OFFER TO PURCHASE FOR CASH
by
XXXXX FINANCIAL CORP.
of
Up to 150,000 Shares of Common Stock, Par Value $0.10 Per Share
At a Purchase Price
Not Greater Than $31.50 Nor Less Than $29.50 Per Share
--------------------------------------------------------------------------------
OUR OFFER AND YOUR RIGHT TO WITHDRAW YOUR SHARES EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON OCTOBER 29, 2004, UNLESS THE OFFER IS EXTENDED. WE MAY EXTEND THE
OFFER PERIOD AT ANY TIME.
--------------------------------------------------------------------------------
XXXXX FINANCIAL CORP. IS:
o offering to purchase up to 150,000 shares of our common stock in a
tender offer; and
o offering to purchase these shares at a price not greater than $31.50
nor less than $29.50 per share in cash, without interest.
IF YOU WANT TO TENDER YOUR SHARES INTO OUR OFFER, THEN YOU MUST:
o specify the price between $29.50 and $31.50 at which you are willing
to tender your shares;
o specify the number of shares you want to tender; and
o follow the instructions in this document and the related documents,
including the accompanying letter of transmittal, to submit your
shares.
WHEN OUR OFFER EXPIRES:
o we will select the lowest purchase price specified by tendering
stockholders that will allow us to purchase up to 150,000 shares or
such lesser number of shares as are tendered;
o if the number of shares tendered at or below the selected price is not
more than 150,000, we will purchase all these shares at that price;
and
o if the number of shares tendered at or below the selected price is
more than 150,000, we will purchase shares at the selected price:
o first from holders of less than 100 shares who tendered all of
their shares at or below the selected price, and
o then, on a pro rata basis from all other stockholders who
tendered shares at or below the selected price.
Our offer is not conditioned on any minimum number of shares being tendered. Our
offer is, however, subject to other conditions discussed under "The Offer - 6.
Conditions of Our Offer."
OUR BOARD OF DIRECTORS HAS APPROVED THIS OFFER. HOWEVER, NEITHER WE NOR ANY
MEMBER OF OUR BOARD OF DIRECTORS, OUR FINANCIAL ADVISOR NOR THE INFORMATION
AGENT MAKE ANY RECOMMENDATION TO YOU AS TO WHETHER YOU SHOULD TENDER OR REFRAIN
FROM TENDERING YOUR SHARES OR AS TO THE PRICE OR PRICES AT WHICH YOU MAY CHOOSE
TO TENDER YOUR SHARES. YOU MUST MAKE YOUR OWN DECISION AS TO WHETHER TO TENDER
YOUR SHARES AND, IF SO, HOW MANY SHARES TO TENDER AND THE PRICE OR PRICES AT
WHICH YOUR SHARES SHOULD BE TENDERED.
This document contains important information about our offer. We urge you to
read it in its entirety.
The Information Agent for this Offer is:
X.X. Xxxx & Co., Inc.
The date of this Offer to Purchase is September 28, 2004
(inside front cover)
IMPORTANT PROCEDURES
If you want to tender all or part of your shares, you must do one of the
following before the expiration date:
o if your shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee, contact the nominee
and have the nominee tender your shares for you; or
o if you hold certificates in your own name, then (a) complete and sign
the letter of transmittal according to its instructions, and (b)
deliver (i) the letter of transmittal, together with any required
signature guarantee, (ii) the stock certificates representing your
shares, and (iii) any other documents required by the letter of
transmittal to Registrar and Transfer Company, (the "depositary").
If you want to tender your shares, but:
o your stock certificates representing your shares are not immediately
available or they cannot be delivered to the depositary, or
o your other required documents cannot be delivered to the depositary by
the expiration date,
then you can still tender your shares, if you comply with the guaranteed
delivery procedure described under "The Offer - 2. Procedures for Tendering
Shares."
TO TENDER YOUR SHARES YOU MUST FOLLOW THE PROCEDURES DESCRIBED IN (A) THIS
DOCUMENT, (B) THE LETTER OF TRANSMITTAL, AND (C) THE OTHER DOCUMENTS RELATED TO
OUR OFFER, INCLUDING CHOOSING A PRICE AT WHICH YOU WANT TO TENDER YOUR SHARES.
If you wish to maximize the chance that your shares will be purchased by
us, you should check the box next to "Shares tendered at price determined
pursuant to the offer" in the section of the letter of transmittal titled "Price
At Which You Are Tendering." Note that this election could result in your shares
---------------------------------------------------
being purchased at the minimum price of $29.50 per share.
---------------------------------------------------------
If you have any questions or need assistance, you should contact X.X. Xxxx
& Co., Inc. (the "information agent") for our offer, at their address and
telephone number on the back page of this document. You may request additional
copies of this document, the letter of transmittal or the notice of guaranteed
delivery from the information agent.
TABLE OF CONTENTS
SECTION PAGE
----
Summary...................................................................... 1
Forward-Looking Statements................................................... 6
Special Factors.............................................................. 7
1. Background of the Offer.......................................... 7
2. Purposes of and Reasons for the Offer............................10
3. Fairness of the Offer............................................12
4. Fairness Opinion of Financial Advisor............................14
5. Our Plans After the Offer........................................18
6. Effects of the Offer.............................................19
7. Interests of Directors and Executive Officers;
Transactions and Arrangements Concerning Shares............21
8. Federal Income Tax Consequences.................................22
The Offer....................................................................26
1. Number of Shares; Price; Priority of Purchase....................26
2. Procedures for Tendering Shares..................................29
3. Withdrawal Rights................................................34
4. Purchase of Shares and Payment of Purchase Price.................35
5. Conditional Tender Procedures....................................36
6. Conditions of Our Offer..........................................37
7. Price Range of Shares; Dividends.................................38
8. Source and Amount of Funds.......................................39
9. Information About Us and the Shares..............................40
10. Effects of Our Offer on the Market for Our Shares;
Registration Under the Exchange Act .......................46
11. Legal Matters; Regulatory Approvals............................47
12. Extension of Our Offer; Termination; Amendment.................47
13. Fees and Expenses..............................................49
14. The Reverse Stock Split.........................................49
15. Miscellaneous..................................................50
SUMMARY
We are providing this summary for your convenience. It highlights
material information in this document. However, you should realize that it does
not describe all of the details of our offer to the same extent that they are
described in the body of this document. We urge you to read this entire document
and the related letter of transmittal carefully because they contain the full
details of our offer. Where helpful, we have included references to the sections
of this document where you will find a more complete discussion.
WHO IS OFFERING TO Xxxxx Financial Corp. ("Xxxxx Financial" or the
PURCHASE MY "Company"). We are offering to purchase up to
SHARES? 150,000 shares of our outstanding common stock.
See "- The Offer - 9. Information About Us and
the Shares."
WHAT IS THE PURCHASE The price range for our offer is $29.50 to
PRICE? $31.50.
We are conducting the offer through a procedure
commonly called a "modified Dutch auction."
This procedure allows you to choose a price
within this price range at which you are
willing to sell your shares to us.
We will look at the prices chosen by
stockholders for all of the shares properly
tendered. We will then select the lowest price
that will allow us to buy up to 150,000 shares.
If a lesser number of shares is tendered, we
will select the price that will allow us to buy
all shares that were properly tendered. All
shares we purchase will be purchased at the
same price, even if you have chosen a lower
price, but we will not purchase any
shares tendered at a price above the price
selected in accordance with these procedures.
If you wish to maximize the chance that your
shares will be purchased, you should check the
box next to "Shares tendered at price
determined pursuant to the offer" in the
section of the letter of transmittal titled
"Price At Which You Are Tendering." You should
understand that this election could result
in your shares being purchased at the minimum
price of $29.50 per share. See "The Offer - 1.
Number of Shares; Price; Priority of Purchase."
HOW AND WHEN WILL I BE If your shares are purchased in our offer, you
PAID? will be paid the purchase price, in cash,
without interest, as soon as practicable after
the expiration of the offer period and the
acceptance of the shares for payment. There may
be tax consequences to receiving this payment.
See "Special Factors - 8. Federal Income Tax
Consequences," The Offer - 1. Number of Shares;
Price; Priority of Purchase" "- 2. Procedures
for Tendering Shares," "- 4. Purchase of Shares
and Payment of Purchase Price."
1
HOW MANY SHARES WILL We will purchase up to 150,000 shares in our
XXXXX FINANCIAL PURCHASE offer, or approximately 13% of our outstanding
IN ALL? common stock as of September 22, 2004. We also
reserve the right to purchase additional shares
up to 2% of the outstanding shares, subject
to applicable legal requirements. Our offer is
not conditioned on any minimum number of shares
being tendered. See "- The Offer - 1. Number
of Shares; Price; Priority of Purchase."
IF I TENDER MY SHARES, HOW All the shares that you tender in our offer
MANY OF MY SHARES WILL may not purchased, even if they are tendered at
XXXXX FINANCIAL PURCHASE? or below the price we select. If more than
150,000 shares are ator below the selected
purchase price, we will purchase shares based
on the following order of priority:
o First, we will purchase shares from all
holders of "odd lots" of less than 100
shares who properly tender all of their
shares at prices equal to or below the
selected price.
o Second, we will purchase shares from all
other stockholders who properly tender
shares at prices equal to or below the
selected price, on a pro rata basis,
subject to the conditional tender
provisions described under "The Offer - 5.
Conditional Tender Procedures." As a
result, we will purchase the same
percentage of shares from each tendering
stockholder in this second category.
We will announce this proration
percentage, if it is necessary, after
our offer expires.
As we noted above, we may also choose to
purchase an additional 2% of the
outstanding shares, subject to applicable
legal rules. See "The Offer - 1. Number of
Shares; Price; Priority of Purchase."
HOW XXXX XXXXX FINANCIAL We would need a maximum of $4,725,000 to
PAY FOR THE SHARES? purchase 150,000 shares at the highest
price of $31.50. We will use cash on hand
to pay for the shares we purchase in this
offer. See "The Offer - 8. Source and
Amount of Funds."
HOW LONG DO I HAVE TO You may tender your shares until our offer
TENDER MY SHARES TO expires. The offer is scheduled to expire
XXXXX FINANCIAL on October 29, 2004, at 5:00 p.m., New
York City Time, but we may choose to
extend our offer at any time. We cannot
assure you that we will extend our offer
or, if we extend it, for how long it
will be extended. See "- The Offer - 1.
Number of Shares; Price; Priority of
Purchase" and "- 12. Extension of Our
Offer; Termination; Amendment."
2
HOW WILL I BE NOTIFIED IF If we extend our offer, then we will make
XXXXX FINANCIAL EXTENDS a public announcement before 9:00 a.m.,
THIS OFFER? New York City Time, on the first business
day after the scheduled expiration date.
See "The Offer - 12. Extension of Our
Offer; Termination; Amendment."
WHAT ARE THE CONDITIONS Our obligation to accept and pay for your
TO XXXXX FINANCIAL'S tendered shares is conditioned upon the
OFFER? satisfaction or waiver of the conditions
described in this document. See "The Offer
- 6. Conditions of Our Offer."
HOW DO I TENDER MY To tender your shares, you must complete
SHARES? one of the actions described under
"Important Procedures" on the inside front
cover of this document before the
expiration date.
You may also contact the information agent
or your broker for assistance. The contact
information for the Information agent is
on the back page of this document.
See "The Offer - 2. Procedure for
Tendering Shares" and the instructions
to the letter of transmittal.
ONCE I HAVE TENDERED Yes. If you tender your shares and change
SHARES IN THE OFFER, CAN I your mind, you may withdraw your shares
CHANGE MY MIND? at any time before our offer expires.
In addition, after our offer expires, if
we have not accepted for payment the
shares you have tendered to us, you may
withdraw your shares at any time after
12:00 midnight, New York City Time, on
November 27, 2004. See "The Offer - 3.
Withdrawal Rights."
To withdraw your shares, you must timely
deliver a written notice of your
withdrawal to the depositary at the
address or facsimile number appearing
on the back page of this document. Your
notice of withdrawal must specify (1) your
name, (2) the number of shares to be
withdrawn, and (3) the name of the
registered holder of the shares. Some
additional requirements apply if the
certificates for the shares to be
withdrawn have been delivered to
the depositary. See "The Offer - 3.
Withdrawal Rights."
3
WHAT DO XXXXX FINANCIAL Our Board of Directors has approved this
AND ITS BOARD OF offer. However, neither we, our board of
DIRECTORS THINK ABOUT directors, financial advisor nor the
THIS OFFER? information agent is making any
recommendation regarding whether you
should tender or not tender your shares or
at what price you should choose to
tender your shares. You must decide
whether to tender your shares and, if so,
how many shares to tender and the price or
prices at which you will tender them. You
should discuss whether to tender your
shares with your broker or other financial
or tax advisor. Our directors and
executive officers have advised us that
they do not intend to tender shares in our
offer. See "Special Factors - 2. Purposes
of and Reasons for the Offer."
WHAT IS A RECENT MARKET Our common stock is traded on the Nasdaq
PRICE OF MY XXXXX National Market under the symbol "WEFC."
FINANCIAL SHARES? On September 27, 2004, the closing sale
price of our common stock on the Nasdaq
National Market was $28.75. We urge you to
obtain more current market quotations for
your shares. For trading information
regarding the shares, you may call X.X.
Xxxx & Co., Inc., toll free at (800)
347-4750. See "- The Offer - 7. Price
Range of Shares; Dividends."
WILL I HAVE TO PAY If you are a registered stockholder and
BROKERAGE COMMISSIONS tender your shares directly to the
OR STOCK TRANSFER TAX IF I depositary, you will not need to pay any
TENDER MY SHARES TO brokerage commissions. If you hold shares
XXXXX FINANCIAL? through a broker or bank, however, you
should ask your broker or bank to see
if you will be charged a fee to tender
your shares. See "- The Offer - 2.
Procedures for Tendering Shares."
If you instruct the depositary in the
letter of transmittal to make the payment
for the shares to the registered holder,
you will not incur any stock transfer tax.
See "- The Offer - 4. Purchase of Shares
and Payment of Purchase Price."
WHAT ARE THE UNITED Generally, you will be subject to United
STATES FEDERAL INCOME States federal income taxation when you
TAX CONSEQUENCES IF I receive cash from us in exchange for the
TENDER MY SHARES TO shares you tender. The cash you receive
XXXXX FINANCIAL? will be treated either as:
o a sale or exchange eligible for capital
gains treatment;
or
o a dividend subject to ordinary income
tax rates.
See "Special Factors - 8. Federal Income
Tax Consequences."
WHOM DO I CONTACT IF I Our information agent can help answer your
HAVE QUESTIONS ABOUT questions. The Information agent is X.X.
XXXXX FINANCIAL'S OFFER? King & Co., Inc. Their contact information
appears on the back page of this document.
4
WHAT ARE THE EFFECTS OF We believe that our shares may be eligible
THE OFFER ON THE MARKET for deregistration under the Securities
FOR OUR SHARES? Exchange Act of 1934, as amended (the
"Exchange Act") following completion of
our offer and, if deregistered, would no
longer be eligible for quotation on the
Nasdaq National Market. We intend to
deregister and delist if we are eligible
to do so. See "The Offer - 10. Effects
of Our Offer on the Market for Our Shares;
Registration Under the Exchange Act"
WHEN WOULD XXXXX If, after our offer expires, the number of
FINANCIAL CONDUCT A our record holders exceeds 300, then we
REVERSE STOCK SPLIT? will not be eligible for deregistration
under the Exchange Act. As a result, we
intend then to initiate a reverse stock
split in a manner that will ensure that
the number of record holders is reduced to
below 300, thus, making us eligible for
deregistration under the Exchange Act. If
stockholders are cashed out as a result of
a reverse stock split, they will receive
the same price per share determined
pursuant to our offer. If we initiate a
reverse stock split, we may immediately
thereafter initiate a forward stock split
in order to increase the number of issued
and outstanding shares of our common
stock to pre-reverse stock split
levels, less any fractional shares that
are cashed-out in the reverse stock split.
You should be aware that under Minnesota
law, reverse and forward stock splits may
be completed without obtaining stockholder
approval. See "The Reverse Stock Split"
IF I DECIDE NOT TO TENDER, Because we plan to delist our common stock
HOW WILL THE OFFER from the Nasdaq National Market following
EFFECT MY SHARES OF completion of the offer (or the reverse
COMMON STOCK? stock split, if necessary), there would
likely be no active public market in which
to trade your shares of common stock; and
because we intend to terminate the
registration of our common stock under the
Exchange Act following completion of the
offer (or reverse stock split, if
necessary), we will no longer be required
to file periodic reports, such as
quarterly and annual reports, with the
Securities and Exchange Commission
("SEC"), and there will be very little
current public information regarding us
after the offer (or reverse stock split,
if necessary) is completed.
5
FORWARD-LOOKING STATEMENTS
This document contains a number of forward-looking statements regarding our
financial condition, results of operations and business. These statements may be
made directly in this document or may be incorporated in this document by
reference to other documents. These statements may also include references to
periods following the completion of our offer or other transactions described in
this document. You can find many of these statements by looking for words such
as "believes," "expects," "anticipates," "estimates," "intends," "plans," "may,"
"will" and "potential" and for similar expressions. Forward-looking statements
involve substantial risks and uncertainties. Some of the factors that may cause
actual results to differ materially from those contemplated by the
forward-looking statements include, but are not limited to, the following
possibilities:
o the timing and occurrence or non-occurrence of events, including the
conditions to our offer, may be subject to circumstances beyond our
control;
o there may be increases in competitive pressure among financial
institutions or from non-financial institutions;
o changes in the interest rate environment may reduce interest margins
or may adversely affect mortgage banking operations;
o changes in deposit flows, loan demand or real estate values may
adversely affect our business;
o changes in accounting principles, policies or guidelines may cause our
financial condition to be perceived differently;
o general economic conditions, either nationally or locally, in the
markets in which we do business, or conditions in securities markets,
the banking industry or the mortgage banking industry, may be less
favorable than we currently anticipate;
o legislation or regulatory changes may adversely affect our business;
o technological changes may be more difficult or expensive than we
anticipate;
o success or consummation of new business initiatives may be more
difficult or expensive than we anticipate; or
o litigation or other matters before regulatory agencies, whether
currently existing or commencing in the future, may delay the
occurrence or non-occurrence of events longer than we anticipate.
All subsequent written and oral forward-looking statements concerning our
offer or other matters addressed in this document and attributable to us or any
person acting on our behalf are qualified by these cautionary statements.
6
SPECIAL FACTORS
1. BACKGROUND OF THE OFFER
We were organized in December 1994 under the laws of the State of Minnesota
for the purpose of acquiring all of the issued and outstanding common stock of
Xxxxx Federal Bank, fsb. This acquisition occurred in April 1995 at the time the
Bank simultaneously converted from a mutual to a stock institution, and sold all
of its outstanding capital stock to us and we made our initial public offering
of common stock.
We have been subject to the reporting requirements of the Exchange Act
since completion of our initial public offering in 1995. Due largely to the
enactment of the Xxxxxxxx-Xxxxx Act of 2002 ("Xxxxxxxx-Xxxxx"), which resulted
in significant additional regulatory requirements adopted by both the SEC and
the Nasdaq Stock Market, the demands on management to comply with additional
regulatory requirements have greatly increased, as have the costs of outside
professionals hired to assist us in meeting the new requirements. We estimate
that the costs of complying with the Exchange Act reporting requirements
amounted to approximately $140,000 in 2003, and we anticipate that such costs
will increase significantly in 2004 and 2005 as the additional requirements of
Xxxxxxxx-Xxxxx are fully implemented.
In early 2003, we began to experience the additional costs, demands on
management time and the regulatory burdens of the new requirements under the
Exchange Act and the Nasdaq Stock Market's new corporate governance requirements
adopted pursuant to Xxxxxxxx-Xxxxx. In addition, management became aware of
additional requirements of Xxxxxxxx-Xxxxx, such as the internal control and
auditing requirements of Section 404 of Xxxxxxxx-Xxxxx, which will impose
tremendous costs and burdens on the Company, significantly increase the
Company's fees payable to its independent auditors and will require the Company
to hire additional personnel in order to assist it in meeting those new
requirements. While the requirements of Section 404 have since been postponed
until the end of 2005, because of the enormous difficulty in complying with
these new requirements, most public companies are preparing for these additional
requirements, and are incurring these significant additional costs, right now.
As a result, in mid-2003, we began to consider ways to deregister our common
stock from the Exchange Act in order to avoid becoming subject to the proposed
and existing new regulatory requirements.
We were advised in 2003 that if we have fewer than 300 stockholders of
record, we may deregister our stock and thereby not be subject to the Exchange
Act reporting requirements and Nasdaq Stock Market rules. While the Company
currently has approximately 480 stockholders of record, approximately 268 own
100 or fewer shares. In light of this information, in September 2003, we began
to consider alternative means to reduce our stockholder base to below 300
stockholders of record and thereby be eligible to deregister. One alternative
considered was a 1 for 100 reverse stock split which, under Minnesota law,
could, under certain circumstances, be accomplished without obtaining the
approval of stockholders and would have reduced the number of stockholders of
record to fewer than 300. Consequently, the Board of Directors requested that
management begin gathering information on the possibility of reducing the number
of record holders of our stock to fewer than 300. In late 2003, management was
asked to contact counsel to obtain an understanding of the listing requirements
and methods for deregistering our common stock, including the possibility of a
reverse stock split and an issuer repurchase program.
In December 2003, management advised the Company's Minnesota counsel to
provide a presentation that outlined a 1 for 100 reverse stock split that would
accomplish the goal of deregistering our common stock and the various conditions
under which such a transaction could occur under Minnesota law. The Board was
also advised that, immediately after declaring a reverse stock split, it could
initiate a forward stock split in order to increase the number of issued and
outstanding shares of our common stock
7
to pre-reverse stock split levels, less any fractional shares that are
cashed-out in the reverse stock split. Included in the presentation were
estimated costs to complete the transaction and the effects of a reverse stock
split on the stockholders of the Company. Management of the Company also
conferred with the Company's SEC counsel regarding the ramifications under
federal securities laws of a reverse stock split with the effect of going
private.
In February 2004, the Company's Minnesota counsel made a presentation to
the directors and management of the Company regarding the burdens and benefits
resulting from the Company's status as a public company and evaluated the
alternatives to remaining listed on the Nasdaq National Market. The presentation
also contained information on the requirements to terminate the Company's
registration under the Exchange Act and the advantages and disadvantages
thereof.
In March 2004, the Company's Minnesota counsel made a presentation to the
Board of Directors regarding, among other things, the Board's fiduciary duties
to stockholders, the Company's current status as public company and the new
requirements imposed on it pursuant to Xxxxxxxx-Xxxxx, SEC regulations and the
regulations of the Nasdaq Stock Market. In addition, Minnesota counsel outlined
the procedures under Minnesota law for a reverse stock split, presented the
advantages and disadvantages of terminating the Company's registration under the
Exchange Act, discussed possible alternative transactions for accomplishing such
termination of registration and reviewed the federal securities laws
implications of going private and delisting from the Nasdaq Stock Market.
In April 2004, the Board of Directors received a presentation from the
Company's independent auditors regarding the implementation of Section 404 of
Xxxxxxxx-Xxxxx. The presentation detailed the historical background of
Xxxxxxxx-Xxxxx Section 404, Auditing Standard No. 2, the effective date of the
new requirements, management's responsibility for the assessment process, the
auditor's attestation requirements and the reporting requirements of Section
404. In addition, in April 2004, the Board received information from its SEC
counsel regarding the implications and requirements under the federal securities
laws applicable to a reverse stock split with a going private component. At that
time, the Board discussed various alternatives methods to reduce the number of
stockholders to fewer than 300, such as an odd lot tender offer, open market
repurchase program and modified Dutch auction issuer tender offer.
In May 2004, the Board further considered a modified Dutch auction issuer
tender offer as a means for reducing its stockholders of record below 300.
However, the Board had been advised by counsel that these types of repurchase
programs by the Company, such as an issuer tender offer, odd-lot tender offer or
open market repurchase plan, are, by their nature, voluntary transactions on the
part of stockholders and, therefore, could not guarantee that a sufficient
number of stockholders would tender their shares to enable the Company to
deregister. The Board was advised that the only transaction under consideration
with the certainty of the result desired by the Board was the reverse stock
split. The Board had previously been advised to obtain investment banking advice
from a firm experienced in transactions of these types to assist it, among other
things, in ascertaining the value of the common stock for purposes of cashing
out fractional shares in a reverse stock split or setting a range of value for a
modified Dutch Auction issuer tender offer. The Company hired Capital Resources
Group, Inc. ("Capital Resources") in May, 2004, to advise the Board on the
financial impact of various strategies for deregistering the common stock and
provide valuation advice to the Board. Among other things, Capital Resources
analyzed the financial condition and operating performance of the Company by
reviewing the Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB,
internal loan classification and delinquency list, and other financial
information concerning the business and operations of the Company.
8
On June 15, 2004, Capital Resources provided the Company with an issuer
tender offer pro forma analysis. The analysis focused on the effects of an
issuer tender offer on the Company's earnings and capital position. In
connection with this analysis, Capital Resources had several conversations with
the Company to discuss the assumptions used in the analysis, such as the number
of shares which may be repurchased, potential price of a repurchase, timing of
an issuer tender offer, source of funds, cost of funds and expenses related to
an issuer tender offer. At that meeting, the Board further discussed the
advantages and disadvantages of an issuer tender offer and determined to
continue exploring such an offer.
On July 6, 2004, the Board met with representatives of outside counsel and
Capital Resources participating via telephone to discuss all the alternatives
available to it. At that meeting, the Board actively considered a reverse stock
split, the possibility of a forward stock split following the reverse stock
split, a modified Dutch auction issuer tender offer, an odd-lot tender offer and
an open market repurchase program. The Board did not actively consider other
transactions, such as a sale or liquidation of the Company. While only the
reverse stock split provided the Board with the certainty of allowing the
Company to deregister its common stock, the Board was concerned about the
compulsory nature of such a transaction namely, that stockholders would not be
given a choice to sell their shares of common stock back to the Company prior to
deregistration and delisting. While the Board did discuss the possibility of
delisting the Company's common stock without conducting an issuer tender offer
through a reverse stock split, it ultimately rejected this course of action as
it would not have afforded stockholders an opportunity to participate in the
offer and to voluntarily liquidate their ownership in the Company at a premium
over the current market prices for the common stock. Instead the Board
considered proceeding with a reverse stock split only if its common stock would
not become eligible for termination of its registration under the Exchange Act
after completion of the offer. In arriving at this conclusion, the Board was
mindful of the compulsory nature of a reverse stock split, the lack of
stockholder consent and the effects of such delisting and deregistration on the
trading market for the common stock, and on the amount of public information
regarding the Company following completion of the offer. In considering the
offer (and the reverse and forward stock splits, if necessary), the Board also
considered the elimination of the substantial time and costs associated with
being a public reporting company in deciding to proceed with the offer. See
"Special Factors - 6. Effects of the Offer" for a discussion of the benefits
associated with becoming a deregistered company.
On September 21, 2004 Capital Resources made a presentation to the Board
which focused on the work Capital Resources performed to establish a proposed
recommended price range for a potential issuer tender offer. This recommended
price range was $29.50 to $31.50 per share. Capital Resources described its
various valuation methodologies and the implied valuation of the Company's stock
under each valuation methodology. Capital Resources utilized this information to
perform the following valuation analyses: comparable trading analysis,
discounted cash flow analysis and modified Dutch auction analysis. In these
analyses Capital Resources formed a peer or comparison group. Capital Resources
then calculated the implied value of the Company's stock based on its financial
performance and the average multiple to both tangible book value and earnings of
the identified peer group. In addition, Capital Resources presented a financial
analysis of the Company including the financial impact of the proposed offer on
the Company, potential price ranges for the offer and the effect of the offer on
the shares of common stock held by remaining stockholders. The Board was also
advised that stockholders who chose not to tender their shares would then hold a
stock with extremely limited liquidity. The lack of liquidity could adversely
effect the stockholder's ability to receive a fair value for their shares should
they decide to sell their shares after completion of the offer. Capital
Resources advised the Board that these results are merely estimates and actual
results could vary significantly from such estimates. The Board adjourned this
meeting to further consider the preliminary valuation information presented by
Capital Resources and to consider further the proposed offer.
9
At a Board of Directors meeting held on September 27, 2004, Capital
Resources stated that it was now prepared to render its opinion that the offer
(based on the range it recommended) was fair from a financial point of view to
our stockholders. The proposed offer with a price range of $29.50 to $31.50 was
then presented to the Board. The Board reviewed the opinion of Capital
Resources, and the terms of the offer, and determined to approve the offer as
fair and in the best interests of us and our stockholders. The Board of
Directors, by unanimous vote, determined to accept Capital Resources's
recommended pricing and, following completion of the offer, if possible to
deregister the Company's common stock from the Exchange Act. If after completion
of the offer the Company had more than 300 stockholders of record, the Board
resolved to proceed with a reverse stock split in a manner that would reduce the
number of stockholders to fewer than 300. The Board, however, did not formally
adopt a resolution authorizing a reverse stock split, pending the results of the
completion of the offer.
There were several factors considered in establishing the amount of shares
to be repurchased. The Company estimated it had approximately $11.2 million of
excess capital. Assuming a share price of $30.50 (approximately the midpoint of
the issuer tender offer range) the Company could repurchase 367,000 shares. In
addition, the number of stockholders who might be completely "cashed out" was a
major consideration in establishing the amount of shares to purchase in the
tender offer as the Company was desirous to reduce the number of record holders
to fewer than 300 in order to deregister under the Exchange Act. Because the
nature of the offer is voluntary, however, the Company could not know prior to
completing the offer whether enough stockholders would tender in the offer to
allow the Company to terminate its registration under the Exchange Act and
delist from trading on the Nasdaq Stock Market.
DECISION NOT TO APPOINT A SPECIAL COMMITTEE OF THE BOARD TO CONSIDER OR
STRUCTURE THE OFFER
Our Board of Directors did not form a special committee to approve the
offer. The Company is a small company, with only six directors, four of whom are
outside, non-employee directors. At important times during the Board's
deliberations with respect to the offer, the Board met in executive session
without any members of management present, with the exception of the Company's
President and Chief Executive Officer, who is also a board member. If a special
committee had been formed, it is likely it would have consisted of all of the
non-employee directors so it did not appear to be meaningful to form such a
committee. It is difficult and costly for directors to meet frequently in
separate capacities for both committee meetings and board meetings. In view of
the relatively small number of directors, four of whom are non-employee
directors, the fact that all directors of the Company own shares of common stock
of the Company and that the Board received the advice of an independent
financial advisor regarding the fairness of the consideration to be offered in
the tender offer, contributed to the Board's decision not to form a separate
committee to consider or structure the offer.
2. PURPOSES OF AND REASONS FOR THE OFFER
We are making this offer to enable you to decide whether you desire to
continue your investment in Xxxxx Financial or whether you desire to obtain
current value for your shares.
Since the initial public offering, our common stock has been registered
under the Exchange Act and we have been subject to the reporting and proxy
requirements of that act. The common stock must be registered, and we must
follow these requirements, so long as there are 300 or more holders of record of
the common stock.
The purpose of this offer is to reduce the number of stockholders of Xxxxx
Financial's common stock. If, after completion of this offer, we have fewer than
300 stockholders of record, as calculated
10
under the rules and regulations of the Exchange Act, the Board of Directors
intends to deregister our common stock with the SEC and become a private
company. One result of our "going private" would be that we would no longer have
to file periodic reports with the SEC, as required under the Exchange Act,
including, among other reports, annual reports on Form 10-KSB and quarterly
reports on Form 10-QSB. In addition, we would not be subject to the SEC's proxy
rules. The Board of Directors estimates that this could result in a significant
cost savings to Xxxxx Financial and allow management to spend more time focused
on its regular business activities. This decision is principally in response to
the enactment of Xxxxxxxx-Xxxxx and the costs associated with additional
reporting and auditing requirements applicable to public companies adopted
pursuant to this law. We estimate that these additional costs will exceed
$300,000 per year. IF THIS OFFER DOES NOT RESULT IN OUR QUALIFYING TO DEREGISTER
WITH THE SEC, THE BOARD OF DIRECTORS WILL PURSUE ALTERNATIVES TO ACHIEVE THAT
RESULT, INCLUDING A REVERSE STOCK SPLIT (AND POSSIBLY A FORWARD STOCK SPLIT), IF
IT REMAINS IN XXXXX FINANCIAL'S INTERESTS. Stockholders should be aware that
under Minnesota law, no stockholder approval is required for us to effect a
reverse or forward stock split. If stockholders are cashed out as a result of a
reverse stock split, they will receive the same price per share determined
pursuant to our offer.
If the common stock is deregistered, we intend, at this time, to supply
stockholders with an annual report containing audited financial statements and a
proxy statement after each year, though there is no requirement that it do so
and it will not be bound by any of the SEC's disclosure requirements to which it
is currently subject. Since we will no longer be submitting annual and quarterly
reports to the SEC following deregistration, the cost associated with reviewing
these filings by both the independent auditors and legal counsel would likely
decrease substantially.
We believe that the modified "Dutch Auction" tender offer set forth herein
represents a mechanism to provide most of our stockholders with the opportunity
to tender all or a portion of their shares and, thereby, receive a return of
cash if they so elect. This format of repurchase provides a method for
stockholders not participating to increase their relative percentage interest in
us and our future operations at no additional cost. As a result, the Board of
Directors believes that investing in our own shares in this manner is an
attractive use of surplus and an efficient means to provide value to our
stockholders. The tender offer also provides stockholders (particularly those
who, because of the size of their stockholdings, might not be able to sell their
shares without potential disruption to the share price) with an opportunity to
obtain liquidity with respect to their shares without potential disruption to
the share price and the usual transaction costs associated with market sales.
We believe that the purchase of shares is an attractive use of a portion of
our available capital on behalf of our stockholders and is consistent with our
long-term goal of increasing stockholder value. We believe we have adequate
sources of capital to both complete the share repurchase and continue with our
regular pursuit of business opportunities. The purpose of our offer is to
ultimately provide stockholders with liquidity for their shares prior to
delisting and deregistration for a price that the Board of Directors, after
considering the opinion of its financial advisor, Capital Resources, has
determined to be fair to the stockholders of the Company.
The offer will enable stockholders to sell a portion of their shares while
retaining a continuing equity interest in us, if they so desire. The offer may
provide stockholders who are considering a sale of all or a portion of their
shares the opportunity to determine the price or prices (not greater than $31.50
nor less than $29.50 per share) at which they are willing to sell their shares
and, if any such shares are purchased pursuant to the offer, to sell those
shares for cash without the usual transaction costs associated with open-market
sales. In addition, odd lot holders whose shares are purchased pursuant to the
offer will
11
avoid the payment of brokerage commissions and will avoid any applicable odd lot
discounts in a sale of such holder's shares. For stockholders who do not tender,
there is no assurance that the price of the stock will not trade below the price
being offered pursuant to the offer, nor is there any assurance that there will
be an active public market in which to trade your shares of common stock. For
stockholders who do tender, the trading price of stock may increase as a result
of the offer or an unexpected acquisition at a premium could occur in the
future.
NEITHER XXXXX FINANCIAL, OUR BOARD OF DIRECTORS, OUR INFORMATION AGENT, OR
OUR FINANCIAL ADVISOR MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER
TO TENDER OR NOT TO TENDER ANY SHARES OR AS TO THE PRICE OR PRICES AT WHICH
STOCKHOLDERS MAY CHOOSE TO TENDER THEIR SHARES. WE HAVE NOT AUTHORIZED ANY
PERSON TO MAKE ANY SUCH RECOMMENDATION. STOCKHOLDERS SHOULD CAREFULLY EVALUATE
ALL INFORMATION IN OUR OFFER, CONSULT THEIR OWN INVESTMENT AND TAX ADVISORS, AND
MAKE THEIR OWN DECISIONS ABOUT WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER AND THE PRICE OR PRICES AT WHICH TO TENDER.
3. FAIRNESS OF THE OFFER
On September 27, 2004, our Board of Directors approved the offer as fair
and in the best interests of Xxxxx Financial and all of our stockholders,
including unaffiliated stockholders.
The Board of Directors took into account a number of factors, including the
following, in support of its determination that the offer is substantively fair
and in the best interest of Xxxxx Financial and all of its stockholders,
including its unaffiliated stockholders:
o The opinion delivered to the Board of Directors by Capital Resources,
our financial advisor, that the consideration to be received in the
offer is fair, from a financial point of view, to our stockholders,
including unaffiliated stockholders, and the oral and written
presentations of Capital Resources supporting this opinion. A copy of
Capital Resources's opinion is attached to this document as Exhibit I
and should be read in its entirety by each stockholder. For a
description of the information presented by Capital Resources to Xxxxx
Financial, see "- Special Factors - 4. Fairness Opinion of Financial
Advisor."
o Our financial condition and results of operations, including our
earnings per share and capital levels for the year ended December 31,
2003 and the first six months of 2004.
o Our capital and the capital of the Bank, which after the payment of a
dividend to us by the Bank and our purchase of 150,000 shares in the
offer would remain significantly in excess of minimum capital
requirements. The following table sets forth (a) the Bank's capital
ratios as of June 30, 2004 and as adjusted to give effect to the
purchase of 150,000 shares, and (b) the minimum capital ratios for
savings associations required by the Office of Thrift Supervision
("OTS"):
12
AS OF JUNE 30, 2004
-------------------
Ratio Historical As Adjusted Minimum
----- ---------- ----------- -------
Total risk-based capital 11.9% 10.9% 8.00%
Tier I risk-based capital 11.4% 10.4% 3.00%
Tier I core 9.1% 8.3% 4.00%
o The percentage by which the per share price to be paid in the offer
exceeds recent trading prices and estimated trading values. See
"Special Factors - 4. Fairness Opinion of Financial Advisor."
o The likelihood that the transaction would be consummated.
o The fact that our stockholders would be able to participate in the
offer by selling a portion of their shares and have the opportunity to
participate in any future growth following consummation of the offer.
o The fact that our offer is a voluntary transaction in which our
stockholders may or may not participate.
o The limited trading market for our common stock, including limited
liquidity, relatively low prices and trading volume.
o The considerable costs associated with remaining a publicly-traded
company.
The Board did not entertain a sale or liquidation of the company as a
factor in its evaluation of the fairness of the transaction. Because of the
financial nature of a financial institution's primary assets and the many other
readily available holding company specific indicators of value, such as the
Bank's total assets, income, deposits and interest rate spread, the Board did
not place any significance on going concern value and liquidation value in its
evaluation.
The Board did consider purchase prices paid in prior stock repurchases as
there were repurchases of stock by the Company in the past two years. The Board
did not consider any of the following as there were no firm offers for (a) the
merger or consolidation of the Company with or into another company or vice
versa; (b) the sale or other transfer of all or any substantial part of the
assets of the Company; or (c) a purchase of our securities that would enable the
holder to exercise control of the Company.
In view of the wide variety of factors considered in connection with its
evaluation of the offer, our Board of Directors has found it impractical to, and
therefore has not, quantified or otherwise attempted to assign relative weights
to the specific factors considered in reaching a decision to approve the offer.
In making its determination that the offer is substantively fair and in the best
interests of our stockholders, including unaffiliated stockholders, our Board of
Directors considered the opinion of Capital Resources and the oral and written
presentations of Capital Resources discussing the material factors included in
its analysis, and such opinion and related discussion were accepted and adopted
by the Board. Capital
13
Resources's analysis is described below under "- Special Factors - 4. Fairness
Opinion of Financial Advisor."
The Board of Directors has approved the offer. The non-employee directors,
who comprise a majority of the Board of Directors, have approved the offer and
have not retained an unaffiliated representative to act solely on behalf of the
unaffiliated stockholders for purposes of negotiating terms of the offer. The
offer does not require the approval of a majority of unaffiliated stockholders.
Despite the lack of an unaffiliated representative acting solely on behalf of
the unaffiliated stockholders and despite the fact that our offer is not
structured to require the approval of the unaffiliated stockholders, we believe
that our offer is procedurally fair and substantively fair with respect to the
pricing range offered. We base these beliefs on the unanimous approval of our
offer by all of our non-employee directors and on the following factors: (i)
that the offer allows stockholders to choose a price within a range established
by us at which they are willing to tender; (ii) stockholders are not compelled
to tender; (iii) stockholders are provided with full disclosure of the terms and
conditions of the offer; and (iv) stockholders are afforded sufficient time to
consider the offer. For those stockholders who tender shares and are no longer
stockholders, our Board has determined that such stockholders will receive a
fair price for their shares. The Board has also determined that the transaction
is fair to those stockholders who remain stockholders following the completion
of the offer as they will retain a greater equity interest. See "The Offer -- 6.
Effects of the Offer" for a detailed discussion of the consequences that result
from remaining a continuing stockholder of the Company. See also "The Offer - 1.
Number of Shares; Price; Priority to Purchase."
The Board believes that the offer is fair and in the best interests of our
stockholders, including unaffiliated stockholders, whether or not such
stockholders retain their interest in the Company. As set forth above, the offer
is a voluntary transaction which is open to all stockholders on the same terms
and conditions. Based upon the aforementioned factors, our Board believes that
the offer is both substantively and procedurally fair to affiliated and
unaffiliated stockholders alike. For those stockholders who tender shares and
are no longer stockholders of the Company, our Board has determined that such
stockholders will receive a fair price for their shares. The Board also believes
that the transaction is fair to those stockholders who remain stockholders of
the Company following the completion of the offer because they will retain a
greater equity interest in the Company. See "The Offer -6. Effects of the Offer"
for a detailed discussion of the consequences that result from remaining a
continuing stockholder of the Company.
4. FAIRNESS OPINION OF FINANCIAL ADVISOR
In May 2004, we retained Capital Resources, an investment banking firm with
considerable experience in and the thrift industry, to provide valuation advice
and render a fairness opinion to our Board as to the fairness of our offer price
range, from a financial point of view, to stockholders.
Capital Resources, as part of its investment banking business, is regularly
engaged in the valuation of financial institutions and their securities in
connection with stock offerings, tender offers, acquisition and other securities
transactions. Capital Resources served as the Company's investment banker and
financial advisor in connection with its mutual-to-stock conversion in 1995.
On September 21, 2004, Capital Resources rendered an oral opinion to our
Board that, in its opinion, the price range of the tender offer is fair, from a
financial point of view, to stockholders of the Company, including both those
who receive cash in the tender offer or any subsequent reverse stock split and
those stockholders who will remain stockholders after the tender offer and
reverse stock split. This opinion was based on conditions as they existed on
September 20, 2004. Capital Resources confirmed its
14
oral opinion with a written fairness opinion to the Board dated September 27,
2004. A copy of the opinion is attached as Exhibit I to this document, and each
stockholder should read such opinion in its entirety. Capital Resources' written
opinion does not constitute an endorsement of the offer or a recommendation to
any stockholder to tender their shares. In its opinion, Capital Resources
considered the fact that the Company intends to initiate a reverse stock split
if the tender offer does not reduce record holders below 300, and stockholders
cashed out in a reverse stock split will receive the same price per share as the
price per share determined pursuant to the tender offer.
In rendering its opinion, Capital Resources has reviewed, analyzed and
relied upon material bearing upon the financial condition and operating
performance of the Company, including among other things, the following: (i) the
Offer to Purchase; (ii) the Annual Reports to Stockholders and Annual Reports on
Form 10-KSB for the three years ended December 31, 2003 of the Company; (iii)
certain interim reports to stockholders and Quarterly Reports on Form 10-QSB of
the Company through June 30, 2004 and certain other communications from the
Company to its stockholders; (iv) Xxxxx Federal Bank's quarterly financial
reports submitted to various regulatory agencies; and (v) other financial
information concerning the business and operations of the Company furnished to
Capital Resources by the Company for purposes of its analysis; these reports
included loan schedules, non-performing assets, investment securities, deposit
and borrowing schedules.
Capital Resources held discussions with senior management of the Company
regarding the past and current business operations, regulatory relations,
financial condition and future prospects and reviewed Xxxxx Federal Bank's 2004
budget. In analyzing the Company's consolidated net income prospects for fiscal
2004, Capital Resources considered the Company's assumption that the
annualization of reported net income for the six months ended June 30, 2004
would approximate total net income of $2.1 million or $1.80 per share expected
for all of 2004. Average annual earnings growth of approximately eight percent
over the next three to five years was also assumed.
In conducting various valuation analyses in support of its opinion, Capital
Resources considered recent developments and conditions in the equity market for
thrift institutions and such financial and pricing factors as it has deemed
appropriate under the circumstances including, among others, the following:
(i) the impact of stock repurchases on the Company's pro forma earnings per
share, equity levels and book value;
(ii) the Company's recent trading activity and the pricing characteristics
of stock of comparable thrift institutions demonstrating similar asset size and
capital ratios as well as similar earnings ratios, and similar market area;
(iii) pricing premiums paid in recent tender offers and other types of
stock repurchase transactions that are similar to the Company's transaction;
(iv) pricing characteristics (particularly price/earnings ("P/E") and
price/tangible book value ratios ("P/TB")) related to the price range of the
Company's tender offer; and
(v) a discounted cash flow and terminal value analysis of the Company.
Stock Repurchase Analysis. Capital Resources analyzed the pro forma
financial impact resulting from the Company's repurchase of up to 150,000 shares
in the tender offer at prices ranging between
15
$29.50 and $31.50 per share. This analysis focused on pro forma financial data
such as book value per share, tangible equity to assets ratio, earnings per
share and return on equity. The repurchase analysis showed that even if the
150,000 shares were purchased by the Company at $31.50 per share, the high end
of the range, the pro forma financial impact, on balance, would be modestly
favorable to the Company:
Actual Pro % Increase
June 30, 2004 Forma (Decrease)
------------- ----- ----------
Tangible Book Value Per Share $24.39 $23.34 (4.3%)
Tangible Equity to Assets 12.7% 10.4% (18.1%)
Earnings Per Share (Annualized) $ 1.80 $ 1.98 10.0%
Return on Equity (Annualized) 7.41% 7.75% 4.6%
As shown in the above table, even after the tender offer the Company is
expected to maintain a strong capital ratio. Also, the Company's earnings per
share and return on equity improves on a pro forma basis.
Comparative Pricing Analysis. Capital Resources compared the Company's
pricing characteristics with those of a peer group of 15 other thrift
institutions to determine if the Company is trading at a reasonable price
relative to such peers. The comparative peer group was composed of thrifts
exhibiting similar financial characteristics as the Company, including a
relatively small asset size, and operating in similar market areas in the
Midwest.
Capital Resources noted that while the Company's common stock is traded on
the NASDAQ National Market, the stock is not actively traded, generally
exhibiting low trading volume. Reflecting its limited liquidity, the stock
typically trades with a large spread between the "bid" and "ask" price and
during 2004 actual trades in the stock reflected a high degree of price
variability. During 2004, the stock traded to above $34 per share in March and
traded down to $22 per share in May. Since May, the stock has traded in the $23
to $28 range. The recent average trading price of the stock, as of September 20,
2004, is $26.75. Capital Resources utilized this stock price in its comparative
pricing analysis.
Based on a recent average trading price of $26.75, the Company had a total
market capitalization of $31.1 million versus an average market capitalization
of $39.7 million for the 15 thrift comparative peer group. The Company's
price/earnings and price/tangible book value ratios of 14.9x and 110%,
respectively, compared to average price/earnings and price/tangible book value
ratios of 15.1x and 129%, respectively, for the comparative thrift group.
Capital Resources concluded that, while the Company traded at a moderate
discount to the comparative group on a price/tangible book value basis, at
$26.75 per share the Company's stock was trading at a reasonable level.
Review of Premiums Paid in Other Stock Repurchase Transactions. Capital
Resources reviewed the level of premiums paid in relation to recent trading
prices in other recent stock repurchase transactions involving banks and
thrifts. Given the Company's intention to initiate a reverse stock split if the
tender offer does not reduce the number of record holders below 300, Capital
Resources considered the level of premiums paid in both "modified Dutch auction"
tender offers and reverse stock splits, as well as other non-voluntary going
private transactions.
16
Based upon its review of available information on similar repurchase
transactions during the latest three years, Capital Resources determined that
the level of premiums paid were as follows:
Number of Transactions Range of Premiums Median Premium
---------------------- ----------------- --------------
Voluntary Tender Offers* 12 0% - 22% 8%
Non-Voluntary
Going Private Transactions** 10 1% - 21% 15%
* Includes modified Dutch auctions and other tender offers.
** Includes reverse stock splits and other non-voluntary cash outs.
Pricing Analysis Related to Tender Offer Price Range. Capital Resources
derived the P/E and P/TB ratios as well as the level of premiums related to the
midpoint, low end and high end of the tender offer price range of $29.50 to
$31.50 per share:
P/E P/TB Premium*
--- ---- --------
Midpoint Price $30.50 16.9x 125% 14%
Low Price $29.50 16.4x 121% 10%
High Price $31.50 17.5x 129% 18%
* Premium is based on the Tender Offer Price compared to the Company's
Recent Trading Price of $26.75
Capital Resources concluded that the tender offer price range reflected
appropriate premiums in relation to the Company's recent trading price. Also,
the P/E and P/TB ratios related to such price range appeared reasonable when
compared to the pricing ratios of the peer group of publicly traded thrifts.
Discounted Cash Flow and Terminal Value Analysis. Capital Resources also
performed an analysis of potential returns to stockholders of the Company, which
is based on an estimate of the Company's future cash dividend streams to
stockholders and the future trading price of the Company's stock (terminal
value). Such analysis assumed that a stockholder retains his or her ownership of
the Company's stock for at least three to five years and then sells the stock
into the marketplace. In its analysis, Capital Resources has considered the
likelihood that, given the fact that the stock will no longer be Nasdaq listed
and publicly available financial reports will be very limited, the stock will be
even less liquid than it currently is.
The analysis assumed an average annual net income growth rate of 8 percent
and dividend growth rate of 10 percent. These growth assumptions are not based
upon any formal Company projections or budgets but are estimates that the
Company believes are reasonable. Because the assumptions and resulting
projections are subject to significant uncertainties, including changes in the
interest rate environment and the mortgage refinancing market, as well as the
competitive and economic environment, no assurance can be given that actual net
income and dividends will meet these projections, and you should not rely on
these projections as an indication as to whether or not tendering your stock is
an appropriate decision for you.
To approximate the terminal values of Company common stock at the end of a
three year and five year period, Capital Resources applied the following pricing
ratios: a price to earnings multiple of 15x and a price/tangible book value
ratio of 110%. The resulting terminal values and dividend streams were
17
then discounted to present values using a discount rate of 10 percent chosen to
reflect an appropriate rate of return required by holders or prospective buyers
of the Company's stock.
Capital Resources derived its present value calculations based on three
scenarios. One scenario assumed the Company repurchased all of the stock at
$29.50 per share, the low end of the tender offer price range (Scenario 1), the
second scenario assumed the Company repurchased all of the stock at $31.50 per
share, the high end of the range (Scenario 2), and the third scenario assumed
the Company repurchased all of the stock at $30.50 per share, the midpoint of
the range (Scenario 3).
Under each of the three scenarios, Capital Resources derived a present
value for the Company's common stock and future dividend payments assuming a
stockholder sells his or her stock after three years or five years. As a result
of its analysis, Capital Resources determined that there were immaterial
differences in the present value results under each of the three scenarios.
Therefore, Capital Resources presented the Company with only the present value
results based on Scenario 3, which indicated a present value for the Company's
common stock and future dividend payments ranging from $26.98 to $27.19 assuming
a stockholder sold his or her stock after five years or three years,
respectively.
These present value figures fall very close to the Company's recent trading
price of $26.75 and further confirm Capital Resources' conclusion that at $26.75
per share the Company stock was trading at a reasonable level. These results
also serve to confirm the fairness of the tender offer price range of $29.50 to
$31.50 to those stockholders who sell their stock back to the Company.
Conclusion. Based on the results of the above described valuation analyses,
it is Capital Resources' opinion that the tender offer price range is fair, from
a financial point of view, to our stockholders.
For its services as an independent financial advisor in connection with its
valuation analyses and fairness opinion, the Company has agreed to pay Capital
Resources aggregate professional fees of $50,000. The fees being paid to Capital
Resources for these services are not material relative to Capital Resources
total gross revenue. In the normal course of their activities, Capital
Resources, its affiliates and its management may, from time to time, effect
transactions and hold long or short positions in the Company. These transactions
and positions have not been and are not expected to be material relative to
total trading activities.
5. OUR PLANS AFTER THE OFFER.
It is expected that following the offer, our business and operations will
be continued substantially as they are currently being conducted by management.
Except for the offer, possible reverse and forward stock splits and as otherwise
described in this document, we do not have any present plans or proposals which
relate to or would result in an extraordinary corporate transaction, such as a
merger, reorganization, liquidation, relocation of any of our operations or sale
or transfer of a material amount of assets involving us or any of our
subsidiaries, or any changes in our capitalization or any other change in our
corporate structure or business or the composition of our management. However,
we will continue to review our business plan and strategic direction and in such
process may develop strategies for internal growth through expansion of products
and services or growth through acquisitions and/or branching. If the offer is
not successful at reducing the number of stockholders of record to fewer than
300, we do plan to declare and effect a reverse stock split in sufficient number
to reduce the number of stockholders to fewer than 300 and allow us to terminate
the common stock's registration under the Exchange Act and delist from the
Nasdaq National Market. If stockholders are cashed out as a result of a reverse
stock split, they will
18
receive the same price per share determined pursuant to our offer. If we
initiate a reverse stock split, we may immediately thereafter initiate a forward
stock split in order to increase the number of issued and outstanding shares of
our common stock to pre-reverse stock split levels, less any fractional shares
that are cashed-out in the reverse stock split.
OTHER TRANSACTIONS. Except as described in this document and other than
possible reverse and forward stock splits, we currently have no plans, proposals
or negotiations that relate to or would result in:
o an extraordinary transaction, such as a merger, reorganization or
liquidation, involving us or any of our subsidiaries,
o a purchase, sale or transfer of an amount of our assets or any of our
subsidiaries' assets that would be material to us and our subsidiaries
taken as a whole,
o a material change in our present dividend rate or policy, or in our
indebtedness or capitalization,
o a change in our present Board of Directors or management,
o a material change in our corporate structure or business,
o an acquisition or disposition by any person of our securities, or
o a change in our articles of incorporation, by-laws or other governing
documents or an action that could impede the acquisition of control of
us.
At the completion of this offer (or the completion of the reverse stock
split, if necessary), we plan to terminate our registration under the Exchange
Act and delist our common stock from the Nasdaq National Market. Upon
termination of our registration, we will no longer be required to file periodic
reports with the SEC. See "Special Factors - 6. "Effects of the Offer" below
and"The Offer - 10. Effects of Our Offer on the Market for Our Shares;
Registration Under the Exchange Act."
Although we do not currently have any plans, other than as described in
this document, that relate to or would result in any of the events discussed
above, as we continue to evaluate opportunities for increasing stockholder value
we may undertake or plan actions that relate to or could result in one or more
of these events.
6. EFFECTS OF THE OFFER.
As we described above, this offer will reduce the number of issued and
outstanding shares of common stock of Xxxxx Financial. Accordingly, if you do
not tender, upon the completion of the offer, non-tendering stockholders will
realize a proportionate increase in their relative ownership interest in Xxxxx
Financial, and thus, in our future earnings and assets, subject to our right to
issue additional shares of common stock and other equity securities in the
future. The percentage ownership interest of non- tendering stockholders in
Xxxxx Financial after the offer will be greater than their percentage ownership
interest before the offer. Of course, we may issue additional shares of common
stock and other securities at any time, and these issuances will reduce your
percentage ownership interest. As we discuss below,
19
we also may purchase more of our stock, which would have the effect of
increasing your percentage ownership interest.
Consummation of the offer will permit the continuing stockholders to
receive the benefits that result from ownership of all, or a significant amount,
of the equity interest in us. Such benefits include management and investment
discretion with regard to the future conduct of our business and the benefits of
the profits generated by operations and increases, if any, in our value. The
continuing stockholders will also bear the risk of any decrease in the value of
Xxxxx Financial following the offer.
Assuming enough record holders tender their shares, thereby reducing our
record holders to below 300, then we intend to terminate the registration of our
common stock under the Exchange Act at the completion of the offer which will no
longer permit us to be traded and quoted on the Nasdaq National Market. As a
result, the equity securities of Xxxxx Financial outstanding after the offer
will not be admitted to trading or quotation on any national securities exchange
or association, there will be limited trading information and market liquidity
regarding such securities, and we will no longer file periodic reports with the
SEC.
Becoming a deregistered company will eliminate the substantial time and
costs, both general and administrative, attendant to maintaining our status as a
reporting company under the Exchange Act, especially in light of the heightened
compliance and disclosure requirements attributable to the passage of
Xxxxxxxx-Xxxxx. In addition to expending the time of our management, we incur
significant legal, accounting and other expenses in connection with the
preparation of annual and other periodic reports. The total out-of-pocket
expenses associated with maintaining our public status is expected to be
approximately $440,000 per year. These costs include review and submission of
periodic reports to the SEC (such as Forms 10-KSB and Forms 10-QSB and 8-K),
legal and accounting fees relating to such matters, annual fees for our transfer
agent, fees relating to the listing of our common stock on the Nasdaq National
Market and directors' fees and costs associated with communications with
stockholders. These costs do not include the salaries and time of our employees
who also devote attention to these matters.
The termination of the registration of the shares under the Exchange Act
would substantially reduce the information required to be furnished by us to our
stockholders and to the SEC and would render inapplicable certain provisions of
the Exchange Act, including requirements that we file periodic reports
(including financial statements), the proxy rules, the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that our officers, directors and ten-percent stockholders file
certain reports concerning ownership of our equity securities and provisions
that any profit by such officers, directors and stockholders realized through
purchases and sales of our equity securities within any six-month period may be
recaptured by the Company. Furthermore, the ability of "affiliates" of the
Company and other persons to dispose of their shares of common stock that are
"restricted securities" pursuant to Rule 144 promulgated under the Securities
Act of 1933, as amended, may be impaired or eliminated.
You may be able to sell shares that you do not tender or that are otherwise
not purchased in our offer. We cannot predict or assure you, however, as to the
price at which you will be able to sell your shares, which may be higher or
lower than the purchase price paid by us in this offer. Consummation of the
offer will further reduce the liquidity of the shares, and there can be no
assurance that stockholders will be able to find willing buyers for their shares
after the offer. See "- The Offer - 10. Effects of our Offer on the Market for
our Shares; Registration under the Exchange Act."
20
Following completion of the offer, we may repurchase additional shares in
the open market, in privately negotiated transactions or otherwise. Future
purchases may be on terms that are more or less favorable to stockholders than
the terms of this offer. However, SEC Rules 14e-5 and 13e-4 generally prohibit
us and our affiliates from purchasing any shares outside of our offer until at
least ten (10) business days after the Expiration Date of our offer, although
there are some exceptions. Any future purchases will depend on many factors,
which include market conditions and the condition of our business.
Shares that we acquire in our offer will be retained as treasury stock and
may be restored to the status of authorized and unissued shares. These shares
will be available for us to issue without further stockholder action (except as
required by applicable law or regulation) for purposes including, without
limitation, acquisitions, raising additional capital and the satisfaction of
obligations under existing or future employee benefit or compensation programs
or stock plans or compensation programs for directors. We have no current plans
for the reissuance of the shares purchased pursuant to the offer.
7. INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND ARRANGEMENTS
CONCERNING SHARES.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS. Information about our
directors and executive officers, including information relating to stock
ownership, agreements concerning our securities (including option and restricted
stock grants) and the business address of such directors and officers is set
forth in SCHEDULE I to this document. As of September 22, 2004, our directors
----------
and executive officers as a group beneficially owned (including pursuant to
exercisable options) an aggregate of 169,506 shares (approximately 13.8% of the
outstanding shares including shares issuable upon the exercise of options held
by directors and executive officers). Such ownership includes 70,211 shares
subject to exercisable stock options which are held by executive officers and
directors.
Our directors and executive officers are entitled to participate in our
offer on the same basis as all other stockholders. We do not anticipate that our
directors or executive officers will participate in the offer. As discussed in
"Special Factors - Background of the Offer," our President and Chief Executive
Officer discussed the proposal of the issuer tender offer with the Board of
Directors, a majority of whom are non-employee directors, at our Board meetings.
The issuer tender offer was proposed as means of permitting the Company to
deregister, not for the benefit of individual directors or members of
management. To this end, the Board considered several factors, including the
written opinion of Capital Resources in its evaluation of the fairness of the
offer. The Board deliberated the merits of the proposed transaction. Other than
our President and Chief Executive Officer, who is also a director, management
did not vote on the proposed offer.
Accordingly, while the percentage of shares beneficially owned by
management will increase as a result of the offer, the primary benefit to
management following the completion of the offer and the deregistration of our
common stock is the elimination of the substantial time and costs attendant to
maintaining our status as an Exchange Act reporting company. This, in turn, will
benefit the continuing stockholders by providing management with increased time
and resources to further increase our profitability and decrease our expenses.
Assuming we purchase 150,000 shares pursuant to the offer, the percentage
of shares beneficially owned by executive officers and directors, would be
approximately 15.6% of the outstanding shares immediately after the offer,
including shares issuable upon the exercise of options held by executive
21
officers and directors and the Company's Employee Stock Ownership Plan ("ESOP).
Of this amount, executive officers of the Company will hold approximately 5.2%
in the aggregate following the offer.
TRANSACTIONS AND ARRANGEMENTS CONCERNING SHARES. Based on our records and
information provided to us by our directors, executive officers, associates and
subsidiaries, neither we, nor any of our associates or subsidiaries, nor any of
our directors or executive officers, have effected any transactions in our
shares during the 60 days before September 28, 2004.
Except as otherwise described in this document and except for outstanding
options to purchase shares granted from time to time over recent years to
certain employees (including executive officers) and directors pursuant to our
stock option plan, neither we nor, to our knowledge, any of our affiliates,
directors or executive officers, is a party to any agreement, arrangement or
understanding with any other person relating, directly or indirectly, to the
tender offer or with respect to any of our securities, including, but not
limited to, any agreement, arrangement or understanding concerning the transfer
or the voting of our securities, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies, consents or authorizations.
8. FEDERAL INCOME TAX CONSEQUENCES.
The following summary describes the material United States federal income
tax consequences relating to our offer. This summary is based upon the Internal
Revenue Code of 1986, as amended, Treasury regulations under the Internal
Revenue Code (the "Code"), administrative pronouncements and judicial decisions,
all as in effect as of the date hereof and all of which are subject to change,
possibly with retroactive effect. This summary addresses only stockholders who
hold shares as capital assets within the meaning of Section 1221 of the Code and
does not address all of the tax consequences that may be relevant to
stockholders in light of their particular circumstances or to certain types of
stockholders subject to special treatment under the Code, including, without
limitation, certain financial institutions, dealers in securities or
commodities, traders in securities who elect to apply a mark-to-market method of
accounting, insurance companies, tax-exempt organizations, persons who hold
shares as a position in a "straddle" or as a part of a "hedging," "conversion"
or "constructive sale" transaction for United States federal income tax purposes
or persons who received their shares through the exercise of employee stock
options or otherwise as compensation. In addition, this discussion applies only
to "United States holders" (as defined below). This summary also does not
address the state, local or foreign tax consequences of participating in our
offer. For purposes of this discussion, a "United States holder" means:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States
or of any political subdivision of the United States;
o an estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its source; or
o a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons
who have the authority to control all of its substantial decisions.
22
HOLDERS OF SHARES WHO ARE NOT UNITED STATES HOLDERS SHOULD CONSULT THEIR
TAX ADVISORS REGARDING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES AND ANY
APPLICABLE FOREIGN TAX CONSEQUENCES OF OUR OFFER.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM OF PARTICIPATING OR NOT PARTICIPATING IN OUR
OFFER.
CHARACTERIZATION OF THE PURCHASE. The purchase of a United States holder's
shares by us in our offer will be a taxable transaction for United States
federal income tax purposes. As a consequence of the purchase, a United States
holder will, depending on the United States holder's particular circumstances,
be treated either as having sold the United States holder's shares or as having
received a distribution in respect of stock from Xxxxx Financial.
Under Section 302 of the Code, a United States holder whose shares are
purchased by us under our offer will be treated as having sold such holder's
shares, and thus, will recognize capital gain or loss if the purchase:
o results in a "complete termination" of the United States holder's
equity interest in Xxxxx Financial;
o results in a "substantially disproportionate" redemption with respect
to the United States holder; or
o is "not essentially equivalent to a dividend" with respect to the
United States holder.
Each of these tests, referred to as the "Section 302 tests," is explained
in more detail below.
If a United States holder satisfies any of the Section 302 tests explained
below under the caption "Section 302 Tests", the United States holder will be
treated as if it sold its shares to us and will recognize capital gain or loss
equal to the difference between the amount of cash received under our offer and
the United States holder's adjusted tax basis in the shares surrendered in
exchange therefor. This gain or loss will be long-term capital gain or loss if
the United States holder's holding period for the shares that were sold exceeds
one year as of the date of purchase by us under our offer. Specified limitations
apply to the deductibility of capital losses by United States holders. Gain or
loss must be determined separately for each block of shares (shares acquired at
the same cost in a single transaction) that is purchased by us from a United
States holder under our offer. A United States holder may be able to designate,
generally through its broker, which blocks of shares it wishes to tender under
our offer if less than all of its shares are tendered under our offer, and the
order in which different blocks will be purchased by us in the event of
proration under our offer. United States holders should consult their tax
advisors concerning the mechanics and desirability of that designation.
If a United States holder does not satisfy any of the Section 302 tests
explained below, the purchase of a United States holder's shares by us under our
offer will not be treated as a sale or exchange under Section 302 of the Code
with respect to the United States holder. Instead, the entire amount received by
a United States holder with respect to the purchase of its shares by us under
our offer will be treated as a dividend distribution to the United States holder
with respect to its shares under Section 301 of the Code,
23
taxable at ordinary income tax rates, to the extent of the United States
holder's share of our current and accumulated earnings and profits (within the
meaning of the Code). To the extent the amount of the distribution exceeds the
United States holder's share of our current and accumulated earnings and
profits, the excess first will be treated as a tax-free return of capital to the
extent of the United States holder's adjusted tax basis in its shares and any
remainder will be treated as capital gain (which may be long-term capital gain
as described above). To the extent that a purchase of a United States holder's
shares by us under our offer is treated as the receipt by the United States
holder of a dividend, the United States holder's adjusted tax basis in the
purchased shares will be added to any shares retained by the United States
holder.
We cannot predict whether or the extent to which our offer will be
oversubscribed. If our offer is oversubscribed, proration of tendered shares
under our offer will cause us to accept fewer shares than are tendered.
Therefore, no assurance can be given that we will purchase a sufficient number
of a United States holder's shares under our offer to ensure that the United
States holder receives sale treatment, rather than dividend treatment, for
United States federal income tax purposes under the rules discussed below.
CONSTRUCTIVE OWNERSHIP OF STOCK AND OTHER ISSUES. In applying each of the
Section 302 tests explained below, United States holders must take into account
not only shares that they actually own but also shares they are treated as
owning under the constructive ownership rules of Section 318 of the Code. Under
the constructive ownership rules, a United States holder is treated as owning
any shares that are owned (actually and in some cases constructively) by certain
related individuals and entities as well as shares that the United States holder
has the right to acquire by exercise of an option or by conversion or exchange
of a security. Due to the factual nature of the Section 302 tests explained
below, United States holders should consult their tax advisors to determine
whether the purchase of their shares under our offer qualifies for sale
treatment in their particular circumstances.
SECTION 302 TESTS. One of the following tests must be satisfied in order
for the purchase of shares by us under our offer to be treated as a sale or
exchange for federal income tax purposes:
o Complete Termination Test. The purchase of a United States holder's
shares by us under our offer will result in a "complete termination"
of the United States holder's equity interest in Xxxxx Financial if
all of the shares that are actually owned by the United States holder
are sold under our offer and all of the shares that are constructively
owned by the United States holder, if any, are sold under our offer
or, with respect to shares owned by certain related individuals, the
United States holder effectively waives, in accordance with Section
302(c) of the Code, attribution of shares which otherwise would be
considered as constructively owned by the United States holder. United
States holders wishing to satisfy the "complete termination" test
through waiver of the constructive ownership rules should consult
their tax advisors.
o Substantially Disproportionate Test. The purchase of a United States
holder's shares by us under our offer will result in a "substantially
disproportionate" redemption with respect to the United States holder
if, among other things, the percentage of the then outstanding shares
actually and constructively owned by the United States holder
immediately after the purchase is less than 80% of the percentage of
the shares actually and constructively owned by the United States
holder immediately before the purchase (treating as outstanding all
shares purchased under our offer).
24
o Not Essentially Equivalent to a Dividend Test. The purchase of a
United States holder's shares by us under our offer will be treated as
"not essentially equivalent to a dividend" if the reduction in the
United States holder's proportionate interest in Xxxxx Financial as a
result of the purchase constitutes a "meaningful reduction" given the
United States holder's particular circumstances. Whether the receipt
of cash by a stockholder who sells shares under our offer will be "not
essentially equivalent to a dividend" will depend upon the
stockholder's particular facts and circumstances. The Internal Revenue
Service has indicated in a published revenue ruling that even a small
reduction in the percentage interest of a stockholder whose relative
stock interest in a publicly held corporation is minimal (for example,
an interest of less than 1%) and who exercises no control over
corporate affairs should constitute a "meaningful reduction." United
States holders should consult their tax advisors as to the application
of this test in their particular circumstances.
CORPORATE STOCKHOLDER DIVIDEND TREATMENT. In the case of a corporate United
States holder, to the extent that any amounts received under our offer are
treated as a dividend, such holder may be eligible for the dividends-received
deduction. The dividends-received deduction is subject to certain limitations.
In addition, any amount received by a corporate United States holder pursuant to
our offer that is treated as a dividend may constitute an "extraordinary
dividend" under Section 1059 of the Code. Corporate United States holders should
consult their own tax advisors as to the application of Section 1059 of the Code
to our offer, and to the tax consequences of dividend treatment in their
particular circumstances.
STOCKHOLDERS WHO DO NOT RECEIVE CASH UNDER OUR OFFER. Stockholders whose
shares are not purchased by us under our offer will not incur any tax liability
as a result of the completion of our offer.
BACKUP WITHHOLDING TAX. See "- The Offer - 2. Procedures for Tendering
Shares" with respect to the application of United States federal backup
withholding tax.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. WE
URGE YOU TO CONSULT YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR TAX
CONSEQUENCES TO YOU OF OUR OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, LOCAL AND FOREIGN TAX LAWS.
25
THE OFFER
1. NUMBER OF SHARES; PRICE; PRIORITY OF PURCHASE.
GENERAL. On the terms and subject to the conditions of our offer, we will
purchase at a price not greater than $31.50 nor less than $29.50 per share, net
to the seller in cash, without interest, up to 150,000 shares of our common
stock, or such lesser number of shares as are properly tendered and not properly
withdrawn in accordance with the procedures set forth under "The Offer - 3.
Withdrawal Rights."
The term "expiration date" with respect to our offer means 5:00 p.m., New
York City Time, on October 29, 2004, unless we, in our sole discretion, extend
the period of time during which our offer will remain open. If extended by us,
the term "expiration date" will mean the latest time and date at which our
offer, as extended, will expire. See "The Offer - 12. Extension of Our Offer;
Termination; Amendment" for a description of our right to extend, delay,
terminate or amend our offer.
In accordance with Instruction 5 of the letter of transmittal, stockholders
desiring to tender shares must specify the price or prices, not greater than
$31.50 nor less than $29.50 per share, at which they are willing to sell their
shares. Prices may be specified in increments of $0.25. Alternatively,
stockholders desiring to tender shares can choose not to specify a price and,
instead, specify that they will sell their shares at the purchase price selected
by us for shares properly tendered in our offer. This could result in the
tendering stockholder receiving a price per share as low as $29.50.
THE GREATER NUMBER OF STOCKHOLDERS WHO ELECT NOT TO SPECIFY A PURCHASE
PRICE WILL INCREASE THE CHANCE THAT THE TENDERING STOCKHOLDER COULD RECEIVE A
PRICE PER SHARE AS LOW AS $29.50.
As soon as practicable following the expiration date, we will select the
purchase price for shares properly tendered and not properly withdrawn, taking
into account the number of shares tendered and the prices specified by tendering
stockholders. We will select the lowest purchase price between $29.50 and $31.50
net per share in cash, without interest, that will enable us to purchase 150,000
shares, or such lesser number of shares as are properly tendered.
Shares properly tendered at or below that purchase price and not properly
withdrawn will be purchased at the selected purchase price upon the terms and
conditions of our offer, including the odd lot, proration and conditional tender
provisions described below. If more than 150,000 shares are tendered at or below
the purchase price we select, shares tendered at or below the purchase price
will be subject to proration, except for odd lots. In accordance with the rules
of the SEC, we may, and we reserve the right to, purchase in our offer an
additional amount of shares, not to exceed 2% of our outstanding common stock,
without amending or extending our offer. See "The Offer - 12. Extension of Our
Offer; Termination; Amendment."
All shares we purchase will be purchased at the same price, even if you
have specified a lower price. However, we will not purchase any shares tendered
at a price above the purchase price we select using the procedures described
above.
All shares tendered and not purchased, including shares tendered at prices
above the purchase price we select and shares not purchased because of proration
or the conditional tender procedures, will be returned to you at our expense as
soon as practicable following the expiration date.
26
On the letter of transmittal you can specify the order in which portions of
your shares will be purchased if, as a result of the proration provisions or
otherwise, some but not all of your tendered shares are purchased in our offer.
In addition, you can tender different portions of your shares at different
prices by completing separate letters of transmittal for each price at which you
tender shares.
You may withdraw your shares from our offer by following the procedures
described under "The Offer - 3. Withdrawal Rights."
If we:
o increase or decrease the range of prices to be paid for shares,
o increase the number of shares being sought in our offer by more than
2% of our outstanding common stock, or
o decrease the number of shares being sought in our offer,
then our offer must remain open, or will be extended, until at least ten
(10) business days from, and including, the date that notice of any such change
is first published, sent or given in the manner described under "The Offer - 12.
Extension of Our Offer; Termination; Amendment." For purposes of our offer, a
"business day" means any day other than a Saturday, Sunday or United States
federal holiday and consists of the time period from 12:01 a.m. through 12:00
midnight, New York City Time.
In calculating the number of shares to be accepted for payment pursuant to
the procedures described in this document, we will add the total number of
shares tendered at the minimum price of $29.50 to the shares tendered by
stockholders who have indicated, in the appropriate box in the Letter of
transmittal, that they are willing to accept the price determined in our offer.
Accordingly, shares tendered at the price determined in the offer will be
treated the same as shares tendered at $29.50. However, as discussed above,
shares properly tendered and accepted for purchase will all be purchased at the
same price, even if the purchase price we select is higher than the price at
which the shares were tendered.
OUR OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. OUR OFFER IS, HOWEVER, SUBJECT TO OTHER CONDITIONS. SEE "THE OFFER -
6. CONDITIONS OF OUR OFFER."
PRIORITY OF PURCHASES. Upon the terms and conditions of our offer, if
150,000 or fewer shares are properly tendered at prices equal to or below the
purchase price and not properly withdrawn, we will purchase all properly
tendered shares at the purchase price.
Upon the terms and conditions of our offer, if more than 150,000 shares are
properly tendered at prices equal to or below the purchase price and not
properly withdrawn, we will purchase properly tendered shares in the following
order:
27
o First, all shares properly tendered and not properly withdrawn by any
"odd lot holder" (as defined below) who:
(A) tenders all shares owned (beneficially or of record) by such odd
lot holder at a price equal to or below the purchase price
(tenders of less than all the shares owned will not qualify for
this preference); and
(B) completes the section entitled "Odd Lots" in the letter of
transmittal and, if applicable, in the notice of guaranteed
delivery.
o Second, after the purchase of all the shares properly tendered by odd
lot holders and subject to the conditional tender procedures described
under "The Offer - 5. Conditional Tender Procedures," we will
purchase, on a pro rata basis with appropriate adjustments to avoid
purchases of fractional shares (as described below), all other shares
properly tendered at prices equal to or below the purchase price,.
As a result, all the shares that you tender in our offer may not be
purchased, even if they are tendered at prices equal to or below the purchase
price. This will occur if we receive more than 150,000 properly tendered shares
at prices equal to or below the purchase price.
As we noted above, we may elect to purchase more than 150,000 shares in our
offer, subject to applicable law. If we do so, the preceding provisions will
apply to the greater number of shares.
ODD LOTS. For purposes of our offer, the term "odd lots" means all shares
properly tendered before the expiration date at prices equal to or below the
purchase price and not properly withdrawn by any person, referred to as an "odd
lot holder," who owns, beneficially or of record, a total of fewer than 100
shares (not as a result of any proration) and certifies to that fact in the "Odd
Lots" box on the letter of transmittal and, if applicable, on the notice of
guaranteed delivery. As set forth above, odd lots will be accepted for payment
before proration, if any, of the purchase of other tendered shares. To qualify
for this preference, an odd lot holder must tender all shares owned,
beneficially or of record, by the odd lot holder in accordance with the
procedures described under "The Offer - 2. Procedures for Tendering Shares."
This preference is not available to partial tenders or to beneficial or
record holders of a total of 100 or more shares, even if these holders have
separate accounts or certificates representing fewer than 100 shares. This
preference also is not available to record holders who become odd lot holders as
result of proration, as discussed below.
Any odd lot holder wishing to tender all its shares pursuant to our offer
should complete the section entitled "Odd Lots" in the Letter of transmittal
and, if applicable, in the Notice of Guaranteed Delivery.
PRORATION. If proration of tendered shares is required, we will determine
the proration percentage as soon as practicable following the expiration date.
Subject to the conditional tender procedures described under "The Offer - 5.
Conditional Tender Procedures," proration for each stockholder tendering shares,
other than odd lot holders, will be based on the ratio of the number of shares
properly tendered and not properly withdrawn by the stockholder to the total
number of shares properly tendered and not properly withdrawn by all
stockholders, other than odd lot holders, at or below the purchase price
selected by us.
28
Because of the potential difficulty in determining the number of shares
properly tendered and not properly withdrawn, including shares tendered by
guaranteed delivery procedures as described under "The Offer - 2. Procedures for
Tendering Shares," and because of the odd lot procedures described above and the
conditional tender procedures described under "The Offer - 5. Conditional Tender
Procedures," we do not expect that we will be able to announce the final
proration percentage or commence payment for any shares purchased under our
offer until seven (7) to ten (10) business days after the Expiration Date. The
preliminary results of any proration will be announced by press release as soon
as practicable after the expiration date. Stockholders may obtain preliminary
proration information from the information agent and may be able to obtain this
information from their brokers.
As described under "Special Factors - 8. Federal Income Tax Consequences,"
the number of shares that we will purchase from a stockholder under our offer
may affect the United States federal income tax consequences to that stockholder
and, therefore, may be relevant to a stockholder's decision whether or not to
tender shares. The letter of transmittal affords each stockholder the
opportunity to designate the order of priority in which shares are to be
purchased in the event of proration, should a stockholder decide to do so for
federal income tax reasons. In addition, stockholders may choose to submit a
"conditional tender" under the procedures discussed under "The Offer - 5.
Conditional Tender Procedures," in order to structure their tender for federal
income tax reasons.
ANY STOCKHOLDER THAT BECOMES AN ODD LOT STOCKHOLDER (OWNS FEWER THAN 100
SHARES) AS A RESULT OF PRORATION WILL NOT BE GIVEN PRIORITY IN PRORATION. THE
ONLY ODD LOT STOCKHOLDERS WHOSE SHARES WILL BE PURCHASED BEFORE PRORATING SHARES
ARE THOSE STOCKHOLDERS WHO ARE ODD LOT STOCKHOLDERS AS OF THE DATE OF THE OFFER
TO PURCHASE.
2. PROCEDURES FOR TENDERING SHARES.
PROPER TENDER OF SHARES. For your shares to be properly tendered, either
(1) or (2) below must occur:
(1) The depositary must receive all of the following before or on the
expiration date at the depositary's address on the back page of this
document:
(A) the certificates for the shares;
(B) a properly completed and executed letter of transmittal or a
manually executed facsimile of it, including any required
signature guarantees; and
(C) any other documents required by the letter of transmittal.
(2) You must comply with the guaranteed delivery procedure set forth
below.
In accordance with Instruction 5 of the letter of transmittal, if you want
to tender your shares you must properly complete the pricing section of the
letter of transmittal, titled "Price At Which You Are Tendering":
o If you wish to maximize the chance that your shares will be purchased
at the purchase price determined by us, you should check the box in
this section of the letter of transmittal
29
next to "Shares tendered at price determined pursuant to the offer."
This means that you will accept the purchase price selected by us in
accordance with the terms of our offer. Note that this election could
-----------------------------
result in your shares being purchased at the minimum price of $29.50
----------------------------------------------------------------------
per share.
---------
o If you wish to indicate a specific price (in multiples of $0.25) at
which your shares are being tendered, you must check ONE box in this
section under "Shares tendered at a price determined by you." You
---
should be aware that this election could mean that none of your shares
----------------------------------------------------------------------
will be purchased if you choose a price that is higher than the
----------------------------------------------------------------------
purchase price we eventually select after the expiration date.
--------------------------------------------------------------
If you want to tender portions of your shares at different prices you must
complete a separate letter of transmittal for each portion of your shares that
you want to tender at a different price. However, the same shares cannot be
tendered (unless properly withdrawn previously in accordance with the procedures
described under "The Offer - 3. Withdrawal Rights") at more than one price. To
tender shares properly, one and only one price box must be checked in the "Price
At Which You Are Tendering" section on each letter of transmittal.
In addition, odd lot holders who tender all shares must complete the
section captioned "Odd Lots" in the letter of transmittal and, if applicable, in
the notice of guaranteed delivery, to qualify for the preferential treatment
available to odd lot holders as set forth under "The Offer - 1. Number of
Shares; Price; Priority of Purchase."
If you tender your shares directly to the depositary, you will not need to
pay any brokerage commissions. If you hold shares through a broker or bank,
however, you should ask your broker or bank to see if you will be charged a fee
to tender your shares through the broker or bank.
ENDORSEMENTS AND SIGNATURE GUARANTEES. Depending on how your shares are
registered and to whom you want payments or deliveries made, you may need to
have your certificates endorsed and the signatures on the letter of transmittal
and endorsement guaranteed by an "eligible guarantor institution," as such term
is defined in Rule 17Ad-15 under the Exchange Act. No endorsement or signature
guarantee is required if:
(A) the letter of transmittal is signed by the registered holder of
the shares tendered exactly as the name of the registered holder
appears on the certificate(s) for the shares and payment and
delivery are to be made directly to the holder, unless the holder
has completed either the box captioned "Special Delivery
Instructions" or the box captioned "Special Payment Instructions"
on the letter of transmittal; or
(B) shares are tendered for the account of a bank, broker, dealer,
credit union, savings association or other entity that is a
member in good standing of the Securities Transfer Agents
Medallion Program or a bank, broker, dealer, credit union,
savings association or other entity that is an eligible guarantor
institution.
See Instruction 1 of the Letter of transmittal.
30
On the other hand, if a certificate for shares is registered in the name of
a person other than the person executing a letter of transmittal or you are
completing either the box captioned "Special Delivery Instructions" or the box
captioned "Special Payment Instructions" on the letter of transmittal, then
(A) your certificates must be endorsed or accompanied by an
appropriate stock power, in either case signed exactly as the
name of the registered holder appears on the certificates; and
(B) the signature on (1) the letter of transmittal, and (2) on your
stock certificates or stock power must be guaranteed by an
eligible guarantor institution.
METHOD OF DELIVERY. Payment for shares tendered and accepted for payment
under our offer will be made only after timely receipt by the depositary of all
of the following:
(1) certificates for such shares,
(2) any of a properly completed and duly executed letter of
transmittal or a manually signed facsimile thereof, and
(3) any other documents required by the letter of transmittal.
THE METHOD OF DELIVERING ALL DOCUMENTS, INCLUDING CERTIFICATES FOR SHARES,
THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR ELECTION
AND RISK. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED
AND PROPERLY INSURED, IS RECOMMENDED.
ALL DELIVERIES IN CONNECTION WITH OUR OFFER, INCLUDING A LETTER OF
TRANSMITTAL AND CERTIFICATES FOR SHARES, MUST BE MADE TO THE DEPOSITARY AND NOT
XXXXX FINANCIAL OR THE INFORMATION AGENT. ANY DOCUMENTS DELIVERED TO US OR THE
INFORMATION AGENT WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE WILL NOT
BE DEEMED TO BE PROPERLY TENDERED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
GUARANTEED DELIVERY. If you want to tender your shares, but your stock
certificates are not immediately available or cannot be delivered to the
depositary before the expiration date, or if time will not permit all required
documents to reach the depositary before the expiration date, you can still
tender your shares, if all of the following conditions are satisfied:
o the tender is made by or through an eligible guarantor institution;
o the depositary receives by hand, mail, overnight courier or facsimile
transmission, before the expiration date, a properly completed and
duly executed notice of guaranteed delivery in the form we have
provided with this document, specifying the price at which shares are
being tendered, including (where required) a signature guarantee by an
eligible guarantor institution in the form set forth in the notice of
guaranteed delivery; and
31
o all of the following are received by the depositary within three
Nasdaq trading days after the date of receipt by the depositary of the
notice of guaranteed delivery:
(a) the certificates for the shares;
(b) a properly completed and executed letter of transmittal or a
manually executed facsimile of it, including any required
signature guarantees; and
(c) any other documents required by the letter of transmittal.
EMPLOYEE BENEFIT PLANS. We sponsor five stock-based employee benefit plans
- a 1995 Stock Option Plan, a 1995 Stock Bonus Plan, a 2003 Stock Option Plan
and a 2003 Stock Bonus Plan (collectively, the "Stock Plans"), all of which hold
shares or options to acquire shares of our common stock. The Bank also has an
ESOP which holds shares of our common stock.
Decisions as to whether to tender ESOP shares will be made by the ESOP
trustees, consisting of our non-employee directors, subject to the terms of the
plan and ERISA. The ESOP trustees have informed us that as of the date hereof
they do not intend to tender any shares held in the ESOP Plan.
We are not offering, as part of the offer, to purchase any of the options
or restricted shares outstanding or held under the Stock Plans or the ESOP and
tenders of such options or shares will not be accepted. In no event are any
options or shares held under the Stock Plans or ESOP to be delivered to the
depositary in connection with a tender of shares hereunder. An exercise of an
option cannot be revoked even if shares received upon the exercise thereof and
tendered in the offer are not purchased in the offer for any reason.
DETERMINATION OF VALIDITY; REJECTION OF SHARES; WAIVER OF DEFECTS; NO
OBLIGATION TO GIVE NOTICE OF DEFECTS. All questions as to the number of shares
to be accepted, the price to be paid for shares to be accepted and the validity,
form, eligibility (including time of receipt) and acceptance for payment of any
tender of shares will be determined by us, in our sole and absolute discretion,
and our determination will be final and binding on all parties. We reserve the
absolute right to reject any or all tenders of any shares that we determine are
not in proper form or the acceptance for payment of or payment for which we
determine may be unlawful. We also reserve the absolute right to waive any
defect or irregularity in any tender with respect to any particular shares or
any particular stockholder and our interpretation of the terms of our offer will
be final and binding on all parties. No tender of shares will be deemed to have
been properly made until all defects or irregularities have been cured by the
tendering stockholder or waived by us. Unless waived, any defects and
irregularities in connection with tenders must be cured within the time period,
if any, we determine. Neither we, nor any of the depositary, the information
agent or any other person will be under any duty to give notification of any
defects or irregularities in any tender or incur any liability for failure to
give any such notification.
Although we reserve the absolute right to waive any defect or irregularity
in any tender with respect to any particular shares or any particular
stockholder, we do not have the right to waive any conditions of the offer to
any particular stockholder, unless waived with respect to all stockholders.
32
YOUR REPRESENTATION AND WARRANTY; OUR ACCEPTANCE CONSTITUTES AN AGREEMENT.
A tender of shares under any of the procedures described above will constitute
your acceptance of the terms and conditions of our offer, as well as your
representation and warranty to us that:
o you have a "net long position" in the shares or equivalent securities
at least equal to the shares tendered within the meaning of Rule 14e-4
promulgated by the SEC under the Exchange Act; and
o the tender of shares complies with Rule 14e-4.
It is a violation of Rule 14e-4 for a person, directly or indirectly, to
tender shares for that person's own account unless, at the time of tender and at
the end of the proration period, the person so tendering
o has a net long position equal to or greater than the amount tendered
in the subject securities or securities immediately convertible into,
or exchangeable or exercisable for, the subject securities; and
o will deliver or cause to be delivered the shares in accordance with
the terms of the tender offer.
Rule 14e-4 provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person.
Our acceptance for payment of shares tendered under our offer will
constitute a binding agreement between you and Xxxxx Financial upon the terms
and conditions of our offer described in this and related documents.
RETURN OF UNPURCHASED SHARES. If any tendered shares are not purchased or
are properly withdrawn, or if less than all shares evidenced by a stockholder's
certificates are tendered, certificates for unpurchased shares will be returned
as soon as practicable after the expiration or termination of our offer or the
proper withdrawal of the shares, as applicable. Shares will be returned without
expense to the stockholder.
FEDERAL BACKUP WITHHOLDING TAX. Under the United States federal backup
withholding tax rules, 28% of the gross proceeds payable to a stockholder or
other payee in the tender offer must be withheld and remitted to the United
States Treasury, unless the stockholder or other payee provides such person's
taxpayer identification number (employer identification number or social
security number) to the depositary and certifies under penalties of perjury that
such number is correct or otherwise establishes an exemption. If the depositary
is not provided with the correct taxpayer identification number or another
adequate basis for exemption, the holder may be subject to certain penalties
imposed by the Internal Revenue Service. Therefore, each tendering stockholder
should complete and sign the substitute Form W-9 included as part of the letter
of transmittal in order to provide the information and certification necessary
to avoid backup withholding, unless such stockholder otherwise establishes to
the satisfaction of the depositary that the stockholder is not subject to backup
withholding.
Certain stockholders (including, among others, all corporations and certain
foreign stockholders (in addition to foreign corporations)) are not subject to
these backup withholding rules. In order for a foreign stockholder to qualify as
an exempt recipient, that stockholder must submit an IRS Form W-8 or
33
a Substitute Form W-8, signed under penalties of perjury, attesting to that
stockholder's exempt status. The applicable form can be obtained from the
depositary. See Instruction 13 of the Letter of transmittal.
TO PREVENT FEDERAL BACKUP WITHHOLDING TAX EQUAL TO 28% OF THE GROSS
PAYMENTS MADE TO STOCKHOLDERS FOR SHARES PURCHASED UNDER OUR OFFER, EACH
STOCKHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM SUCH WITHHOLDING
MUST PROVIDE THE DEPOSITARY WITH THE STOCKHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND PROVIDE OTHER INFORMATION BY COMPLETING THE SUBSTITUTE
FORM W-9 INCLUDED WITH THE LETTER OF TRANSMITTAL.
For a discussion of United States federal income tax consequences to
tendering stockholders, see "Special Factors - 8. Federal Income Tax
Consequences."
LOST OR DESTROYED CERTIFICATES. If your certificate for part or all of your
shares has been lost, stolen, misplaced or destroyed, you should contact
Registrar and Transfer Company, the transfer agent for our shares, at
(000)000-0000, for instructions as to obtaining an affidavit of loss. The
affidavit of loss will then be required to be submitted together with the letter
of transmittal in order to receive payment for shares that are tendered and
accepted for payment. A bond may be required to be posted by you to secure
against the risk that the certificates may be subsequently recirculated. You are
urged to contact Registrar and Transfer Company immediately in order to receive
further instructions, to permit timely processing of this documentation and for
a determination as to whether you will need to post a bond.
DISSENTERS' RIGHTS. No dissenters' rights are available to stockholders in
connection with the offer under applicable Minnesota law.
3. WITHDRAWAL RIGHTS.
Shares tendered may be withdrawn at any time before the expiration of the
offer and, unless accepted for payment by us after the expiration of the offer,
may also be withdrawn at any time after 12:00 midnight, New York City Time, on
November 27, 2004. Except as otherwise provided in this Section 3, tenders of
shares are irrevocable.
For a withdrawal to be effective, a written notice of withdrawal must be
timely received by the depositary at its address or facsimile number appearing
on the back page of this document. Any notice of withdrawal must specify the
name of the tendering stockholder, the number of shares to be withdrawn and the
name of the registered holder of the shares. If the certificates for shares to
be withdrawn have been delivered or otherwise identified to the depositary,
then, before the release of such certificates, the serial numbers shown on such
certificates must be submitted to the depositary and the signature(s) on the
notice of withdrawal must be guaranteed by an eligible guarantor institution,
unless the shares have been tendered for the account of an eligible guarantor
institution.
All questions as to the form and validity (including the time of receipt)
of any notice of withdrawal will be determined by us, and our determination will
be final and binding. Neither we, nor any of the depositary, the information
agent or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
34
Withdrawals may not be rescinded, and any shares properly withdrawn will
thereafter be deemed not properly tendered for purposes of our offer unless the
withdrawn shares are properly re-tendered before the expiration date by
following one of the procedures described under "The Offer - 2. Procedures for
Tendering Shares."
If we extend our offer, if we are delayed in our purchase of shares or are
unable to purchase shares under our offer for any reason, then, without
prejudice to our rights under our offer, the depositary may, subject to
applicable law, retain tendered shares on our behalf, and such shares may not be
withdrawn except to the extent tendering stockholders are entitled to withdrawal
rights as described in this Section 3.
Our reservation of the right to retain tendered shares we have accepted for
purchase is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act,
which requires that we must pay the consideration offered or return the shares
tendered promptly after termination or withdrawal of our offer.
4. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and conditions of our offer, as soon as practicable
following the expiration date, we will:
o select the purchase price we will pay for shares properly tendered and
not properly withdrawn, taking into account the number of shares so
tendered and the prices specified by tendering stockholders; and
o accept for payment and pay for, and thereby purchase, shares properly
tendered at prices equal to or below the purchase price we select and
not properly withdrawn.
For purposes of our offer, we will be deemed to have accepted for payment
and therefore purchased shares that are properly tendered at or below the
purchase price and not properly withdrawn, subject to the odd lot priority,
conditional tender and proration provisions of our offer, only when, as and if
we give oral or written notice to the depositary of our acceptance of the shares
for payment.
Upon the terms and conditions of our offer, as soon as practicable after
the expiration date, we will accept for payment and pay a single per share
purchase price for 150,000 shares, subject to increase or decrease as provided
under "The Offer - 1. Number of Shares; Price; Priority of Purchase," and "- 12.
Extension of Our Offer; Termination; Amendment," if properly tendered and not
properly withdrawn, or such lesser number of shares as are properly tendered and
not properly withdrawn, at prices between $29.50 and $31.50 per share.
We will pay for shares purchased under our offer by depositing the
aggregate purchase price for the shares with the depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from us
and transmitting payment to the tendering stockholders.
In the event of proration, we will determine the proration percentage and
pay for those tendered shares accepted for payment as soon as practicable after
the expiration date. However, we do not expect to be able to announce the final
results of any proration or to be able to commence payment for shares purchased
until approximately seven (7) to ten (10) business days after the expiration
date.
35
We will not pay interest on the purchase price regardless of any delay in
making such payment. In addition, if certain events occur, we may not be
obligated to purchase shares in our offer. See the conditions to our offer under
"- The Offer - 6. Conditions of Our Offer."
We will pay all stock transfer taxes, if any, payable on the transfer to us
of shares purchased under our offer. If, however, (a) payment of the purchase
price is to be made to any person other than the registered holder, (b) shares
not tendered or rejected for purchase are to be registered in the name of any
person other than the registered holder, or (c) certificates representing
tendered shares are registered in the name of any person other than the person
signing the letter of transmittal, the amount of all stock transfer taxes, if
any (whether imposed on the registered holder the other person or otherwise),
payable on account of the transfer to the other person, will be deducted from
the purchase price unless satisfactory evidence of the payment of the stock
transfer taxes, or exemption therefrom, is submitted. See Instruction 7 of the
Letter of transmittal.
ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN
AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 INCLUDED WITH THE LETTER OF
TRANSMITTAL MAY BE SUBJECT TO FEDERAL INCOME BACKUP WITHHOLDING TAX OF 28% OF
THE GROSS PROCEEDS PAID TO THE STOCKHOLDER OR OTHER PAYEE UNDER OUR OFFER. SEE
"- THE OFFER - 2. PROCEDURES FOR TENDERING SHARES." ALSO SEE "- SPECIAL FACTORS
- 8. FEDERAL INCOME TAX CONSEQUENCES" REGARDING ADDITIONAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES.
5. CONDITIONAL TENDER PROCEDURES.
Under certain circumstances and subject to the exceptions for odd lot
holders described under "The Offer - 1. Number of Shares; Price; Priority of
Purchase," we may prorate the number of shares purchased pursuant to our offer.
As discussed under "Special Factors - 8. Federal Income Tax Consequences," the
number of shares to be purchased from a particular stockholder may affect the
tax treatment of the purchase to the stockholder and the stockholder's decision
whether to tender. The conditional tender alternative is made available so that
a stockholder may seek to structure the purchase of shares pursuant to our offer
in such a manner that the purchase will be treated as a sale of such shares by
the stockholder, rather than the payment of a dividend to the stockholder, for
federal income tax purposes. Accordingly, a stockholder may tender shares
subject to the condition that all or a specified minimum number of the
stockholder's shares tendered pursuant to a letter of transmittal or notice of
guaranteed delivery must be purchased if any of the stockholder's tendered
shares are purchased. If you are an odd lot holder and you tender all of your
shares, you cannot conditionally tender because your shares will not be subject
to proration. EACH STOCKHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR.
If you wish to make a conditional tender you must indicate this in the box
captioned "Conditional Tender" in the letter of transmittal or, if applicable,
the notice of guaranteed delivery. In this box in the letter of transmittal or
the notice of guaranteed delivery, you must calculate and appropriately indicate
the minimum number of shares that must be purchased if any are to be purchased.
After our offer expires, if greater than 150,000 shares are properly tendered
and not properly withdrawn and we must prorate our acceptance of and payment for
tendered shares, we will calculate a preliminary proration percentage based upon
all shares properly tendered, conditionally or unconditionally. If the effect of
this preliminary proration would be to reduce the number of shares to be
purchased from any stockholder below the
36
minimum number specified by that stockholder, the conditional tender will
automatically be regarded as withdrawn, unless chosen by lot for reinstatement
as discussed in the next paragraph.
After giving effect to these withdrawals, we will accept the remaining
shares properly tendered, conditionally or unconditionally, on a pro rata basis,
if necessary. If we are able to purchase all of the remaining tendered shares
and the number that we would purchase would be below 150,000, then, to the
extent feasible, we will select enough of the conditional tenders that would
otherwise have been deemed withdrawn to permit us to purchase 150,000 shares. In
selecting among these conditional tenders, we will select by random lot and will
select only from stockholders who tendered all of their shares. Upon selection
by lot, if any, we will limit our purchase in each case to the designated
minimum number of shares to be purchased.
All shares tendered by a stockholder subject to a conditional tender
pursuant to the letter of transmittal or notice of guaranteed delivery, regarded
as withdrawn as a result of proration and not eventually purchased will be
returned as soon as practicable after the expiration date without any expense to
the stockholder.
6. CONDITIONS OF OUR OFFER.
Notwithstanding any other provision of our offer, we will not be required
to accept for payment, purchase or pay for any shares tendered, and may
terminate or amend our offer or may postpone the acceptance for payment of, or
the purchase of and the payment for shares tendered, subject to the rules
promulgated by the SEC under the Exchange Act, if, at any time on or after
September 28, 2004 and before the expiration of our offer, any of the following
events have occurred:
o there has been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person,
domestic or foreign, before any court, authority, agency or tribunal
that directly or indirectly challenges the making of our offer, the
acquisition of some or all of the shares under our offer or otherwise
relates in any manner to our offer, including the other conditions to
our offer;
o there has been any action threatened, pending or taken, or approval
withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted,
entered, amended, enforced or deemed to be applicable to our offer or
to us or any of our subsidiaries, by any court or any authority,
agency or tribunal that, in our reasonable judgment, would or might
directly or indirectly,
o make the acceptance for payment of, or payment for, some or all
of the shares illegal or otherwise restrict or prohibit
completion of our offer; or
o delay or restrict our ability, or render us unable, to accept for
payment or pay for some or all of the shares;
o there has occurred any of the following:
o any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the
over-the-counter market in the United States;
37
o the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States;
o the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly
involving the United States or any of its territories or, in the
case of an existing armed hostility or other international or
national calamity at the time of our offer, a material escalation
thereof;
o any limitation (whether or not mandatory) by any governmental,
regulatory or administrative agency or authority on, or any
event, or any disruption or adverse change in the financial or
capital markets generally or the market for loan syndications in
particular, that, in our reasonable judgment, might affect, the
extension of credit by banks or other lending institutions in the
United States;
o any significant decrease in the market price of our common stock
or any change in the general political, market, economic or
financial conditions in the United States or abroad that could,
in our reasonable judgment, have a material adverse effect on our
business, operations or prospects or the trading of our common
stock; or
o any significant or material change or changes in the business,
financial condition, assets, income, operations, prospects or
stock ownership of us or our subsidiaries that is or may be
material and adverse to us or our subsidiaries.
The conditions to our offer are for our sole benefit and may be asserted by
us regardless of the circumstances (including any action or inaction by us)
giving rise to any such condition and, where permissible, may be waived by us,
in whole or in part at any time up until the expiration of our offer in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any right, and each right shall be deemed an
ongoing right which may be asserted at any time up until the expiration of our
offer. Any determination or judgment by us concerning the events described above
will be final and binding on all parties.
Upon the occurrence of one or more of the aforementioned conditions not
otherwise waived by us, we will notify stockholders as promptly as possible of
the condition and whether the Company will terminate or amend the offer, subject
to the rules promulgated by the SEC under the Exchange Act.
7. PRICE RANGE OF SHARES; DIVIDENDS.
SHARE PRICES. Our common stock is traded on the Nasdaq National Market
under the trading symbol "WEFC". The following table sets forth, for the fiscal
quarters indicated, the high and low sale prices for our common stock.
38
Dividends
Paid
Fiscal Year High Low Per Share
----------- ---- --- ----------
2002:
1st Quarter........................................... $21.38 $17.55 $0.18
2nd Quarter........................................... $23.04 $19.65 $0.18
3rd Quarter........................................... $22.75 $17.68 $0.18
4th Quarter........................................... $20.64 $17.19 $0.18
2003:
1st Quarter........................................... $23.33 $20.63 $0.20
2nd Quarter........................................... $26.78 $22.35 $0.20
3rd Quarter........................................... $28.00 $24.25 $0.20
4th Quarter........................................... $31.72 $26.80 $0.20
2004:
1st Quarter........................................... $34.79 $27.66 $0.22
2nd Quarter........................................... $32.95 $22.00 $0.22
3rd Quarter (through September 27, 2004).............. $29.99 $23.00 $0.22
On September 27, 2004, the closing sale price of our common stock was
$28.75, as quoted on the Nasdaq National Market. WE URGE YOU TO OBTAIN MORE
CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK.
8. SOURCE AND AMOUNT OF FUNDS.
Assuming that150,000 shares are tendered in the offer at a price between
$29.50 and $31.50 per share, the aggregate purchase price paid by us will be
between $4,425,000 and $4,725,000. We expect that our fees and expenses for the
offer will be approximately $150,000.
Upon repayment of a loan by the Company to the Bank in the amount of $4.1
million, which was paid on September 28, 2004, the Company had sufficient cash
on hand to pay all expenses in connection with the offer.
We anticipate that we will have all of the funds necessary to purchase
shares tendered in our offer, as well as to pay related fees and expenses, from
our existing assets, primarily out of available cash.
39
9. INFORMATION ABOUT US AND THE SHARES.
GENERAL. We are the parent company for the Bank. We were formed as a
Minnesota corporation in December 1994 at the direction of the Bank in
connection with the Bank's conversion from a mutual to stock form of ownership.
We acquired all of the capital stock issued by the Bank upon its conversion. In
April 1995, the Bank completed its conversion in connection with a $10.58
million initial public offering of common stock of Xxxxx Financial. We are a
unitary savings and loan holding company and, under existing laws, generally are
not restricted in the types of business activities in which we may engage
provided that the Bank retains a specified amount of its assets in
housing-related investments. At the present time, we conduct no significant
business or operations of our own other than holding all of the outstanding
stock of the Bank and investing our portion of the net proceeds obtained in the
conversion.
The Bank attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, primarily to originate and fund loans
secured by first mortgages on owner- occupied, one-to-four family residences in
its market area. The Bank also makes commercial real estate, commercial, home
equity loans, loans secured by deposits, automobile loans and personal loans and
invests in municipal obligations, mortgage-backed securities, and other
investments.
SHARES OUTSTANDING. As of September 22, 2004, we had 1,162,651 issued and
outstanding shares of common stock.
The 150,000 shares that we are offering to purchase represent approximately
13% of our issued and outstanding stock as of September 22, 2004. Assuming that
we purchase all 150,000 shares that we are offering to purchase, the number of
our issued and outstanding shares would be reduced to 1,012,651 immediately
after the offer.
FINANCIAL STATEMENTS. Our historical financial statements for the fiscal
years ended December 31, 2003 and 2002 are incorporated herein by reference to
Exhibit 13 to our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003, filed with the SEC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following summary historical consolidated financial information has
been derived from our consolidated financial statements for the years ended
December 31, 2003 and 2002 and from our unaudited consolidated financial
statements for the three and six months ended June 30, 2004 and 2003 and, in the
opinion of management, includes all adjustments (consisting of normal recurring
accruals) that are necessary for a fair presentation of the financial position
and results of operations for such periods. The summary information should be
read in conjunction with the consolidated financial statements and the notes
thereto included in our Quarterly report on Form 10-QSB for the quarter ended
June 30, 2004 and our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003. COPIES OF THESE REPORTS MAY BE OBTAINED AS DESCRIBED IN THIS
DOCUMENT.
40
XXXXX FINANCIAL CORP.
Summary Historical Financial Information
FINANCIAL HIGHLIGHTS At June 30 At December 31,
------------------------- --------------------------
(Dollars in Thousands except per share date) 2004 2003 2003 2002
------------------------- --------------------------
Total assets $223,353 $224,182 $223,805 $220,616
Loan receivable, net 185,004 151,807 162,046 155,281
Securities available for sale, at fair value 21,663 23,157 27,410 19,856
Cash and cash equivalents 6,730 39,439 25,318 36,571
Deposits 165,362 171,257 169,662 169,126
Borrowed funds 26,140 23,000 23,000 23,000
Total stockholders' equity 28,328 26,677 27,868 25,223
For Six Months Ended For Year Ended
June 30, December 31,
------------------------- --------------------------
2004 2003 2003 2002
------------------------- --------------------------
Interest income $ 5,975 $ 5,887 $ 11,514 $ 13,865
Interest expense 1,927 2,497 4,595 6,247
Net interest income 4,048 3,390 6,919 7,618
Provision for loan losses -- -- -- 23
Non-interest income 2,013 4,143 7,750 5,957
Non-interest expense 4,394 4,407 8,899 7,849
Income tax expense 625 1,234 2,230 2,363
Net income 1,042 1,892 3,540 3,340
Basic earnings per share 0.90 1.68 3.12 2.84
Diluted earnings per share 0.88 1.64 3.05 2.75
Dividends per share 0.44 0.40 0.80 0.72
Book value per share 24.39 23.58 24.15 22.42
OTHER SELECTED DATA
Performance Ratios (1):
Return on average assets (net income divided by
average total assets) 0.9% 1.7% 1.6% 1.5%
Return on average equity (net income divided by
average equity) 7.4% 14.6% 13.3% 13.3%
Average interest-earning assets to average
interest-bearing liabilities 1.1% 1.1% 1.1% 1.1%
Average equity to average assets ratio (average
equity divided by average total assets) 12.6% 11.6% 11.9% 11.1%
Equity to assets at period end 12.7% 11.9% 12.5% 11.4%
Dividend payout ratio 48.9% 23.8% 25.6% 25.4%
------------------
(1) The ratios for the six month periods are annualized.
41
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following summary unaudited pro forma consolidated financial
information for the six months ended June 30, 2004 and the year ended December
31, 2003 has been adjusted for certain costs and expenses to be incurred as a
result of the purchase of 150,000 shares pursuant to this offer. The income
statement and the balance sheet give effect to the purchase of shares as of the
beginning of each period presented. Effect has been given to costs to be
incurred in connection with the offer, which are estimated to be $150,000. Such
costs will be included as part of the cost of the shares repurchased.
The summary unaudited pro forma consolidated financial information should
be read in conjunction with the summary historical consolidated financial
information included in this document. The pro forma income statement data and
balance sheet data are not necessarily indicative of the financial position or
results of operations that would have been obtained had the offer been completed
as of the dates indicated or that may be attained in the future.
XXXXX FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2003
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
150,000 Shares Purchased at
$29.50 $31.50
per share per share
------------- --------------
Interest income (a) $11,467 $11,464
Interest expense 4,595 4,595
------------- --------------
Net interest income 6,872 6,869
Provision for loan losses -- --
------------- --------------
Net interest income after provision for loan losses 6,872 6,869
Noninterest income 7,750 7,750
Noninterest expenses 8,899 8,899
------------- --------------
Income before income taxes 5,723 5,720
Income tax expense / (benefit) (b) 2,230 2,230
------------- --------------
Net income 3,493 3,490
============= ==============
Basic earnings per share $ 3.55 $ 3.55
============= ==============
Diluted earnings per share $ 3.46 $ 3.45
============= ==============
Weighted average shares outstanding (c) 983,320 983,320
Weighted average fully diluted shares outstanding (c) 1,010,943 1,010,943
(a) Interest income is reduced assuming a 1.02% rate. The funds used to
purchase the shares are primarily cash and short-term investment
securities.
(b) Income taxes are not assumed to change.
(c) Shares are reduced by 150,000.
42
XXXXX FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2004
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
150,000 Shares Purchased at
$29.50 $31.50
per share per share
------------- --------------
Interest income (a) $5,952 $5,950
Interest expense 1,927 1,927
------------- --------------
Net interest income 4,025 4,023
Provision for loan losses -- --
------------- --------------
Net interest income after provision for loan losses 4,025 4,023
Noninterest income 2,013 2,013
Noninterest expenses 4,394 4,394
------------- --------------
Income before income taxes 1,644 1,642
Income tax expense / (benefit) (b) 625 625
------------- --------------
Net income 1,019 1,017
============= ==============
Basic earnings per share $ 1.01 $ 1.01
============= ==============
Diluted earnings per share $ 0.98 $ 0.98
============= ==============
Weighted average shares outstanding (c) 1,010,414 1,010,414
Weighted average fully diluted shares outstanding (c) 1,038,396 1,038,396
(a) Interest income is reduced assuming a 1.02% rate. The funds used to
purchase the shares are primarily cash and short-term investment
securities.
(b) Income taxes are not assumed to change. (c) Shares are reduced by
150,000.
43
XXXXX FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2003
(DOLLARS IN THOUSANDS)
150,000 Shares Purchased at
$29.50 $31.50
per share per share
------------- -------------
ASSETS
Cash and cash equivalents (a) $20,896 $20,593
Securities available-for-sale 27,410 27,410
Stock in Federal Home Loan Bank of Seattle, at cost 1,303 1,303
Loans receivable, net 162,046 162,046
Accrued interest receivable 1,209 1,209
Premises and equipment, net 3,585 3,585
Other assets 2,734 2,734
------------- -------------
Total assets $219,183 $218,880
============= =============
LIABILITIES
Deposits $169,662 $169,662
Borrowed Funds 23,000 23,000
Other liabilities 3,275 3,275
------------- -------------
Total liabilities 195,937 195,937
STOCKHOLDERS' EQUITY
Common stock 219 219
Additional paid-in capital 17,154 17,154
Unearned MSBP shares (561) (561)
Retained earnings 26,875 26,872
Accumulated other comprehensive income, net 525 525
Treasury stock (b) (20,966) (21,266)
------------- -------------
Total stockholders' equity 23,246 22,943
------------- -------------
Total liabilities and stockholders' equity $219,183 $218,880
============= =============
Book value per share $ 23.16 $ 22.86
============= =============
(a) Cash and cash equivalents have been reduced to reflect the cash
required for the repurchase and the expected expenses of the offering.
(b) Treasury stock reflects the increase in treasury stock and the expected
expenses of the offering.
44
XXXXX FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(DOLLARS IN THOUSANDS)
150,000 Shares Purchased at
$29.50 $31.50
per share per share
------------- ------------
ASSETS
Cash and cash equivalents (a) $2,258 $1,956
Securities available-for-sale 21,663 21,663
Stock in Federal Home Loan Bank of Seattle, at cost 1,444 1,444
Loans receivable, net 185,004 185,004
Accrued interest receivable 1,502 1,502
Premises and equipment, net 4,016 4,016
Other assets 2,868 2,868
------------- ------------
Total assets $218,755 $218,453
============= ============
LIABILITIES
Deposits $165,362 $165,362
Borrowed Funds 26,140 26,140
Other liabilities 3,523 3,523
------------- ------------
Total liabilities 195,025 195,025
STOCKHOLDERS' EQUITY
Common stock 219 219
Additional paid-in capital 17,146 17,146
Unearned MSBP shares (488) (488)
Retained earnings 27,430 27,428
Accumulated other comprehensive income, net 287 287
Treasury stock (b) (20,864) (21,164)
------------- ------------
Total stockholders' equity 23,730 23,428
------------- ------------
Total liabilities and stockholders' equity $218,755 $218,453
============= ============
Book value per share $ 23.47 $ 23.17
============= ============
(a) Cash and cash equivalents have been reduced to reflect the cash
required for the repurchase and the expected expenses of the offering.
(b) Treasury stock reflects the increase in treasury stock and the expected
expenses of the offering.
45
ADDITIONAL INFORMATION. We are subject to the information and reporting
requirements of the Exchange Act, and in accordance with such laws we file with
the SEC periodic reports, proxy statements and other information relating to our
business, financial condition and other matters. We are required to disclose in
these proxy statements filed with the SEC certain information, as of particular
dates, concerning our directors and executive officers, their compensation,
stock options granted to them, the principal holders of our securities and any
material interest of such persons in transactions with us. We have also filed
with the SEC an Issuer Tender Offer Statement on Schedule TO, which includes
additional information with respect to our offer.
The reports, statements and other information (including any exhibits,
amendments or supplements to such documents) we file may be inspected and copied
at the public reference facilities maintained by the SEC at Room 0000, 000 Xxxxx
Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000. You may obtain information on the
operation of the public reference rooms by calling the SEC at 0-000-XXX-0000.
Our SEC filings are also available to the public without charge on the SEC's
website at xxx.xxx.xxx.
INCORPORATION BY REFERENCE. The rules of the SEC allow us to "incorporate
by reference" information into this document, which means that we can disclose
important information to you by referring you to another document filed
separately with the SEC. These documents contain important information about us.
SEC FILINGS PERIOD OR DATE FILED
Annual Report on Form 10-KSB Year ended 31, 2003
Quarterly Report on Form 10-QSB Quarter ended June 30, 2004
Proxy Statement for 2004 Filed March 15, 2004
Annual Meeting of Stockholders
You can obtain any of the documents incorporated by reference in this
document from us without charge, excluding any exhibits to those documents, by
requesting them in writing or by telephone from us at Wells Financial Corp., 00
Xxxxx Xxxxxx, X.X., Xxxxx, Xxxxxxxxx 00000, telephone: (000) 000-0000. Please be
sure to include your complete name and address in your request. If you request
any incorporated documents, we will mail them to you by first class mail, or
another equally prompt means, within one (1) business day after we receive your
request. In addition, you can obtain copies of these documents from the SEC's
website at xxx.xxx.xxx. Such documents may also be inspected at the locations
described above.
10. EFFECTS OF OUR OFFER ON THE MARKET FOR OUR SHARES; REGISTRATION UNDER THE
EXCHANGE ACT.
Our purchase of shares in our offer will reduce the number of shares that
might otherwise be traded publicly and may reduce the number of stockholders.
The shares are currently traded on the Nasdaq National Market. There can be no
assurance that stockholders will be able to find willing buyers for their shares
after the offer.
The shares are registered pursuant to Section 12(g) of the Exchange Act,
which requires us, among other things, to furnish certain information to our
stockholders and the SEC, comply with the SEC's proxy rules in connection with
meetings of our stockholders and to file periodic reports with the SEC pursuant
46
to Section 13 of the Exchange Act. Depending on the number of stockholders who
tender their shares in the offer, we believe that our shares may be eligible for
deregistration under the Exchange Act following completion of the offer. If we
are eligible, we intend to apply to the SEC to deregister the shares and suspend
the requirement to file periodic reports. If, upon completion of the offer, the
number of stockholders of record exceeds 300, we intend to undertake a reverse
stock split so as to enable us to deregister. Under Minnesota law, a reverse
stock split can be effected without approval of stockholders. Termination of our
reporting duty would substantially reduce the public information available
concerning us and would make us ineligible to have quotations for our shares
available on the Nasdaq National Market. Accordingly, following completion of
our offer (or the reverse stock split, if necessary), we expect our shares of
common stock will no longer be quoted on the Nasdaq National Market and we will
no longer file periodic and other reports with the SEC. If we initiate a reverse
stock split, we may immediately thereafter initiate a forward stock split in
order to increase the number of issued and outstanding shares of our common
stock to pre-reverse stock split levels, less any fractional shares that are
cashed-out in the reverse stock split. If stockholders are cashed out as a
result of a reverse stock split, they will receive the same price per share
determined pursuant to our offer.
Our shares are not "margin securities" under the rules of the Federal
Reserve Board and will continue to not be "margin securities" following the
purchase of shares under the offer for purposes of the Federal Reserve Board's
margin rules and regulations.
The Savings and Loan Holding Company Act and the Change in Bank Control Act
each set forth thresholds with respect to the ownership of voting shares of a
savings and loan holding company of 5% to 10%, respectively, over which the
owner of such voting shares may be determined to control such savings and loan
holding company. If, as a result of the offer, the ownership interest of any
stockholder of ours is increased over these thresholds, such stockholder may be
required to reduce its ownership interest in us or file a notice with
regulators. Each stockholder whose ownership interest may be so increased is
urged to consult the stockholder's own legal counsel with respect to the
consequences to the stockholder of the offer.
11. LEGAL MATTERS; REGULATORY APPROVALS.
Except as otherwise described in this document, we are not aware of any
license or regulatory permit material to our business that would be adversely
affected by our acquisition of shares as contemplated by our offer or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic, foreign or supranational, that would
be required for our acquisition or ownership of shares as contemplated by our
offer. Should any such approval or other action be required, we presently
contemplate that we will seek that approval or other action. We are unable to
predict whether we will be required to delay the acceptance for payment of or
payment for shares tendered in response to our offer pending the outcome of any
such matter. There can be no assurance that any such approval or other action,
if needed, would be obtained or would be obtained without substantial cost or
conditions or that the failure to obtain the approval or other action might not
result in adverse consequences to our business and financial condition.
12. EXTENSION OF OUR OFFER; TERMINATION; AMENDMENT.
We reserve the right, in our sole discretion, at any time and from time to
time, to extend the period of time during which our offer is open and to delay
acceptance for payment of, and payment for, any shares by giving oral or written
notice of such extension to the depositary and making a public announcement of
such extension. Our reservation of the right to delay acceptance for payment is
limited
47
by Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires that we
must pay the consideration offered or return the shares tendered promptly after
termination or withdrawal of our offer.
We also reserve the right, in our sole discretion, to terminate our offer
and not accept for payment or pay for any shares not previously accepted for
payment or paid for or, subject to applicable law, to postpone payment for
shares if any conditions to our offer fail to be satisfied by giving oral or
written notice of such termination or postponement to the depositary and making
a public announcement of such termination or postponement. Our reservation of
the right to delay payment for shares which we have accepted for purchase is
limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires
that we must pay the consideration offered or return the shares tendered
promptly after termination or withdrawal of our offer.
Subject to compliance with applicable law, we further reserve the right, in
our sole discretion, and regardless of whether or not any of the events or
conditions described under "The Offer - 6. Conditions of Our Offer" have
occurred or are deemed by us to have occurred, to amend our offer in any
respect, including, without limitation, by decreasing or increasing the
consideration offered in our offer to holders of shares or by decreasing or
increasing the number of shares being sought in our offer. Amendments to our
offer may be made at any time and from time to time by public announcement, such
announcement, in the case of an extension, to be issued no later than 9:00 a.m.,
New York City Time, on the next business day after the last previously scheduled
or announced Expiration Date.
Without limiting the manner in which we may choose to make a public
announcement, except as required by applicable law, we have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release through Business Wire, Dow Xxxxx News Service or
another comparable news service.
If we materially change the terms of our offer or the information
concerning our offer, we will extend our offer to the extent required by Rules
13e-4(d)(2), 13e-4(e)(3) and 13e-4(f)(1) promulgated under the Exchange Act.
These rules and certain related releases and interpretations of the SEC provide
that the minimum period during which a tender offer must remain open following
material changes in the terms of the tender offer or information concerning the
tender offer (other than a change in price or a change in percentage of
securities sought) will depend on the facts and circumstances, including the
relative materiality of such terms or information. If we undertake any of the
following actions:
o increase or decrease the range of prices to be paid for the shares,
o increase the number of shares being sought in our offer by more than
2% of our outstanding common stock, or
o decrease the number of shares being sought in our offer, and
our offer is scheduled to expire at any time earlier than the expiration of a
period ending on the tenth business day from, and including, the date that such
notice of an increase or decrease is first published, sent or given to
stockholders in the manner specified in this Section 12, then our offer will be
extended until the expiration of such period of ten business days.
Pursuant to Rule 13e-4 promulgated under the Exchange Act, we have filed
with the SEC an Issuer Tender Offer Statement on Schedule TO and Schedule 13E-3
transaction statement which contain additional information with respect to our
offer. The Schedule TO and Schedule 13E-3 transaction
48
statement, including the exhibits and any amendments and supplements to those
documents, may be examined, and copies may be obtained, at the same places and
in the same manner as is set forth under "The Offer - 9. Information About Us
and the Shares" with respect to information concerning us.
13. FEES AND EXPENSES.
We have retained X.X. Xxxx & Co., Inc. to act as our information agent in
connection with our offer. X.X. Xxxx & Co., Inc., as information agent, may
contact stockholders by mail, telephone, facsimile, telex, telegraph, other
electronic means and personal interviews, and may request brokers, dealers,
commercial banks, trust companies and other nominee stockholders to forward
materials relating to the offer to beneficial owners. X.X. Xxxx & Co., Inc. will
receive reasonable and customary compensation in connection with our offer.
Registrar and Transfer Company, as the depositary for our offer, will be
reimbursed for certain out-of-pocket costs in connection with our offer.
No fees or commissions will be payable by us to brokers, dealers,
commercial banks or trust companies (other than fees to the parties described
above) for soliciting tenders of shares under our offer. Stockholders holding
shares through brokers or banks are urged to consult the brokers or banks to
determine whether transaction costs are applicable if stockholders tender shares
through such brokers or banks and not directly to the depositary. We, however,
upon request, will reimburse brokers, dealers, commercial banks and trust
companies for customary mailing and handling expenses incurred by them in
forwarding our offer and related materials to the beneficial owners of shares
held by them as a nominee or in a fiduciary capacity. No broker, dealer,
commercial bank or trust company has been authorized to act as our agent or as
an agent of the information agent or the depositary for purposes of our offer.
We will pay or cause to be paid all stock transfer taxes, if any, on our
purchase of shares except as otherwise provided in this document and Instruction
7 in the letter of transmittal.
The estimated costs and fees to be paid by us in connection with the offer
are as follows:
Financial advisor fees....................... $50,000
Accounting fees.............................. 5,000
Legal fees................................... 50,000
SEC filing fees.............................. 945
Printing and mailing expenses................ 10,000
Depositary fees.............................. 20,000
Information Agent fees....................... 10,000
Out-of-pocket and miscellaneous.............. 4,055
--------
Total........................................ $150,000
========
14. THE REVERSE STOCK SPLIT
If, after our offer expires, we still maintain a total number of record
holders exceeding 300, then we will not be eligible for deregistration under the
Exchange Act. If this is the case, then we would initiate a reverse stock split
of our outstanding common stock in a manner and in an amount that would reduce
our record holders to fewer than 300. Upon the completion of the reverse stock
split, stockholders holding fractional shares will receive a payment equal to
the fair market value of each share of common stock. The fair value of each
share of common stock will be determined by the Board of Directors, with the
49
assistance of Capital Resources, the Company's investment advisor. Upon
completion of the reverse stock split, stockholders owning only fractional
shares will have no further interest in Xxxxx Financial, and will become
entitled only to a cash payment for their fractional shares. If stockholders are
cashed out as a result of a reverse stock split, they will receive the same
price per share determined pursuant to our offer. If we initiate a reverse stock
split, we may immediately thereafter initiate a forward stock split in order to
increase the number of issued and outstanding shares of our common stock to
pre-reverse stock split levels, less any fractional shares that are cashed-out
in the reverse stock split.
The reverse stock split will provide stockholders who end up owning only
fractional shares of our common stock with a cost-effective way to cash out
their investment because Xxxxx Financial will pay all transaction costs in
connection with the reverse stock split. Otherwise, stockholders with small
holdings would likely incur brokerage fees which would be disproportionately
high relative to the market value of their shares if they wanted to sell their
shares. The reverse stock split will eliminate this problem for stockholders
with small holdings who end up owning fractional shares as a result.
The reverse stock split does not require stockholder consent under
Minnesota law. Under state escheat law, any payment for fractional interest not
claimed by a stockholders entitled to such payment may be claimed by various
states. Additionally, Minnesota law does not provide dissenters' or appraisal
rights as the result of a reverse stock split. Additionally, Minnesota law does
not require stockholder approval or dissenters' rights for a forward stock
split.
15. MISCELLANEOUS.
This offer to purchase and the related letter of transmittal will be mailed
to record holders of shares of our common stock and will be furnished to
brokers, dealers, commercial banks and trust companies whose names, or the names
of whose nominees, appear on our stockholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of shares.
We are not aware of any jurisdiction where the making of our offer is not
in compliance with applicable law. If we become aware of any jurisdiction where
the making of our offer or the acceptance of shares pursuant thereto is not in
compliance with applicable law, we will make a good faith effort to comply with
the applicable law. If, after such good faith effort, we cannot comply with the
applicable law, our offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of shares in such jurisdiction.
Pursuant to Rule 13e-4 promulgated under the Exchange Act, Xxxxx Financial
has filed with the SEC an Issuer Tender Offer Statement on Schedule TO which
contains additional information with respect to our offer. The Schedule TO,
including the exhibits and any amendments and supplements to that document, may
be examined, and copies may be obtained, at the same places and in the same
manner as is set forth under "The Offer - 9. Information About Us and the
Shares" with respect to information concerning us.
50
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO
WHETHER YOU SHOULD TENDER OR NOT TENDER YOUR SHARES IN OUR OFFER. WE HAVE NOT
AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN
CONNECTION WITH OUR OFFER OTHER THAN THOSE CONTAINED IN THIS DOCUMENT OR IN THE
LETTER OF TRANSMITTAL. ANY RECOMMENDATION OR ANY SUCH INFORMATION OR
REPRESENTATION MADE BY ANYONE ELSE MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY XXXXX FINANCIAL OR THE INFORMATION AGENT.
XXXXX FINANCIAL CORP.
September 28, 2004
51
SCHEDULE I
1. DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a list of Xxxxx Financial's directors and executive
officers and for each, a description of the following: (i) beneficial securities
ownership; (ii) current principal occupation or employment and the name,
principal business address of any corporation in which the employment or
occupation is conducted; and (iii) material occupations, positions, offices or
employment during the past five years. Unless otherwise noted below, the
business address of each of the following persons is 00 Xxxxx Xxxxxx, X.X.,
Xxxxx, Xxxxxxxxx 00000.
Each of the individuals listed below is a United States citizen. Unless
otherwise noted below, none of the following persons has been convicted in a
criminal proceeding during the past five years (excluding traffic violations or
similar misdemeanors), and none of the following persons has during the past
five years been a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanction or settlement) that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
SHARES OF
COMMON STOCK PERCENT
BENEFICIALLY OF
NAME POSITION OWNED (1) CLASS
---- -------- --------- -----
Xxxxxxx Xxxxxxx Director 23,794(2)(3) 1.9%
Xxxxx Xxxxxxx Director 23,248(2)(4) 1.9%
Xxxxxx X. Xxxxxxxx President and CEO 9,158(5) *
Xxxxxx X. Xxxxxxx Vice President and Director 31,617 2.6%
Xxxxxx X. Xxxxxxx Director 23,497(2)(6) 1.9%
Xxxx X. Xxxxxxxxx Director 42,373(7) 3.4%
Xxxxx X. Xxxx Treasurer and CFO 15,819(8) 1.3%
------- ----
169,506 13.8%
======= ====
All directors and executive
officers as a group (7
persons)
----------------------------------
* Less than 1%.
(1) Includes exercisable vested options to purchase shares o common stock.
(2) Excludes 110,948 shares of common stock held under the Employee Stock
Ownership Plan ("ESOP") and shares held under the Management Stock Bonus
Plan ("MSBP") for which such individual serves as a member of the ESOP or
MSBP Committee or Trustee Committee. Such individual disclaim beneficial
ownership with respect to such shares held in a fiduciary capacity. The
Board of Directors or the ESOP Committee may instruct the ESOP Trustees
regarding investments of funds contributed to the ESOP. The ESOP Trustees
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Unallocated shares and
allocated shares for which no timely direction is received will be voted by
the ESOP Trustees as directed by the Board of Directors or the ESOP
Committee, subject to the ESOP Trustees' fiduciary duties. Shares held in
the MSBP are voted by the MSBP Trustees as directed by the MSBP Committee.
(3) Includes exercisable options to purchase 11,835 shares of common stock.
(4) Includes exercisable options to purchase 17,748 shares of common stock.
(5) Includes exercisable options to purchase 6,631 shares of common stock.
(6) Includes exercisable options to purchase 13,774 shares of common stock.
(7) Includes exercisable options to purchase 17,748 shares of common stock.
(8) Includes exercisable options to purchase 2,875 shares of common stock.
2. PRINCIPAL STOCKHOLDERS
The following table lists the name and address of each person or group who
beneficially own more than 5% of Xxxxx Financial's outstanding shares of common
stock as of September 22, 2004. Other than as noted below, management knows of
no person or group that owns more than 5% of the outstanding shares of common
stock.
PERCENT OF SHARES
OF
AMOUNT AND NATURE OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
------------------------------------ -------------------- -----------------
Xxxxx Federal Bank, fsb 110,948 (1) 9.5%
Employee Stock Ownership Plan
00 Xxxxx Xxxxxx, X.X. Xxxxx, Xxxxxxxxx 00000
Advisory Research, Inc. 95,900 (2) 8.2%
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
(1) The Bank's Employee Stock Ownership Plan ("ESOP") purchased such shares for
the exclusive benefit of ESOP participants with funds borrowed from the
Company. These shares are held in a suspense account and are allocated
among ESOP participants annually on the basis of compensation as the ESOP
debt is repaid.
(2) Based on a 13G filed with the SEC on August 16, 2004.
3. SECURITIES TRANSACTIONS
During the 60 days prior to September 28, 2004, Xxxxx Financial and its
executive officers and directors did not effect any transactions in the common
stock.
II
EXHIBIT I
CAPITAL RESOURCES GROUP, INC.
00000 Xxxxx Xxxxx Xxxxx * The Atrium 00 * Xxxxxx, Xxxxxxxx 00000 * Phone (703)
000-0000 * Fax (000) 000-0000
September 27, 2004
Board of Directors
Xxxxx Financial Corp.
00 Xxxxx Xxxxxx, XX
Xxxxx, XX 00000
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the stockholders of Xxxxx Financial Corp.
(the "Company") of the Company's offer to purchase up to 150,000 shares, or
approximately 12.9 percent of outstanding common stock, at a price range between
$29.50 to $31.50 per share. The Company is conducting the offer through a
procedure commonly called a "modified Dutch auction". This procedure will allow
the Company's stockholders to choose a price within the above range at which
they are willing to sell their shares to the Company. The Company will review
the prices chosen by stockholders for all of the shares properly tendered. The
Company will then select the lowest price that will enable it to buy up to
150,000 shares. If, after the tender offer expires, the number of record holders
of the Company exceeds 300, then the Company intends to initiate a reverse stock
split in a manner that will ensure that the number of stockholders is reduced to
below 300. This result will make the Company eligible for deregistration under
the Securities Exchange Act of 1934. If stockholders are cashed out as a result
of the reverse stock split, they will receive the same price per share as the
price per share determined pursuant to the tender offer. If the Company
undertakes a reverse stock split, it may immediately thereafter initiate a
forward stock split in order to increase the number of issued and outstanding
shares of common stock to pre-reverse stock split levels, less any fractional
shares that are cashed out in the reverse stock split. It is our understanding
that the laws of the State of Minnesota, in which the Company is incorporated,
allow reverse and forward stock splits to be completed without obtaining
stockholder approval.
Capital Resources Group, Inc. ("CRG") is a financial consulting and an
investment banking firm that, as part of our specialization in financial
institutions, is regularly engaged in the financial analyses and valuations of
business enterprises and securities in connection with mergers and acquisitions,
valuations for mutual-to-stock conversions of thrifts, initial and secondary
offerings, tender offers, divestitures and other corporate purposes. In the
normal course of our activities, CRG, its affiliates and its management may,
from time to time, effect transactions and hold long or short positions in the
Company. We believe that, except for the fee we will receive for our opinion and
other fees to be received in connection with the transaction, we are independent
of the Company.
In rendering our opinion, CRG has made inquiries of members of the
Company's senior management and Xxxxxxx Spidi & Xxxxx, PC, legal counsel for the
Company. In connection with this opinion, we have reviewed, analyzed and relied
upon material bearing upon the financial condition and operating performance of
the Company, including among other things, the following: (i) the Offer to
Purchase; (ii) the Annual Reports to Stockholders and Annual Reports on Form
10-K for the three years ended December 31, 2003 of the Company; (iii) certain
interim reports to
CAPITAL RESOURCES GROUP, INC.
Board of Directors
September 27, 2004
Page 2
stockholders and Quarterly Reports on Form 10-Q of the Company through June 30,
2004 and certain other communications from the Company to its stockholders; (iv)
the Bank's annual and quarterly financial reports submitted to various
regulatory agencies; and (v) other financial information concerning the business
and operations of the Company furnished to us by the Company for purposes of our
analysis. We have also held discussions with senior management of the Company
regarding the past and current business operations, regulatory relations,
financial condition and future prospects and such other matters we have deemed
relevant to our inquiry. In addition, we have compared certain financial and
stock market information for the Company with similar information for certain
other companies, the securities of which are publicly traded, reviewed the
financial terms of certain recent tender offers and going private transactions
in the bank and thrift industries and performed such other studies and analyses
as we considered appropriate.
We have also considered recent developments and conditions in the equity
market for thrift institutions and such financial and pricing factors as we have
deemed appropriate under the circumstances including, among others, the
following: (i) the impact of stock repurchases on the Company's pro forma
earnings per share and book value; (ii) the Company's recent trading activity
and the pricing characteristics of stock of comparable thrift institutions
demonstrating similar asset size and capital ratios as well as similar earnings
ratios, and similar market area; (iii) pricing premiums paid in recent tender
offers and other types of stock repurchase transactions that are similar to the
Company's transaction; (iv) pricing characteristics (particularly price/earnings
and price/book value ratios) related to the price range of the Company's tender
offer; and (v) a discounted cash flow analysis of the Company.
In conducting our review and arriving at our opinion, we have relied upon
the accuracy and completeness of all of the financial and other information
provided to us by the Company or publicly available and we have not assumed any
responsibility for independently verifying the accuracy or completeness of any
such information. We have relied upon the management of the Company as to the
reasonableness and achievability of the financial forecasts and operating
budgets provided to us. We are not experts in the independent verification of
the adequacy of allowances for loan and lease losses and we have assumed, with
the Company's confirmation, that the aggregate allowances for loan and lease
losses for the Company are adequate to cover such losses. In rendering our
opinion, we have not made or obtained any evaluations or appraisals of the
property and other assets of the Company. Our opinion is necessarily based upon
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof.
CAPITAL RESOURCES GROUP, INC.
Board of Directors
September 27, 2004
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the price range of the tender offer is fair, from a financial point
of view, to stockholders of the Company, including both those stockholders who
receive cash in the tender offer or reverse stock split and those stockholders
who will remain stockholders after the tender offer and reverse stock split.
Very truly yours,
CAPITAL RESOURCES GROUP, INC.
/s/ Capital Resources Group, Inc.
THE DEPOSITARY FOR OUR OFFER IS:
REGISTRAR AND TRANSFER COMPANY
By Mail or Overnight Courier: For Assistance: By Hand:
Registrar and Transfer Company (000) 000-0000 c/o The Depository Trust Co.
00 Xxxxxxxx Xxxxx Xxxxxxxx Xxxxx Xxxx
Xxxxxxxx, Xxx Xxxxxx 00000-3572 00 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
By Facsimile:
(000) 000-0000
(For Eligible Institutions Only)
The Letter of transmittal and certificates for shares and any other
required documents should be sent or delivered by each Xxxxx Financial
stockholder or such stockholder's broker, dealer, commercial bank, trust company
or nominee to the depositary at its address set forth above.
Any questions or requests for assistance may be directed to the Information
agent at its telephone number and address set forth below. Requests for
additional copies of this offer to purchase, the Letter of transmittal or the
Notice of Guaranteed Delivery may be directed to the Information agent at the
telephone number and address set forth below. You may also contact your broker,
dealer, commercial bank, trust company or nominee for assistance concerning our
offer. To confirm delivery of shares, stockholders are directed to contact the
depositary.
THE INFORMATION AGENT FOR THE OFFER IS:
X.X. XXXX & CO., INC.
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Banks and Brokers call collect: (000) 000-0000
All others call Toll Free: (000) 000-0000
