UNITED COMMUNITY FINANCIAL CORP. Item 8.01 Other Events.
As previously disclosed, onSeptember 9, 2019 ,United Community Financial Corp. , anOhio corporation ("UCFC"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with First Defiance Financial Corp., anOhio corporation ("FDEF"), pursuant to which, among other things, upon the terms and subject to the conditions set forth therein, UCFC will merge with and into FDEF (the "Merger"), with FDEF surviving the Merger. OnOctober 16, 2019 , an action captionedRobert J. Fellman v.United Community Financial Corp. et al., Case No. 1:19-cv-09572, was filed in theU.S. District Court for the Southern District of New York against UCFC and its directors (the "Fellman Action"). OnOctober 18, 2019 , a second action, on behalf of a putative class of United Community shareholders, was filed under the caption Parshall v.United Community Financial Corp. et al., Case No. 1:19-cv-01989, in theU.S. District Court for the District of Delaware against UCFC, its directors, and FDEF (the "Parshall Action" and, together with the Fellman Action, the "Actions"). Both Actions contend, among other things, that the registration statement on Form S-4 filed by FDEF onOctober 9, 2019 (as amended, the "Registration Statement") is false and misleading because it omits certain allegedly material information concerning the background of the proposed merger transaction and certain valuation analyses performed by UCFC's financial advisor in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-9 promulgated under the Exchange Act. OnOctober 30, 2019 , an alleged shareholder of UCFC,Shiva Y. Stein , sent a letter to UCFC demanding to inspect books and records for the purpose of investigating suspected wrongdoing in connection with the Merger. After UCFC made certain materials available for inspection, the shareholder made a demand for supplemental disclosures (the "disclosure demand"). The plaintiffs and defendants have reached an agreement to resolve the Actions, andMs. Stein and UCFC have reached an agreement to resolve her disclosure demand. In connection with resolution of the Actions and the disclosure demand, UCFC has agreed to make the following supplemental disclosures (the "litigation-related supplemental disclosures") to the Registration Statement. The plaintiffs have agreed that, following the filing of this Current Report on Form 8-K (this "Report"), the plaintiffs will dismiss the Actions in their entirety. The defendants believe that the Actions are without merit, and UCFC believes the disclosure demand is meritless. Defendants and UCFC deny that any further disclosure beyond that already contained in the Registration Statement is required under applicable law to supplement the Registration Statement and the joint proxy statement included therein which has been disseminated to UCFC and FDEF stockholders. Nonetheless, to avoid the risk that the Actions or the disclosure demand may delay or otherwise adversely affect the consummation of the Merger and to minimize the expense of defending such Actions or disclosure demand at the expense of UCFC's shareholders, the defendants are making the litigation-related supplemental disclosures, as set forth herein. Nothing in this Report shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the supplemental disclosures set forth herein. The litigation-related supplemental disclosures contained below should be read in conjunction with the Registration Statement, which is available on the Internet site maintained by theSecurities and Exchange Commission (the "SEC") at http://www.sec.gov, along with periodic reports and other information UCFC and FDEF file with theSEC , and with respect to UCFC, on UCFC's investor relations Internet site at http://platform.mi.spglobal.com/IRW/Docs/4002033. To the extent that the information set forth herein differs from or updates information contained in the Registration Statement, the information set forth herein shall supersede or supplement the information in the Registration Statement. All page references are to pages in the definitive proxy statement that was filed by UCFC onOctober 30, 2019 and forms a part of the Registration Statement, and terms used below, unless otherwise defined, have the meanings set forth in the Registration Statement. -2-
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Supplemental Disclosures
The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the third sentence in the fifth paragraph of that section, which begins on page 54 and continues on page 55 of the Registration Statement, with the following:Sandler O'Neill's presentation covered a review of the then current environment for the banking industry, United Community's stand-alone valuation metrics, a list of 44 westernPennsylvania andOhio banks and thrifts with assets between$250 million and$750 million who could be potential acquisition targets of United Community, a list of 17 westernPennsylvania andOhio banks and thrifts with assets between$750 million and$1.5 billion who could be potential acquisition targets of United Community, a list of 4 potential partners for a strategic merger (which included First Defiance) and a list of 12 potential acquirers of United Community.
The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the second sentence in the first full paragraph on page 55 of the Registration Statement with the following:
Sandler O'Neill explained to the board its view that the number of potential acquirers of banks generally was limited in the current market and that it had narrowed its list of potential acquirers of United Community to seven institutions based on the criteria established by the United Community board, although it was not certain whether any of the institutions would have an interest in engaging in a transaction. The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the second sentence in the second full paragraph on page 55 of the Registration Statement with the following: During this time,Mr. Small also had discussions with a fifth institution who reached out to him independently of the outreach being conducted by United Community. This institution had been included on the list that was prepared bySandler O'Neill and evaluated by the board and was not selected for outreach because of concerns regarding the attractiveness of that institution's stock as merger consideration.
The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by adding a sentence to the end of the fifth full paragraph on page 55:
The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the third paragraph on page 56 of the Registration Statement with the following:
At a regularly scheduled meeting of the United Community board of directors onMay 23, 2019 ,Mr. Small updated the board on the outreach fromMr. Hileman as well as his view on the potential strategic and financial benefits of such a transaction. The board expressed its support forMr. Small to continue these discussions to assess the viability of a strategic merger with First Defiance and the potential economic and governance terms of such a transaction.
The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the ninth sentence of the first full paragraph on page 58 of the Registration Statement with the following two sentences:
Sandler O'Neill's review of potential strategic alternatives included an overview of the general merger and acquisition market at that time as well as a review of potential counterparties of similar or larger size for a business combination transaction. As part of this review,Sandler O'Neill discussed the evaluation of and outreach to potential acquirers that had been conducted by United Community earlier in the year and noted that there had not been any new developments on that front. -3-
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The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by adding the following sentence at the end of the third full paragraph on page 58 of the Registration Statement with the following:
In the discussions between the parties on the exchange ratio, the initial exchange ratio of 0.3636 was often rounded to 0.364.
The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the first sentence of the fourth full paragraph on page 58 of the Registration Statement with the following sentence:
OnAugust 15, 2019 , the executive committee of United Community, comprised ofMr. Small and four independent directors, includingMr. Schiraldi , convened a meeting to receive a status report on the potential transaction. The disclosure under the heading "The Merger-Background of the Merger" is hereby amended and supplemented by replacing the penultimate sentence in the third full paragraph on page 59 of the Registration Statement with the following: The United Community board directed United Community and its advisors to continue to finalize the transaction documents and to inform First Defiance that it would not accept a discount and would require an increase to the exchange ratio that had been discussed between the parties if the implied discount continued to exist as the parties moved toward executing the merger agreement. The disclosure under the heading "The Merger-Opinion of United Community's Financial Advisor-Comparable Company Analyses" is hereby amended by deleting the table of company names at the bottom of page 85 (United Community Peer Group ) of the Registration Statement and replacing it with the following: Financial Data as ofJune 30, 2019 Balance Sheet / Asset Quality Capital Position LTM Profitability Valuation as ofSeptember 6, 2019 Price / NPAs / Tier 1 Total CRE / Net 2019 2020 Current Total Loans / Total TCE / RBC RBC Total Interest LTM Est. Est. Dividend Market Assets Deposits Assets TA Ratio Ratio RBC ROAA ROAE Margin Efficiency TBV EPS EPS EPS Yield Cap Company City, State Ticker ($M) (%) (%) (%) (%) (%) (%)
(%) (%) (%) Ratio (%) (%) (x) (x) (x) (%) ($M)
Lakeland Financial Corporation
94.7 0.43 11.27 13.33 14.49 184.9 1.76 16.40 3.44 44.81 192 12.7 13.1 13.1 2.8 1,077
Great Southern Bancorp, Inc.
106.8 0.36 11.59 12.00 14.46 416.4 1.62 14.33 4.03 53.62 140 10.5 11.1 11.7 2.3 791
Community Trust Bancorp, Inc.
92.9 2.20 12.27 18.67 19.80 153.5 1.53 11.46 3.66 57.53 132 10.7 11.5 12.0 3.9 697
German American Bancorp, Inc.
86.8 0.28 10.01 12.52 14.33 208.4 1.44 12.25 3.83 56.52 197 13.9 12.7 12.4 2.2 813
Mercantile Bank Corporation
109.8 0.90 9.82 11.82 12.55 252.9 1.33 11.96 3.88 60.13 146 11.2 11.7 11.8 3.5 503
Stock Yards Bancorp, Inc. Louisville, KY SYBT 3,464 95.9 0.10 10.85 11.82 12.67 237.3 1.85 16.61 3.83 56.03 219 13.6 13.4 13.4 2.9 819
90.9 1.71 8.72 12.34 13.36 154.9 1.26 12.28 3.90 66.24 146 11.0 9.6 9.3 3.8 432
Sterling Bancorp, Inc. Southfield, MI SBT 3,279 115.7 0.37 10.43 17.51 21.91 89.5 1.89 18.30 3.89 38.00 138 8.0 8.5 8.2 0.4 470
EAGLE Defiance, OH 3,278 97.9 0.78 9.60 11.75 12.75 289.8 1.49 11.95 4.02 60.02 170 11.3 11.0 11.0 2.9 519
First Financial Corporation
81.4 0.49 14.61 18.75 19.60 92.2 1.49 10.00 4.33 58.67 112 11.1 11.1 10.4 2.6 551
Nicolet Bankshares, Inc. Green Bay, WI NCBS 3,055 86.9 0.28 9.86 12.21 13.19 129.3 1.69 13.08 4.13 56.77 205 12.3 13.8 13.4 0.0 591
Old Second Bancorp, Inc. Aurora, IL OSBC 2,624 91.6 0.83 9.06 12.83 13.70 240.5 ¹ 1.37 15.61 4.08 59.89 151 10.0 9.9 9.4 0.3 355
Farmers National Banc Corp.
89.0 0.49 10.22 12.59 13.34 171.1 ¹ 1.45 12.86 3.83 58.39 155 11.1 10.7 10.1 3.0 373
Southern Missouri Bancorp, Inc.
98.5 1.72 9.87 12.07 13.16 254.7 1.38 13.13 3.78 54.38 143 10.6 10.8 10.3 1.8 310
Bridgewater Bancshares, Inc.
104.7 0.09 10.64 11.48 13.70 477.5 1.49 13.28 3.61 48.64 144 11.8 11.0 10.2 0.0 323
Waterstone Financial, Inc. Wauwatosa, WI WSBF 2,015 129.9 0.52 19.17 25.29 26.12 197.2 1.58 7.65 2.97 77.09 120 14.8 14.9 14.7 2.9 433
Macatawa Bank Corporation Holland, MI MCBC 1,978 80.9 0.74 10.39 15.70 16.78 128.6 ¹ 1.52 15.51 3.44 55.38 165 11.4 11.3 11.8 2.8 339
Bank First Corporation Manitowoc, WI BFC 1,806 90.1 0.96 9.42 10.49 11.99 178.2 ¹ 1.38 14.14 3.81 52.96 217 15.0 15.1 13.0 1.4 395
Farmers & Merchants Bancorp, Inc.
87.8 0.17 11.68 14.98 15.59 183.8 ¹ 1.31 9.68 3.94 60.62 163 15.7 14.7 14.6 2.4 279
First Savings Financial Group
90.8 1.24 9.35 ¹ 10.55 13.74 321.8 ¹ 1.38 14.52 3.95 71.39 134 9.8 10.3 9.0 1.1 139
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-------------------------------------------------------------------------------- The disclosure under the heading "The Merger-Opinion of United Community's Financial Advisor-Comparable Company Analyses" is hereby amended by deleting the table of company names at the bottom of page 86 (First Defiance Peer Group ) of the Registration Statement and replacing it with the following: Balance Sheet / Asset Financial Data as ofJune 30, 2019 Quality Capital Position LTM Profitability
Valuation as of
Price /
NPAs / Tier 1 Total CRE / Net 2019 2020 Current
Total Loans / Total TCE / RBC RBC Total Interest LTM Est. Est. Dividend Market
Assets Deposits Assets TA Ratio Ratio RBC ROAA ROAE Margin Efficiency TBV EPS EPS EPS Yield Cap
Company City, State Ticker ($M) (%) (%) (%) (%) (%) (%) (%) (%) (%) Ratio (%) (%) (x) (x) (x) (%) ($M)
Lakeland Financial Corporation Warsaw, IN LKFN 4,976 94.7 0.43 11.27 13.33 14.49 184.9
1.76 16.40 3.44 44.81 192 12.7 13.1 13.1 2.8 1,077
Great Southern Bancorp, Inc.
106.8 0.36 11.59 12.00 14.46 416.4
1.62 14.33 4.03 53.62 140 10.5 11.1 11.7 2.3 791
Community Trust Bancorp, Inc.
92.9 2.20 12.27 18.67 19.80 153.5
1.53 11.46 3.66 57.53 132 10.7 11.5 12.0 3.9 697
German American Bancorp, Inc.
86.8 0.28 10.01 12.52 14.33 208.4
1.44 12.25 3.83 56.52 197 13.9 12.7 12.4 2.2 813
Mercantile Bank Corporation
109.8 0.90 9.82 11.82 12.55 252.9 1.33 11.96 3.88 60.13 146 11.2 11.7 11.8 3.5 503
Stock Yards Bancorp, Inc. Louisville, KY SYBT 3,464 95.9 0.10 10.85 11.82 12.67 237.3 1.85 16.61 3.83 56.03 219 13.6 13.4 13.4 2.9 819
90.9 1.71 8.72 12.34 13.36 154.9 1.26 12.28 3.90 66.24 146 11.0 9.6 9.3 3.8 432
Sterling Bancorp, Inc. Southfield, MI SBT 3,279 115.7 0.37 10.43 17.51 21.91 89.5 1.89 18.30 3.89 38.00 138 8.0 8.5 8.2 0.4 470
First Financial Corporation
81.4 0.49 14.61 18.75 19.60 92.2 1.49 10.00 4.33 58.67 112 11.1 11.1 10.4 2.6 551
Nicolet Bankshares, Inc. Green Bay, WI NCBS 3,055 86.9 0.28 9.86 12.21 13.19 129.3 1.69 13.08 4.13 56.77 205 12.3 13.8 13.4 0.0 591
PENGUIN Youngstown, OH 2,869 99.6 0.97 10.32 13.23 14.17 217.9 1.36 12.16 3.37 56.22 157 12.3 11.3 10.6 3.3 462
Old Second Bancorp, Inc. Aurora, IL OSBC 2,624 91.6 0.83 9.06 12.83 13.70 240.5 ¹ 1.37 15.61 4.08 59.89 151 10.0 9.9 9.4 0.3 355
Farmers National Banc Corp.
89.0 0.49 10.22 12.59 13.34 171.1 ¹
1.45 12.86 3.83 58.39 155 11.1 10.7 10.1 3.0 373
Southern Missouri Bancorp, Inc.
98.5 1.72 9.87 12.07 13.16 254.7
1.38 13.13 3.78 54.38 143 10.6 10.8 10.3 1.8 310
Bridgewater Bancshares, Inc.
104.7 0.09 10.64 11.48 13.70 477.5 1.49 13.28 3.61 48.64 144 11.8 11.0 10.2 0.0 323
Waterstone Financial, Inc. Wauwatosa, WI WSBF 2,015 129.9 0.52 19.17 25.29 26.12 197.2 1.58 7.65 2.97 77.09 120 14.8 14.9 14.7 2.9 433
Macatawa Bank Corporation Holland, MI MCBC 1,978 80.9 0.74 10.39 15.70 16.78 128.6 ¹ 1.52 15.51 3.44 55.38 165 11.4 11.3 11.8 2.8 339
Bank First Corporation Manitowoc, WI BFC 1,806 90.1 0.96 9.42 10.49 11.99 178.2 ¹ 1.38 14.14 3.81 52.96 217 15.0 15.1 13.0 1.4 395
Farmers & Merchants Bancorp, Inc.
87.8 0.17 11.68 14.98 15.59 183.8 ¹
1.31 9.68 3.94 60.62 163 15.7 14.7 14.6 2.4 279
First Savings Financial Group
90.8 1.24 9.35 ¹ 10.55 13.74 321.8 ¹ 1.38 14.52 3.95 71.39 134 9.8 10.3 9.0 1.1 139
The disclosure under the heading "The Merger-Opinion of United Community's
Financial Advisor-Net Present Value Analyses" is hereby supplemented by adding
the following as a new third sentence following the number 205% in the paragraph
at the bottom of page 87 of the proxy statement/prospectus:
Sandler O'Neill selected these price to earnings and tangible book value
multiples based on Sandler O'Neill's review of, among other things, the trading
multiples of selected companies that Sandler O'Neill deemed to be comparable to
United Community.
The disclosure under the heading "The Merger-Opinion of United Community's
Financial Advisor-Net Present Value Analyses" is hereby supplemented by adding
the following table after the Earnings Per Share Multiples chart (Annual Budget
Variance) at the bottom of page 88 of the Registration Statement:
The following table describes the discount rate calculation for United Community
common stock prepared by Sandler O'Neill . In its normal course of business,
Sandler O'Neill employs the Duff & Phelps Cost of Capital Navigator in
determining an appropriate discount rate in which the discount rate equals the
sum of the risk free rate, the equity risk premium, the size premium and the
industry premium.
Risk Free Rate 3.50 % Per Duff & Phelps Normalized Rate
Equity Risk Premium 5.50 % Per Duff & Phelps Cost of Capital Navigator
Size Premium 3.39 % Per Duff & Phelps Cost of Capital Navigator
Industry Premium 0.77 % Per Duff & Phelps Cost of Capital Navigator
Discount Rate 13.16 %
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-------------------------------------------------------------------------------- The disclosure under the heading "The Merger-Opinion of United Community's Financial Advisor-Net Present Value Analyses" is hereby supplemented by adding the following as a new third sentence following the number 205% in the paragraph at the bottom of page 88 of Registration Statement:Sandler O'Neill selected these price to earnings and tangible book value multiples based onSandler O'Neill's review of, among other things, the trading multiples of selected companies thatSandler O'Neill deemed to be comparable to First Defiance. The disclosure under the heading "The Merger-Opinion of United Community's Financial Advisor-Net Present Value Analyses" is hereby supplemented by adding the following table after the Earnings Per Share Multiples chart (Annual Budget Variance) in the middle of page 89 of the Registration Statement: The following table describes the discount rate calculation for First Defiance common stock prepared bySandler O'Neill . In its normal course of business,Sandler O'Neill employs the Duff &Phelps Cost of Capital Navigator in determining an appropriate discount rate in which the discount rate equals the sum of the risk free rate, the equity risk premium, the size premium and the industry premium. Risk Free Rate 3.50 % Per Duff & Phelps Normalized Rate Equity Risk Premium 5.50 % Per Duff & Phelps Cost of Capital Navigator Size Premium 3.39 % Per Duff & Phelps Cost of Capital Navigator Industry Premium 0.77 % Per Duff & Phelps Cost of Capital Navigator Discount Rate 13.16 % The first paragraph under the heading "The Merger-Opinion of United Community's Financial Advisor-Pro Forma Transaction Analysis" at the bottom of page 89 of the Registration Statement is hereby amended and restated in its entirety as follows:Sandler O'Neill analyzed certain potential pro forma effects of the merger on First Defiance and United Community assuming the merger closesDecember 31, 2019 .Sandler O'Neill utilized the following information and assumptions: (a) publicly available mean analyst net income, earnings per share and dividends per share estimates for United Community for the years endingDecember 31, 2019 andDecember 31, 2020 , as confirmed by the senior management of United Community, as well as an estimated long-term annual earnings per share growth rate and estimated dividends per share for the years endingDecember 31, 2021 throughDecember 31, 2023 , as confirmed by the senior management of United Community, (b) publicly available mean analyst net income, earnings per share and dividends per share estimates for First Defiance for the years ending . . .
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