, stock purchase, restricted stock, stock option,
severance, welfare (including, without limitation, "welfare plans" within the
meaning of Section 3(1) of ERISA), fringe benefit plans, employment or severance
agreements and all similar practices, policies and arrangements maintained or
contributed to (currently or within the last six years) by (a) Security or any
of its subsidiaries and in which any employee or former employee (the
"Employees"), consultant or former consultant (the "Consultants") officer or
former officer (the "Officers"), or director or former director (the
"Directors") of Security or any of its subsidiaries participates or to which any
such Employees, Consultants, Officers or Directors either participate or are a
party or (b) any ERISA Affiliate (collectively, the "Compensation and Benefit
Plans"). Neither Security nor any of its subsidiaries has any commitment to
create any additional Compensation and Benefit Plan or to modify or change any
existing Compensation and Benefit Plan, except as otherwise contemplated by
Section 4.01(e) of this Agreement.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the Securities
Act, the Exchange Act, the Age Discrimination in Employment Act, or any
regulations or rules promulgated thereunder, and all filings, disclosures and
notices required by ERISA, the Code, the Securities Act, the Exchange Act, the
Age Discrimination in Employment Act and any other applicable law have been
timely made. Each Compensation and Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and
which is intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter (including a determination that the related
trust under such Compensation and Benefit Plan is exempt from tax under Section
501(a) of the Code) from the Internal Revenue Service ("IRS"), and Security is
not aware of any circumstances likely to result in revocation of any such
favorable determination letter. There is no material pending or, to the
knowledge of Security, threatened legal action, suit or claim relating to the
Compensation and Benefit Plans other than routine claims for benefits
thereunder. Neither Security nor any of its subsidiaries has engaged in a
transaction, or omitted to take any action, with respect to any Compensation and
Benefit Plan that would reasonably be expected to subject Security or any of its
subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
Section 502 of ERISA, assuming for purposes of Section 4975 of the Code that the
taxable period of any such transaction expired as of the date hereof.
15
(iii) No liability (other than for payment of premiums to the
PBGC which have been made or will be made on a timely basis) under Title IV of
ERISA has been or is expected to be incurred by Security or any of its
subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or any single-employer plan of any entity (an "ERISA
Affiliate Plan") which is considered one employer with Security under Section
4001(a)(14) of ERISA or Section 414(b), (c) or (m) of the Code (an "ERISA
Affiliate"). None of Security, any of its subsidiaries or any ERISA Affiliate
has contributed, or has been obligated to contribute, to a multiemployer plan
under Subtitle E of Title IV of ERISA (as defined in ERISA Sections 3(37)(A) and
4001(a)(3)) at any time since September 26, 1980. No notice of a "reportable
event", within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed for any
Compensation and Benefit Plan or by any ERISA Affiliate Plan within the 12-month
period ending on the date hereof, and no such notice will be required to be
filed as a result of the transactions contemplated by this Agreement. The PBGC
has not instituted proceedings to terminate any Pension Plan or ERISA Affiliate
Plan and, to Security's knowledge, no condition exists that presents a material
risk that such proceedings will be instituted. To the knowledge of Security,
there is no pending investigation or enforcement action by the PBGC, the
Department of Labor (the "DOL") or IRS or any other governmental agency with
respect to any Compensation and Benefit Plan. Under each Pension Plan and ERISA
Affiliate Plan, as of the date of the most recent actuarial valuation performed
prior to the date of this Agreement, the actuarially determined present value of
all "benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA
(as determined on the basis of the actuarial assumptions contained in such
actuarial valuation of such Pension Plan or ERISA Affiliate Plan), did not
exceed the then current value of the assets of such Pension Plan or ERISA
Affiliate Plan and since such date there has been neither an adverse change in
the financial condition of such Pension Plan or ERISA Affiliate Plan nor any
amendment or other change to such Pension Plan or ERISA Affiliate Plan that
would increase the amount of benefits thereunder which reasonably could be
expected to change such result.
(iv) All contributions required to be made under the terms of
any Compensation and Benefit Plan or ERISA Affiliate Plan or any employee
benefit arrangements under any collective bargaining agreement to which Security
or any of its subsidiaries is a party have been timely made or have been
reflected on Security's financial statements. Neither any Pension Plan nor any
ERISA Affiliate Plan has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA
and all required payments to the PBGC with respect to each Pension Plan or ERISA
Affiliate Plan have been made on or before their due dates. None of Security,
any of its subsidiaries or any ERISA Affiliate (x) has provided, or would
reasonably be expected to be required to provide, security to any Pension Plan
or to any ERISA Affiliate Plan pursuant to Section 401(a)(29) of the Code, and
(y) has taken any action, or omitted to take any action, that has resulted, or
would reasonably be expected to result, in the imposition of a lien under
Section 412(n) of the Code or pursuant to ERISA.
(v) Except as disclosed in Section 5.03(m)(v) of Security's
Disclosure Schedule, neither Security nor any of its subsidiaries has any
obligations to provide retiree health and life insurance or other retiree death
benefits under any Compensation and Benefit Plan, other than benefits mandated
by Section 4980B of the Code. Except as disclosed in Section 5.03(m)(v) of
Security's Disclosure Schedule, there has been no communication to Employees by
Security or any of its subsidiaries that would reasonably be expected to promise
or guarantee such Employees retiree health or life insurance or other retiree
death benefits on a permanent basis.
(vi) Security and its subsidiaries do not maintain any
Compensation and Benefit Plans covering foreign Employees.
(vii) With respect to each Compensation and Benefit Plan, if
applicable, Security has provided or made available to Farmers, true and
complete copies of existing: (A) Compensation and Benefit Plan documents and
amendments thereto; (B) trust instruments and insurance contracts; (C) two most
recent Forms 5500 filed with the IRS; (D) most recent actuarial report and
financial statement; (E) most recent summary plan description; (F) forms filed
with the PBGC within the past year (other than for premium payments); (G) most
recent determination letter issued by the IRS; (H) any Form 5310, Form 5310A,
Form 5300, or Form 5330 filed within the past year with the IRS; and (I) most
recent nondiscrimination tests performed under ERISA and the Code (including but
not limited to Code Section 401(k) and 401(m) tests).
(viii) Except as disclosed on Section 5.03(m)(viii) of
Security's Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement would not, directly or indirectly (including,
without limitation, as a result of any termination of employment prior to or
following the Effective Time) reasonably be expected to (A) entitle any
Employee, Consultant or Director to any payment (including severance pay or
similar compensation) or any increase in compensation, (B) result in the vesting
or acceleration of any benefits under any Compensation and Benefit Plan or (C)
result in any material increase in benefits payable under any Compensation and
Benefit Plan.
(ix) Except as disclosed on Section 5.03(m)(ix) of Security's
Disclosure Schedule, neither Security nor any of its subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would not
reasonably be expected to be deductible as a result of the limitations under
Section 162(m) of the Code and the regulations issued thereunder.
(x) Except as disclosed on Section 5.03(m)(x) of Security's
Disclosure Schedule, as a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result of
any termination of employment prior to or following the Effective Time), none of
Farmers, Security or the Surviving Corporation, or any of their respective
subsidiaries will be obligated to make a payment that would be characterized as
an "excess parachute payment" to an individual who is a "disqualified
individual" (as such terms are defined in Section 280G of the Code) of Security
on a consolidated basis, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future.
(n) LABOR MATTERS. Neither Security nor any of its subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
Security or any of its subsidiaries the subject of a proceeding asserting that
it or any such subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel Security or
any such subsidiary to bargain with any labor organization as to wages or
conditions of employment, nor is there any strike or other labor dispute
involving it or any of its subsidiaries pending or, to Security's knowledge,
threatened, nor is Security aware of any activity involving its or any of its
subsidiaries' employees seeking to certify a collective bargaining unit or
engaging in other organizational activity.
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Except as Previously Disclosed, neither Security nor any of its subsidiaries is
a party to any employment or consulting agreement not terminable at will.
(o) TAKEOVER LAWS. Security has taken all action required to be taken
by it in order to exempt this Agreement and the transactions contemplated hereby
from, and this Agreement and the transactions contemplated hereby are exempt
from, the requirements of any "moratorium", "control share", "fair price",
"affiliate transaction", "business combination" or other antitakeover laws and
regulations of any state or the Articles or Bylaws of Security (collectively,
"Takeover Laws") applicable to it.
(p) ENVIRONMENTAL MATTERS. Neither the conduct nor operation of
Security or its subsidiaries nor any condition of any property presently or
previously owned, leased or operated by any of them (including, without
limitation, in a fiduciary or agency capacity), or on which any of them holds a
Lien ("Security Properties"), violates or violated Environmental Laws, no
condition has existed or event has occurred with respect to any of them or any
Security Property that, with notice or the passage of time, or both, is
reasonably likely to result in liability under Environmental Laws. Neither
Security nor any of its subsidiaries has received any notice from any person or
entity that Security or its subsidiaries or the operation or condition of any
property ever owned, leased, operated, or held as collateral or in a fiduciary
capacity by any of them are or were in violation of or otherwise are alleged to
have liability under any Environmental Law, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such property.
None of the Security Properties has asbestos, urea formaldehyde, or lead paint.
None of the Security Properties is on any state or federal list of properties
suspected to contain hazardous wastes or Hazardous substances, or has or
currently contain any underground storage tanks, above ground storage tanks,
manufactured gas activities, industrial/manufacturing activities, or the storage
of any Hazardous substances (except in small quantities used in compliance with
all Environmental Laws for residential or commercial cleaning purposes). None of
the Security Properties is known by Security or any of its subsidiaries to be
within 500 feet of any property which has or had underground storage tanks,
above ground storage tanks, manufactured gas activities,
industrial/manufacturing activities, or the storage of any Hazardous substances
(except in small quantities used in compliance with all Environmental Laws for
residential or commercial cleaning purposes). Neither Security nor any of its
subsidiaries has participated in the management of any business or property
owned, leased or controlled by any third party which generated, managed, stored,
treated or disposed of any Hazardous substances. Upon requests by Farmers,
Security shall provide to Farmers a Phase I Environmental Assessment Report on
any properties, which, upon investigation by Farmers, indicate a potential
presence of materials which are likely to result in a violation of Environmental
Laws, in the reasonable judgment of Farmers.
(q) TAX MATTERS. (i) All Tax Returns that are required to be filed by
or with respect to Security and its subsidiaries have been duly and timely
filed, and all such Tax Returns are true, correct and complete (ii) all Taxes
shown to be due on the Tax Returns referred to in clause (i) have been paid in
full, (iii) the Tax Returns referred to in clause (i) have not been examined by
the Internal Revenue Service or the appropriate state, local or foreign taxing
authority, and no such examination has been threatened (iv) except for Tax
Returns for fiscal years ended on or after December 31, 1995, the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired, (v) all deficiencies asserted or assessments made as a result
of such examinations have been paid in full, (vi) no issues that have been
raised by the relevant taxing authority in connection with the examination of
any of the Tax Returns referred to in clause (i) are currently pending, and
(vii) no waivers of statutes of limitation have been given by or requested with
respect to any Taxes of Security or its subsidiaries. Security has made or will
make available to Farmers true and correct copies of the United States federal
income Tax Returns filed by Security and its subsidiaries for each of the three
most recent fiscal years ended on or before December 31, 1999. Neither Security
nor any of its subsidiaries has any liability with respect to Taxes that accrued
on or before the end of the most recent period covered by the Security SEC
Documents in excess of the amounts accrued with respect thereto that are
reflected in the Security SEC Documents. As of the date hereof, neither Security
nor any of its subsidiaries has any reason to believe that any conditions exist
that might prevent or impede the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code. Security and its subsidiaries
have withheld or collected and paid over to the appropriate governmental
authorities or are properly holding for such payment all Taxes required by law
to be withheld or collected. There are no Liens for Taxes upon the assets of
Security or any of its subsidiaries, other than Liens for current Taxes not yet
due and payable. Neither Security nor any of its subsidiaries has agreed to
make, or is required to make, any adjustment under Section 481(a) of the Code.
Neither Security nor any of its subsidiaries is a party to any agreement,
contract, arrangement or plan that has resulted, or could result, individually
or in the aggregate, in the payment of "excess parachute payments" within the
meaning of Section 280G of the Code. Neither Security nor any of its
subsidiaries has ever been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code, other than an affiliated group
of which Security is or was the common parent corporation.
(ii) No Tax is required to be withheld pursuant to Section
1445 of the Code as a result of the transfer contemplated by this Agreement.
(iii) Security and its subsidiaries will not be liable for
any Taxes as a result of the transfer contemplated by this Agreement.
(r) RISK MANAGEMENT INSTRUMENTS. All material interest rate swaps,
caps, floors, option agreements, futures and forward contracts and other similar
risk management arrangements, whether entered into for Security's own account,
or for the account of one or more of Security's subsidiaries or their customers
(all of which are listed on Security's Disclosure Schedule), were entered into
(i) in accordance with prudent business practices and all applicable laws,
rules, regulations and regulatory policies and (ii) with counterparties believed
to be financially responsible at the time; and each of them constitutes the
valid and legally binding obligation of Security or one of its subsidiaries,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and is in full
force and effect. Neither Security nor its subsidiaries, nor to Security's
knowledge any other party thereto, is in breach of any of its obligations under
any such agreement or arrangement.
(s) BOOKS AND RECORDS. The books and records, including Shareholder
information, of Security and its subsidiaries have been fully, properly and
accurately maintained, have been maintained in accordance with sound business
practices and there are no inaccuracies or discrepancies of any kind contained
or reflected therein and they fairly reflect the substances of events and
transactions included therein.
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(t) INSURANCE. Security's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by Security or its subsidiaries
and a description of all claims filed against the insurers of Security and its
subsidiaries since December 31, 1997. Security and its subsidiaries are insured
with reputable insurers against such risks and in such amounts as are customary
and adequate for comparable entities engaged in the same business and industry.
Management of Security has, after reasonable investigation, determined that the
amount of insurance is adequate to satisfy any current potential losses or
claims now pending or claims anticipated by Management of Security which may be
filed against such policies. All such insurance policies are in full force and
effect; Security and its subsidiaries are not in material default thereunder;
and all claims thereunder have been filed in due and timely fashion.
(u) ACCOUNTING TREATMENT. As of the date hereof, after reasonable
investigation, it is aware of no reason why the Merger will fail to qualify for
"pooling-of-interests" accounting treatment.
(v) DISCLOSURE. The representations and warranties contained in this
Section 5.03, the Security Disclosure Schedule, and the other written materials
furnished by Security to Farmers pursuant to this Agreement do not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements and information contained therein not misleading
in light of the circumstances under which such statements were made.
(w) YEAR 2000. Neither Security nor any of its subsidiaries has
received, or has reason to believe that it will receive, a written rating of
less than "satisfactory" on any Year 2000 Report of Examination of any
Regulatory Authority.
(x) MATERIAL ADVERSE CHANGE. Security has not, on a consolidated basis,
suffered a change in its business, financial condition or results of operations
since March 31, 2000 that has had a Material Adverse Effect on Security.
(y) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Security nor any of its
subsidiaries has any liability (contingent or otherwise), except as disclosed in
the Security SEC Documents and except for liabilities and obligations incurred
since the March 31, 2000, in the ordinary course of business.
(z) PROPERTIES. Security and its subsidiaries have good and marketable
title, free and clear of all liens, encumbrances, charges, defaults or equitable
interests to all of the properties and assets, real and personal, reflected in
the Security SEC Documents as being owned by Security as of March 31, 2000, or
acquired after such date, except (i) liens for current taxes in amounts not yet
due and payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of banking business, (iii) such imperfections of title,
easements, encumbrances, liens, charges, defaults or equitable interests, if
any, as do not affect the use of properties or assets subject thereto or
affected thereby or otherwise impair business operations at such properties,
(iv) dispositions and encumbrances in the ordinary course of business none of
which exceed $25,000 in the aggregate, and (v) liens on properties acquired in
foreclosure or on account of debts previously contracted. All leases pursuant to
which Security or any of its subsidiaries, as lessee, leases real or personal
property (except for leases that have expired by their terms or that Security or
any such subsidiary has agreed to terminate since the date hereof) are valid
without default thereunder by the lessee or, to Security's knowledge, the
lessor. All of the assets of Security and its subsidiaries are in good operating
condition and repair, ordinary wear and tear excepted, and are adequate to
continue to conduct the business of Security and its subsidiaries as such
businesses are presently being conducted. All buildings and improvements of
Security are in good condition (normal wear and tear excepted), are structurally
sound and are not in need of material repairs, are fit for their intended
purposes and are adequately serviced by all utilities necessary for the
effective operation of business as presently conducted at that location. No real
property of Security or its subsidiaries is in material violation of any zoning
regulation, building restriction, restrictive covenant, ordinance, or other law,
order, regulation or requirement relating to any Security real property. There
is no proposal under active consideration by any public or governmental
authority or entity to acquire Security real property for any governmental
purpose. No real property is the subject of any condemnation action.
(aa) LOANS. Each loan reflected as an asset or which makes up a part of
the assets in the Security SEC Documents as of March 31, 2000, and each balance
sheet date subsequent thereto, other than loans the unpaid balance of which does
not exceed $300,000 in the aggregate, (i) is evidenced by notes, agreements or
other evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interest which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
(bb) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected
in the Security SEC Documents, as of their respective dates, is adequate under
the requirements of generally accepted accounting principles and as determined
by Management, after reasonable investigation, to provide for reasonably
anticipated losses on outstanding loans. The Security Disclosure Schedule sets
forth all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of Security and its subsidiaries
that have been classified as "other loans specifically mentioned", "special
mention", "substandard", "doubtful", "loss", "classified", "criticized", "credit
risk assets", "concern loans", or words of similar import in the aggregate
amount thereunder of each such category or type.
(cc) REPURCHASE AGREEMENTS. With respect to all agreements pursuant to
which Security or any of its subsidiaries has purchased securities subject to an
agreement to resell, if any, Security or such subsidiary, as the case may be,
has a valid, perfected first lien or security interest in or evidence of
ownership in book entry form of the government securities or other collateral
securing the repurchase agreement, and the value of such collateral equals or
exceeds the amount of the debt secured thereby.
(dd) DEPOSIT INSURANCE. The deposits of Bank are insured by the FDIC in
accordance with The Federal Deposit Insurance Act ("FDIA"), and Bank has paid
all assessments and filed all reports required by the FDIA.
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(ee) INDEMNIFICATION CLAIM. To the knowledge of Security, there is no
event, action or omission by or with respect to any director, officer, employee,
trustee, agent or other person who may be entitled to receive indemnification or
reimbursement, claim, loss or expense under agreement, contract or arrangement
providing corporate indemnification or reimbursement of any such person.
5.04 REPRESENTATIONS AND WARRANTIES OF FARMERS. Subject to Sections
5.01 and 5.02 and except as Previously Disclosed in a paragraph of its
Disclosure Schedule, if any, corresponding to the relevant paragraph below,
Farmers hereby represents and warrants to Security as follows :
(a) ORGANIZATION, STANDING AND AUTHORITY. Farmers is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. Farmers is duly qualified to do business and is in good standing in the
State of Ohio and any foreign jurisdictions where its ownership or leasing of
property or assets or the conduct of its business requires it to be so
qualified. Farmers is registered as a bank holding company under the BHCA.
(b) CAPITAL STRUCTURE OF FARMERS. (i) As of the date of this Agreement,
the authorized capital stock of Farmers consists of 12,490,000 common shares,
without par value, of which 7,642,959 shares are were issued and outstanding. As
of the date of this Agreement, except as set forth in the Farmers SEC Documents
and options granted by Farmers since March 31, 2000, Farmers does not have any
Rights issued or outstanding with respect to Farmers Common Stock and Farmers
does not have any commitment to authorize, issue or sell any Farmers Common
Stock or and Farmers Serial Preferred Shares or Rights, except pursuant to this
Agreement. The outstanding shares of Farmers Common Stock have been duly
authorized and are validly issued and outstanding, fully paid and nonassessable,
and were not issued in violation of any preemptive rights.
(ii) The shares of Farmers Common Stock to be issued in
exchange for shares of Security Common Stock in the Merger, when issued in
accordance with the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and subject to no preemptive rights.
(c) CORPORATE POWER. Each of Farmers and its subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Farmers has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
(d) CORPORATE AUTHORITY; AUTHORIZED AND EFFECTIVE AGREEMENT. Subject to
receipt of the requisite adoption of this Agreement by the holders of a majority
of the outstanding shares of Farmers Common Stock entitled to vote thereon, this
Agreement and the transactions contemplated hereby have been authorized by all
necessary corporate action of Farmers and the Farmers Board prior to the date
hereof. This Agreement is a valid and legally binding agreement of Farmers,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors rights or by general equity principles).
(e) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by Farmers or any of its subsidiaries
in connection with the execution, delivery or performance by Farmers of this
Agreement or to consummate the Merger except for (A) the filing of applications
or notices, as applicable, with and the approval of certain federal banking
authorities; (B) the filing and declaration of effectiveness of the Registration
Statement; (C) the filing of the certificates of merger with the OSS and the DSS
pursuant to the OGCL and DGCL; (D) such filings as are required to be made or
approvals as are required to be obtained under the securities or "Blue Sky" laws
of various states in connection with the issuance of Farmers Common Stock in the
Merger; and (E) receipt of the approvals set forth in Section 7.01(b). As of the
date hereof, Farmers is not aware of any reason why the approvals set forth in
Section 7.01(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory and shareholder
approvals and other actions referred to in paragraphs 5.04(d) and (e) and
expiration of the related waiting periods, and required filings under federal
and state securities laws, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of termination
under, any law, rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of Farmers or of any of
its subsidiaries or to which Farmers or any of its subsidiaries or properties is
subject or bound, (B) constitute a breach or violation of, or a default under,
the articles of incorporation or Code of Regulations (or similar governing
documents) of Farmers or any of its subsidiaries, or (C) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument.
(f) FINANCIAL REPORTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
Farmers's Annual Report on Form 10-K for the fiscal year ended December 31,
1999, Farmers's Quarterly Report on Form 10-Q for the quarters ended March 31,
2000, and all other reports, registration statements, definitive proxy
statements or other statements filed or to be filed by it or any of its
subsidiaries with the SEC subsequent to December 31, 1999 under the Securities
Act, or under Section 13, 14 or 15(d) of the Exchange Act, in the form filed or
to be filed (collectively, "Farmers SEC Documents") as of the date filed, (A)
complied or will comply in all material respects with the applicable
requirements under the Securities Act or the Exchange Act, as the case may be,
and (B) did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets or statements of condition
contained in or incorporated by reference into any such Farmers SEC Document
(including the related notes and schedules thereto) fairly presents, or will
fairly present, the consolidated financial position of Farmers and its
subsidiaries as of its date, and each of the statements of income or results of
operations and changes in shareholders' equity and cash flows or equivalent
statements in such Farmers SEC Documents (including any related notes and
schedules thereto) fairly presents, or will fairly present, the consolidated
results of operations, changes in shareholders' equity and cash flows, as the
case may be, of Farmers and its subsidiaries for the periods to which they
relate, in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments and the absence of
footnotes in the case of unaudited statements.
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(ii) Since March 31, 2000, Farmers and its
subsidiaries have not incurred any material liability not disclosed in the
Farmers SEC Documents, other than in the ordinary course of business consistent
with past practice.
(iii) Except for its obligations pursuant to this
Agreement, since March 31, 2000, no event has occurred or circumstance arisen
that, individually or taken together with all other facts, circumstances and
events (described in any paragraph of Section 5.04 or otherwise), is reasonably
likely to have a Material Adverse Effect with respect to Farmers.
(g) BROKERAGE AND FINDER'S FEES. Farmers has not employed any broker,
finder, or agent, or agreed to pay or incurred any brokerage fee, finder's fee,
commission or other similar form of compensation in connection with this
Agreement or the transactions contemplated hereby.
(h) TAKEOVER LAWS. Farmers has taken all action required to be taken by
it in order to exempt this Agreement and the transactions contemplated hereby
from, and this Agreement and the transactions contemplated hereby are exempt
from, the requirements of any Takeover Laws applicable to Farmers.
(i) ENVIRONMENTAL MATTERS. Neither the conduct nor operation of Farmers
or its subsidiaries nor any condition of any property presently or previously
owned, leased or operated by any of them (including, without limitation, in a
fiduciary or agency capacity), or on which any of them holds a Lien ("Farmers
Properties"), violates or violated Environmental Laws, no condition has existed
or event has occurred with respect to any of them or any Farmers Property that,
with notice or the passage of time, or both, is reasonably likely to result in
liability under Environmental Laws. Neither Farmers nor any of its subsidiaries
has received any notice from any person or entity that Farmers or its
subsidiaries or the operation or condition of any property ever owned, leased,
operated, or held as collateral or in a fiduciary capacity by any of them are or
were in violation of or otherwise are alleged to have liability under any
Environmental Law, including, but not limited to, responsibility (or potential
responsibility) for the cleanup or other remediation of any pollutants,
contaminants, or hazardous or toxic wastes, substances or materials at, on,
beneath, or originating from any such property. None of the Farmers Properties
has asbestos, urea formaldehyde, or lead paint. None of the Farmers Properties
is on any state or federal list of properties suspected to contain hazardous
wastes or Hazardous substances, or has or currently contain any underground
storage tanks, above ground storage tanks, manufactured gas activities,
industrial/manufacturing activities, or the storage of any Hazardous substances
(except in small quantities used in compliance with all Environmental Laws for
residential or commercial cleaning purposes). None of the Farmers Properties is
known by Farmers or any of its subsidiaries to be within 500 feet of any
property which has or had underground storage tanks, above ground storage tanks,
manufactured gas activities, industrial/manufacturing activities, or the storage
of any Hazardous substances (except in small quantities used in compliance with
all Environmental Laws for residential or commercial cleaning purposes). Neither
Farmers nor any of its subsidiaries has participated in the management of any
business or property owned, leased or controlled by any third party which
generated, managed, stored, treated or disposed of any Hazardous substances.
(j) ACCOUNTING TREATMENT. As of the date hereof, Farmers is aware of no
reason why the Merger will fail to qualify for "pooling-of-interests" accounting
treatment.
(k) DISCLOSURE. The representations and warranties contained in this
Section 5.04 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 5.04 not misleading in light of the
circumstances under which such statements were made.
(l) YEAR 2000. Neither Farmers nor any of its subsidiaries has
received, or has reason to believe that it will receive, a written rating of
less than "satisfactory" on any Year 2000 Report of Examination of any
Regulatory Authority.
(m) MATERIAL ADVERSE CHANGE. Farmers has not, on a consolidated basis,
suffered a change in its business, financial condition or results of operations
since March 31, 2000, that has had a Material Adverse Effect on Farmers.
(n) DEPOSIT INSURANCE. The deposits of Farmers's bank subsidiaries are
insured by the FDIC in accordance with The Federal Deposit Insurance Act
("FDIA"), and said banks have paid all assessments and filed all reports
required by the FDIA.
ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, each of Security and Farmers agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
6.02 CARRY ON BUSINESS IN NORMAL MANNER. From the date of this
Agreement to the Effective Date, Security shall carry on its business in
substantially the same manner as heretofore and, without the written consent of
Farmers, Security shall not (a) do any of the things which Security represents
and warrants herein have not been done since March 31, 2000, or the date hereof,
as the case may be, except as necessary to carry out this Agreement on the part
of Security; (b) take any action which would be inconsistent with any
representation or warranty of Security set forth herein or which would cause a
breach of any such representation or warranty if made at or immediately
following such action; or (c) engage in any lending activities other than in the
ordinary course of business consistent with past practice. Security shall send
to Farmers via facsimile transmission a copy of all loan presentations made to
Security's Board at the same time as such presentations are transmitted to said
board and all other proposals for loans including refinanced loans in excess of
$50,000 to enable one of Farmers's senior loan committee members to review,
comment and make reasonable recommendations to the loan committee with respect
to such loan presentations. Security shall consult with Farmers prior to (x)
hiring
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any full-time officer, other than replacement employees for positions then
existing and (y) purchasing any investment securities in an amount exceeding
$50,000 per transaction. Security will use its reasonable best efforts to keep
its business organizations intact, to keep available the services of present
employees, and to preserve the goodwill of customers, suppliers, and others
having business relations with them.
6.03 SHAREHOLDER APPROVAL. Security and Farmers agree to take, in
accordance with applicable law and their respective Articles, Bylaws or Code of
Regulations, all action necessary to convene an appropriate meeting of their
shareholders to consider and vote upon the adoption of this Agreement and any
other matters required to be approved or adopted by their respective
shareholders for consummation of the Merger (including any adjournment or
postponement, the "Security Meeting" and "Farmers Meeting"), as promptly as
practicable after the Registration Statement is declared effective. Each of
Security and Farmers shall recommend that its shareholders adopt this Agreement
at the their respective meetings unless otherwise necessary under the applicable
fiduciary duties as determined in good faith after consultation with and based
upon advice of independent legal counsel.
6.04 REGISTRATION STATEMENT. (a) Farmers agrees to prepare pursuant to
all applicable laws, rules and regulations a registration statement on Form S-4
(the "Registration Statement") to be filed by Farmers with the SEC in connection
with the issuance of Farmers Common Stock in the Merger (including the proxy
statement and prospectus and other proxy solicitation materials of Security
constituting a part thereof (the "Proxy Statement") and all related documents).
Security agrees to cooperate, and to cause its subsidiaries to cooperate, with
Farmers, its counsel and its accountants, in preparation of the Registration
Statement and the Proxy Statement; and provided that Security and its
subsidiaries have cooperated as required above, Farmers agrees to file the
Registration Statement, which will include the Proxy Statement (together, the
"Proxy/Prospectus") with the SEC as promptly as reasonably practicable. Each of
Security and Farmers agrees to use all reasonable efforts to cause the
Proxy/Prospectus to be declared effective under the Securities Act as promptly
as reasonably practicable after filing thereof. Farmers also agrees to use all
reasonable efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement.
Security agrees to furnish to Farmers all information concerning Security, its
subsidiaries, officers, directors and shareholders as may be reasonably
requested in connection with the foregoing.
(b) Each of Security and Farmers agrees, as to itself and its
subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
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 were made, not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to the Security shareholders and at the time of the Security Meeting, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. Each of Security and Farmers further agrees,
if it shall become aware prior to the Effective Date of any information
furnished by it that would cause any of the statements in the Registration
Statement and the Proxy Statement to be false or misleading with respect to any
material fact, or to omit to state any material fact necessary to make the
statements therein not false or misleading, to promptly inform the other party
thereof and to take the necessary steps to correct the Registration Statement
and the Proxy Statement.
(c) Farmers agrees to advise Security, promptly after Farmers receives
notice thereof, of the time when the Registration Statement has become effective
or any supplement or amendment has been filed, of the issuance of any stop order
or the suspension of the qualification of Farmers Common Stock for offering or
sale in any jurisdiction, of the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information.
6.05 PRESS RELEASES. Each of Security and Farmers agrees that it will
not, without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law.
6.06 ACCESS; INFORMATION. (a) Security agrees that upon reasonable
notice and subject to applicable laws relating to the exchange of information,
it shall afford Farmers and Farmers's officers, employees, counsel, accountants
and other authorized representatives, such access during normal business hours
throughout the period prior to the Effective Time to the books, records
(including, without limitation, tax returns and work papers of independent
auditors), properties, personnel and to such other information as Farmers may
reasonably request and, during such period, Security shall furnish promptly to
Farmers (i) a copy of each material report, schedule and other document filed by
it pursuant to federal or state securities or banking laws, and (ii) all other
information concerning the business, properties and personnel of Security as
Farmers may reasonably request.
(b) Each of Security and Farmers agrees that it will not, and will
cause its representatives not to, use any confidential information obtained
pursuant to this Agreement (as well as any other information obtained prior to
the date hereof in connection with the entering into of this Agreement) for any
purpose unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Agreement (as well as any
other information obtained prior to the date hereof in connection with the
entering into of this Agreement) unless such information (i) was already known
to such party, (ii) becomes available to such party from other sources not known
by such party to be bound by a confidentiality obligation, (iii) is disclosed
with the prior written approval of the party to which such information pertains
or (iv) is or becomes readily ascertainable from published information or trade
sources. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to another party hereto to be returned to the
party which furnished the same. No investigation by either party of the business
and affairs of the other shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
(c) During the period from the date of this Agreement to the Effective
Time, Security shall promptly furnish Farmers with copies of all monthly and
other interim financial statements produced in the ordinary course of business
as the same shall become available.
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6.07 ACQUISITION PROPOSALS. (a) Security agrees that it shall not, and
shall cause its subsidiaries and its and its subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any Acquisition Proposal, subject to the extent that the Security
Board determines in good faith, after consultations with independent legal
counsel that it is required by its fiduciary duties to do so. It shall
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than Farmers with respect to any of the foregoing and shall use its
reasonable best efforts to enforce any confidentiality or similar agreement
relating to an Acquisition Proposal. Security shall promptly (within 24 hours)
advise Farmers following the receipt by Security of any inquiries or information
concerning an Acquisition Proposal and the substances thereof (including the
identity of the person making such Acquisition Proposal), and advise Farmers of
any material developments with respect to such Acquisition Proposal immediately
upon the occurrence thereof.
(b) SPECIAL FEE. In order to induce Farmers to enter into this
Agreement and to compensate Farmers for the time and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement and the losses suffered by Farmers from foregone opportunities, if the
Effective Time has not occurred on or before May 31, 2001, and a "Security
Special Event" (as defined below) has occurred, Security shall pay to Farmers on
May 31, 2001, $2,000,000 in immediately available funds; provided, however, that
if prior to May 31, 2001, Security notifies Farmers that it cannot consummate
the Merger because of a Security Special Event, then Security shall pay to
Farmers $2,000,000 in immediately available funds within three business days
following the date of such notice.
For purposes of the foregoing, "Security Special Event" shall mean any
of the following to occur on or prior to May 31, 2001: (i) a Person which is not
an Affiliate of Farmers has publicly announced or proposed, or consummated a
purchase, exchange or tender offer for shares of Security Common Stock
representing, on a fully diluted basis, more than 10% of the outstanding shares
of Security Common Stock, which causes the Merger not to be consummated; or (ii)
a Person that is not an Affiliate of Farmers has entered into an agreement with
respect to a merger, share exchange, consolidation, reorganization, combination
or similar transaction involving Security or the Bank or a purchase, lease or
other acquisition of all or any significant portion of the assets of, or an
equity interest (or an option, warrant or securities convertible into an equity
interest) from, Security or the Bank; or (iii) Security shall have caused the
Merger not to be consummated by May 31, 2001, for the purposes of pursuing any
proposal by any Person concerning (i) or (ii) above; (iv) failure of Security
directors to recommend the Merger or withdrawal or modification or announced
intention to not recommend the Merger; (v) recommendation or approval by the
Security Directors of another Acquisition Proposal; or (vi) failure of Security
to solicit proxies in favor of the Merger.
(c) (i) Notwithstanding any other provisions of this Agreement, prior
to the receipt of the approval of the Security shareholders described in 7.01(a)
the Board of Directors of Security, to the extent required by its fiduciary
obligations, as determined in good faith by the Board of Directors based on the
advice of counsel, may withdraw or modify its approval of the recommendation of
this Agreement or the Merger, approve or recommend any Superior Proposal, enter
into an agreement with respect to such Superior Proposal and terminate this
Agreement, so long as concurrently with entering into any agreement with respect
to a Superior Proposal, Security pays, or causes to be paid, to Farmers the
Special Fee described in Section 6.07(b) hereof. "Superior Proposal" as used
herein means any bona fide written Acquisition Proposal made by a third party
which the Board of Directors of Security determines in its good faith judgement
is reasonably capable of being completed and that, taking into account all
legal, financial, regulatory and other aspects of the proposal and the Person
making the proposal would, if consummated, be more favorable to the Security
shareholders from a financial point of view than the Merger.
(ii) Prior to receipt of the Security shareholder approval
described in Section 7.01(a) hereof, to the extent required by the fiduciary
obligations of the Board of Directors of Security, Security may, upon receipt of
an unsolicited Acquisition Proposal, and in response to it, (i) furnish
information with respect to Security and the Bank to any Person pursuant to a
customary confidentiality agreement (as determined by Security's counsel) and
answer questions about such information and (ii) participate in negotiations
regarding such unsolicited Acquisition Proposal.
6.08 AFFILIATE AGREEMENTS. (a) In the Security Disclosure Schedule and
not later than the 15th day prior to the mailing of the Proxy Statement,
Security shall deliver to Farmers a schedule of each person that, to the best of
its knowledge, is or is reasonably likely to be, as of the date of the Security
Meeting, deemed to be an "affiliate" of Security (each, a "Security Affiliate")
as that term is used in Rule 145 under the Securities Act or SEC Accounting
Series Releases 130 and 135. Security shall use its reasonable best efforts to
cause each person who may be deemed to be a Security Affiliate (who has not
executed and delivered to Farmers concurrently with the execution of this
Agreement) to execute and deliver to Security on or before the date of mailing
of the Proxy Statement an agreement in the form attached hereto as Exhibit A.
6.09 TAKEOVER LAWS. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
6.10 FARMERS COMMON STOCK LISTING. Shares of Farmers Common Stock are
not listed on any exchange. The NASD reports trading prices for Farmers Common
Stock on the inter-dealer Bulletin Board.
6.11 REGULATORY APPLICATIONS. Farmers and Security and their respective
subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to timely effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Each of Farmers and Security shall have the right to review
in advance, and to the extent practicable each will consult with the other, in
each case subject to applicable laws relating to the exchange of information,
with respect to, and shall be provided in advance so as to reasonably exercise
its right to review in advance, all material written information submitted to
any third party or any Governmental Authority in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other party
hereto with respect to the obtaining of all material permits, consents,
approvals and
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authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other party apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
6.12 COOPERATION WITH FILINGS. Each party agrees, upon request, to
furnish the other party with all information concerning itself, its
subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its subsidiaries
to any third party or Governmental Authority.
6.13 INDEMNIFICATION. (a) Following the Effective Date, Farmers shall
indemnify, defend and hold harmless the present directors, officers and
employees of Security and its subsidiaries (each, an "Indemnified Party")
against costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of actions or
omissions occurring on or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the fullest
extent that Security is required to indemnify (and advance expenses to) its
directors, officers, and employees under the laws of the State of Delaware and
the Security Articles as in effect on the date hereof; provided that any
determination required to be made with respect to whether an officer's,
director's or employee's conduct complies with the standards set forth under
Delaware's law and the Security Articles shall be made by the court in which the
claim, action, suit or proceeding was brought or by independent counsel (which
shall not be counsel that provides material services to Farmers) selected by
Farmers and reasonably acceptable to such officer, director or employee.
(b) For a period of three years from the Effective Time, Farmers shall
use its reasonable best efforts to provide that portion of director's and
officer's liability insurance that serves to reimburse the present and former
officers and directors of Security or any of its subsidiaries (determined as of
the Effective Time) (as opposed to Security) with respect to claims against such
directors and officers arising from facts or events which occurred before the
Effective Time, on terms no less favorable than those in effect on the date
hereof; provided, however, that Farmers may substitute therefor policies
providing at least comparable coverage containing terms and conditions no less
favorable than those in effect on the date hereof; provided, however that in no
event shall Farmers be required to expend, in the aggregate, more than 300
percent of the current annual amount expended by Security (the "Insurance
Amount") to maintain or procure such directors and officers insurance coverage
for the three year period provided for herein; provided, further that if Farmers
is unable to maintain or obtain the insurance called for by this Section
6.13(b), Farmers shall use its reasonable best efforts to obtain as much
comparable insurance as is available for the Insurance Amount; and provided,
further, that officers and directors of Security or any subsidiary may be
required to make application and provide customary representations and
warranties to Farmers's insurance carrier for the purpose of obtaining such
insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.13(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify Farmers thereof; provided
that the failure so to notify shall not affect the obligations of Farmers under
Section 6.13(a) unless and to the extent that Farmers is actually prejudiced as
a result of such failure.
(d) If Farmers or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any entity, then and in each case, proper provision shall
be made so that the successors and assigns of Farmers shall assume the
obligations set forth in this Section 6.13.
6.14 OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS. The existing
employees of Security may have the opportunity to continue as employees of
Farmers or one of its subsidiaries, on the Effective Date; subject, however, to
the right of Farmers and its subsidiaries to terminate any such employees. It is
understood and agreed that nothing in this Section 6.14 or elsewhere in this
Agreement shall be deemed to be a contract of employment or be construed to give
said employees any rights other than as employees at will under applicable law
and said employees shall not be deemed to be third-party beneficiaries of this
provision. From and after the Effective Time, Security employees shall continue
to participate in the Security employee benefit plans in effect at the Effective
Time unless and until Farmers, in its sole discretion, shall determine that
Security employees shall, subject to applicable eligibility requirements,
participate in employee benefit plans of Farmers and that all or some of the
Security plans shall be terminated or merged into certain employee benefit plans
of Farmers. Notwithstanding the foregoing, subject to the requirements and
restrictions of Farmers' employee benefits plans, each Security employee shall
be credited with years of Security (or predecessor) service for purposes of
eligibility and vesting (but not for benefit accrual purposes) in the employee
benefit plans of Farmers, and shall not be subject to any exclusion or penalty
for pre-existing conditions that were covered under Security's welfare plans
immediately prior to the Effective Date, or to any waiting period relating to
such coverage. If, after the Effective Date, Farmers adopts a new plan or
program for its employees or executives, then to the extent its employees or
executives receive past service credits for any reason, Farmers shall credit
similarly-situated employees and executives of Security with equivalent credit
for service with Security or its predecessors. The foregoing covenants shall
survive the Merger, and Farmers shall before the Effective Time adopt
resolutions that amend its tax-qualified retirement plans to provide for
Security service credits referenced herein.
6.15 NOTIFICATION OF CERTAIN MATTERS. Security shall give prompt notice
to Farmers of any fact, event or circumstance known to Security that (i) is
reasonably likely, individually or taken together with all other facts, events
and circumstances known to it, to result in any Material Adverse Effect with
respect to it or (ii) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
6.16 DIVIDEND COORDINATION. It is agreed by the parties hereto that
they will cooperate to assure that as a result of the Merger, during any
applicable period, there shall not be a payment of both a Farmers and a Security
dividend to former Security shareholders.
6.17 SECURITY COMMON STOCK OPTIONS. On or prior to the Effective Date,
all outstanding options to purchase shares of Security Common Stock ("Security
Common Stock Options") under the Security Financial Corp. 1997 Stock Option Plan
shall be exercised by the holder, or, surrendered by the holder for a cash
payment in accordance with the terms of such plan.
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6.18 ACCOUNTING AND TAX TREATMENT. Each of Farmers and Security agrees
not to take any actions subsequent to the date of this Agreement that would
adversely affect the ability to treat the Merger as a "pooling-of-interests" in
accordance with GAAP or Security or the shareholders of Security to characterize
the Merger as a tax-free reorganization under Section 368(a) of the Code, and
each of Farmers and Security agrees to take such action as may be reasonably
required, if such action may be reasonably taken to reverse the impact of any
past actions which would adversely impact the ability of Farmers or Security (as
the case may be) to treat the Merger as a "pooling-of-interests" for accounting
purposes or for the Merger to be characterized as a tax-free reorganization
under Section 368(a) of the Code.
6.19 NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the date of
this Agreement and the Effective Time, without the written consent of the other
party, each of Farmers and Security will not do any act or suffer any omission
of any nature whatsoever which would cause any of the representations or
warranties made in Article V of this Agreement to become untrue or incorrect in
any material respect.
6.20 CONSENTS. Each of Farmers and Security shall use its best efforts
to obtain any required consents to the transactions contemplated by this
Agreement.
6.21 INSURANCE COVERAGE. Security shall cause the policies of insurance
listed in the Disclosure Schedule to remain in effect between the date of this
Agreement and the Effective Date. In the discretion of Farmers, Security shall
cooperate to obtain "tail coverage" insurance on any policy deemed advisable by
Farmers.
6.22 CORRECTION OF INFORMATION. Each of Farmers and Security shall
promptly correct and supplement any information furnished under this Agreement
(including supplements to Disclosure Schedules) so that such information shall
be correct and complete in all material respects at all times, and shall include
all facts necessary to make such information correct and complete in all
material respects at all times.
6.23 SUPPLEMENTAL ASSURANCES. (a) On the date the Registration
Statement becomes effective and on the Effective Date, Security shall deliver to
Farmers a certificate signed by its principal executive officer and its
principal financial officer to the effect, to such officers' knowledge, that the
information contained in the Registration Statement relating to the business and
financial condition and affairs of Security, does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(b) On the date the Registration Statement becomes effective and on the
Effective Date, Farmers shall deliver to Security a certificate signed by its
chief executive officer and its chief financial officer to the effect, to such
officers' knowledge, that the Registration Statement (other than the information
contained therein relating to the business and financial condition and affairs
of Security) does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
6.24 FARMERS ACQUISITION PROPOSAL. Farmers shall not accept any offer
from any Person regarding an Acquisition Proposal (as defined in Section 1.01,
however, references therein to Security shall be deemed for purposes of this
section to refer to Farmers) unless such offer is expressly conditioned upon or
the offeror agrees to the performance by Farmers or its successor in interest of
its obligations under this Agreement. Farmers acknowledges that the restrictions
and agreements contained in this section are reasonable and necessary to protect
the legitimate interests of Security and that any violation of this section will
cause substantial and irreparable injury to Security that would not be
quantifiable and for which no adequate remedy would exist at law and agrees and
consents to, in addition to all other remedies which may be available to
Security, the entry of an injunction by any court of competent jurisdiction
against consummation of any transaction involving Farmers and another Person
which does not comply with this section until such transaction does comply with
this section.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of Farmers and Security to consummate the Merger
is subject to the fulfillment or written waiver by Farmers and Security prior to
the Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement (including the Plan of Merger)
shall have been duly adopted by the requisite vote of the shareholders of
Security and Farmers.
(b) REGULATORY APPROVALS. All regulatory approvals 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 and no such approvals or statute, rule, or
order shall contain any conditions, restrictions or requirements which Farmers
reasonably determines would either before or after the Effective Time (i) have a
Material Adverse Effect on Farmers and its subsidiaries taken as a whole after
giving effect to the consummation of the Merger; or (ii) prevent Farmers from
realizing the major portion of the economic benefits of the Merger and the
transactions contemplated thereby that Farmers currently anticipates obtaining.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced, threatened, commenced a
proceeding with respect to or entered any statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or permanent)
prohibiting or delaying consummation of the transactions contemplated by this
Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
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(e) BLUE SKY APPROVALS. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Farmers Common Stock to be issued in the
Parent Merger shall have been received and be in full force and effect.
(f) ACCOUNTING TREATMENT. Farmers shall have received from ▇▇▇▇, ▇▇▇▇▇
& ▇▇▇▇, LLC, Farmers's independent auditors, a letter, dated the date of or
shortly prior to the Effective Date, stating its opinion that the Merger shall
qualify for pooling-of-interests accounting treatment.
7.02 CONDITIONS TO OBLIGATION OF SECURITY. The obligation of Security
to consummate the Merger is also subject to the fulfillment or written waiver by
Security prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Farmers set forth in this Agreement shall be true and correct, subject to
Section 5.02, as of the date of this Agreement and as of the Effective Date as
though made on and as of the Effective Date (except that representations and
warranties that by their terms speak as of a specific date shall be true and
correct as of such date), and Security shall have received a certificate, dated
the Effective Date, signed on behalf of Farmers by the Chief Executive Officer
and the Chief Financial Officer of Farmers to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF FARMERS. Farmers shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Security shall have
received a certificate, dated the Effective Date, signed on behalf of Farmers by
the Chief Executive Officer and the Chief Financial Officer of Farmers to such
effect.
(c) TAX OPINION. Security shall have received an opinion of counsel to
Farmers, dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code and
(ii) no gain or loss will be recognized by shareholders of Security who receive
shares of Farmers Common Stock in exchange for shares of Security Common Stock,
and cash in lieu of fractional share interests, other than the gain or loss to
be recognized as to cash received in lieu of fractional share interests. In
rendering its opinion, counsel to Farmers will require and rely upon
representations contained in letters from Security and Farmers.
(d) OPINION OF FARMERS'S COUNSEL. Security shall have received an
opinion of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to Farmers, dated the Effective
Date, to the effect that, on the basis of the facts, representations and
assumptions set forth in the opinion, (i) Farmers is a corporation in good
standing under the laws of the State of Ohio, (ii) this Agreement has been duly
approved by the Farmers's Board and duly adopted by the shareholders of Farmers
(iii) this Agreement has been duly executed by Farmers and constitutes the
binding obligation of Farmers, enforceable in accordance with its terms against
Farmers, except as the same may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, and other similar laws relating to or
affecting the enforcement of creditors' rights generally, by general equitable
principles (regardless of whether enforceability is considered in a proceeding
in equity or at law) and by an implied covenant of good faith and fair dealing
(iv) that the Farmers Common Stock to be issued as Merger Consideration, when
issued, shall be duly authorized, fully paid and non-assessable, (v) that upon
the filing of the certificates of merger with the OSS and the DSS, the Merger
shall become effective and (vi) the shares of Farmers to be issued in the
exchange to Security Shareholders have been registered under the Securities Act
of 1933, as amended, and applicable Blue Sky laws.
(e) FAIRNESS OPINION. Security shall have received a fairness opinion
from Austin Associates, Inc., financial advisor to Security, dated as of a date
reasonably proximate to the date of the Proxy Statement, stating that the Merger
Consideration is fair to the shareholders of Security from a financial point of
view.
(f) CORPORATE RESOLUTIONS. Security shall have received from Farmers
copies of resolutions adopted by the directors and shareholders of Farmers
approving and adopting this Agreement and authorizing the consummation of the
transactions described herein accompanied by a certificate of the secretary or
assistant secretary of Farmers dated as of the Effective Date and certifying (1)
the date and manner of adoption of each such resolution; and (2) that each such
resolution is in full force and effect, without amendment, as of the Effective
Date.
7.03 CONDITIONS TO OBLIGATION OF FARMERS. The obligation of Farmers to
consummate the Merger is also subject to the fulfillment or written waiver by
Farmers prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Security set forth in this Agreement shall be true and correct, subject to
Section 5.02, as of the date of this Agreement and as of the Effective Date as
though made on and as of the Effective Date (except that representations and
warranties that by their terms speak as of a specific date shall be true and
correct as of such date) and Farmers shall have received a certificate, dated
the Effective Date, signed on behalf of Security by the Chief Executive Officer
and the Chief Financial Officer of Security to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF SECURITY. Security shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Farmers shall
have received a certificate, dated the Effective Date, signed on behalf of
Security by the Chief Executive Officer and the Chief Financial Officer of
Security to such effect.
(c) TAX OPINION. Farmers shall have received an opinion of its counsel,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code. In
rendering its opinion, counsel to Farmers will require and rely upon
representations contained in letters from Security and Farmers.
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(d) OPINION OF SECURITY'S COUNSEL. Farmers shall have received an
opinion of ▇▇▇▇▇▇ & Blank Co., LPA, counsel to Security, dated the Effective
Date, to the effect that, on the basis of the facts, representations and
assumptions set forth in the opinion, (i) Security is a corporation in good
standing under the laws of the State of Delaware, (ii) this Agreement has been
duly approved by the Security Board and duly adopted by the shareholders of
Security, (iii) this Agreement has been duly executed by Security and
constitutes a binding obligation on Security, enforceable in accordance with its
terms against Security, except as the same may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, and other similar
laws relating to or affecting the enforcement of creditors' rights generally, by
general equitable principles (regardless of whether enforceability is considered
in a proceeding in equity or at law) and by an implied covenant of good faith
and fair dealing, (iv) that upon the filing of the certificate of merger with
the OSS and the DSS, the Merger shall become effective and (v) the Shares of
Security to be exchanged pursuant to the Merger have been properly registered
under the 1933 Securities Act, as amended, and applicable Blue Sky laws.
(e) CERTIFICATE OF MERGER. Farmers shall have received from Security
certificates of merger duly executed by Security in accordance the requirements
of the OGCL and DGCL and in appropriate form for filing with the OSS and DSS.
(f) CORPORATE RESOLUTIONS. Farmers shall have received from Security
copies of resolutions adopted by the directors and shareholders of Security
approving and adopting this Agreement and authorizing the consummation of the
transactions described herein accompanied by a certificate of the secretary or
assistant secretary of Security dated as of the Effective Date and certifying
(1) the date and manner of adoption of each such resolution; and (2) that each
such resolution is in full force and effect, without amendment, as of the
Effective Date.
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated, and the
Acquisition may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of Farmers and Security, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by Farmers or
Security, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein (subject to the standard set forth
in Section 5.02); or (ii) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach, provided that such breach would be reasonably likely, individually or in
the aggregate with other breaches, to result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by Farmers or
Security, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Merger is not consummated by
May 31, 2001, except to the extent that the failure of the Merger then to be
consummated arises out of or results from the knowing action or inaction of the
party seeking to terminate pursuant to this Section 8.01(c).
(d) NO APPROVAL. By Security or Farmers, in the event (i) the approval
of any Governmental Authority required for consummation of the Merger and the
other transactions contemplated by this Agreement shall have been denied by
final nonappealable action of such Governmental Authority; (ii) the shareholders
of Security or Farmers fail to adopt this Agreement at the Security Meeting or
the Farmers Meeting, respectively; or (iii) any of the closing conditions have
not been met as required by Article VII hereof.
(e) FARMERS COMMON STOCK. By notice given by Security to Farmers if the
Farmers Common Stock Average Closing Price on the Determination Date shall be
less than $7.50; except that the termination notice by Security shall not be
effective and this Agreement shall not be terminated by such notice if Farmers
agrees to adjust the Exchange Ratio to that number resulting from dividing
$73.07 by the Farmers Common Stock Average Closing Price.
For purposes of this Section 8.01(e), the following terms shall have
the meanings indicated:
"Average Closing Price" shall mean the weighted average price (using
actual trading volume and prices as determined by a mutually agreeable source)
of a share of Farmers Common Stock during the period of 30 trading days ending
on the trading day prior to the Determination Date, rounded to the nearest whole
cent.
"Determination Date" shall mean the date immediately prior to the
Effective Date.
8.02 EFFECT OF TERMINATION AND ABANDONMENT; ENFORCEMENT OF AGREEMENT.
In the event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VIII, no party to this Agreement shall have any
liability or further obligation to any other party hereunder except (i) as set
forth in Section 9.01 and (ii) that termination will not relieve a breaching
party from liability for any breach of this Agreement giving rise to such
termination. Notwithstanding anything contained herein to the contrary, the
parties hereto agree that irreparable damage will occur in the event that a
party breaches any of its obligations, duties, covenants and agreements
contained herein. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches or threatened breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled by law or in equity.
26
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.13, 6.14 and 6.17 and this Article IX which shall survive the
Effective Time) or the termination of this Agreement if this Agreement is
terminated prior to the Effective Time (other than Sections 6.04(b), 6.05,
6.06(b), 6.07, 8.02, and this Article IX which shall survive such termination).
9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefited by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the Security Meeting, this Agreement may not be amended if it would violate the
DGCL or the federal securities laws.
9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Ohio applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law are applicable).
9.05 EXPENSES. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby. All
fees to be paid to Regulatory Authorities and the SEC in connection with the
transactions contemplated by this Agreement shall be borne by Farmers.
9.06 NOTICES. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Security, to:
Security Financial Corp.
▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Atten: C. ▇▇▇▇▇ ▇▇▇▇
With a copy to:
▇▇▇▇▇▇ & Blank Co., LPA
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to Farmers, to:
Farmers National Banc Corp.
▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Atten: ▇▇▇▇▇ ▇. ▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Atten: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and this Agreement supersedes any and all other
oral or written agreements heretofore made. The Disclosure Schedules shall be
deemed to be a part of this Agreement and shall not be amended without the prior
written consent of the other party hereto. Nothing in this Agreement, whether
express or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
9.08 INTERPRETATION; EFFECT. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
27
9.09 WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby.
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, including but not limited to, with respect to Farmers, any acquiring
party pursuant to Section 6.25 hereof.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
IN COUNTERPARTS BY THEIR DULY AUTHORIZED OFFICERS, ALL AS OF THE DAY AND YEAR
FIRST ABOVE WRITTEN.
FARMERS NATIONAL BANC CORP.
By:/S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
President & CEO
SECURITY FINANCIAL CORP.
By:/S/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman
28
May 26, 2000
Farmers National Banc Corp.
▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Gentlemen:
In connection with the proposed business combination in which Security Financial
Corp. ("Security") will be merged with and into Farmers National Banc Corp.
("Farmers"), in consideration of the exchange of Farmers Common Stock for
Security Common Stock, the undersigned hereby represents and agrees that he or
she will not (a) offer, sell or transfer any Farmers Common Stock (including any
securities which may be paid as a dividend or otherwise distributed thereon) to
be so received pursuant to the business combination; or (b) offer, sell or
transfer any Farmers Common Stock received pursuant to the exercise of stock
options, except that the undersigned may offer, sell or transfer such Farmers
Common Stock: (i) pursuant to a then-current effective registration under the
Securities Act of 1933 ("1933 Act"); (ii) in a transaction permitted by the
Securities and Exchange Commission's Rule 145; or (iii) in a transaction which,
in the opinion of counsel satisfactory to Farmers, is not required to be
registered under the 1933 Act.
In addition to the above, the undersigned also agrees that in order to preserve
pooling of interests accounting treatment for this transaction, he or she, as an
affiliate of Security will not sell or otherwise reduce his or her risk with
respect to any (a) shares of Farmers Common Stock received in the transaction or
otherwise acquired in any other manner or (b) shares of Security Common Stock
(however acquired) for a period beginning 30 days prior to the consummation of
such acquisition by merger and ending on the date the financial results covering
at least 30 days of post-acquisition combined operations of Farmers and Security
have been published in accordance with Section 6.08 of the Agreement and Plan of
Merger between Security and Farmers dated as of May 26, 2000.
The undersigned acknowledges that the above agreements are supported by valid
consideration.
Very truly yours,
-----------------------
[Title] ________________________________