<PAGE> 1
As filed with the Securities and Exchange Commission on June 2, 1998
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------
UNION PLANTERS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
TENNESSEE 6712 62-0859007
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
7130 GOODLETT FARMS PARKWAY
MEMPHIS, TENNESSEE 38018
(901) 580-6000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
E. JAMES HOUSE, JR.
SECRETARY AND MANAGER OF THE LEGAL DEPARTMENT
UNION PLANTERS CORPORATION
7130 GOODLETT FARMS PARKWAY
MEMPHIS, TENNESSEE 38018
(901) 580-6596
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
<TABLE>
<S> <C> <C>
FRANK M. CONNER III LARRY V. SCHEPERS JAMES S. FLEISCHER, P.C.
ALSTON & BIRD LLP CHAIRMAN OF THE BOARD AND SILVER, FREEDMAN & TAFF, LLP
601 PENNSYLVANIA AVENUE, N.W. CHIEF EXECUTIVE OFFICER 1100 NEW YORK AVENUE
SEVENTH FLOOR, EAST TOWER
NORTH BUILDING, 11TH FLOOR CAPITAL SAVINGS BANCORP, INC. WASHINGTON, D.C. 20005
WASHINGTON, D.C. 20004 425 MADISON STREET (202) 414-6100
(202) 756-3303 JEFFERSON CITY, MISSOURI 65101
(573) 635-4151
</TABLE>
-----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after the merger (the "Merger") described in this
Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER UNIT (2) OFFERING PRICE (2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$5.00 par value (and associated
Preferred Share Rights) 801,338 shares $21.25 $44,670,602.50 $13,177.83
====================================================================================================================================
</TABLE>
(1) This Registration Statement covers (i) the maximum number of shares of the
common stock of the Registrant which is expected to be issued in
connection with the Merger, and (ii) the maximum number of shares of
common stock reserved for issuance under various option and other plans of
Capital Savings Bancorp, Inc. ("Capital"), the obligations under which
will be assumed by the Registrant upon consummation of the Merger but
which may be issued prior to consummation of the Merger.
(2) Estimated solely for purposes of calculating the registration fee and
based, pursuant to Rule 457(c) and (f) under the Securities Act of 1933,
as amended, on the average of the high and low sales prices of Capital
common stock as reported on the Nasdaq National Market System on May 27
1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), SHALL
DETERMINE.
================================================================================
<PAGE> 2
CAPITAL SAVINGS BANCORP, INC.
425 MADISON STREET
JEFFERSON CITY, MISSOURI 65101
TO THE SHAREHOLDERS OF CAPITAL SAVINGS BANCORP, INC. June __, 1998
You are cordially invited to attend a special meeting of the shareholders
(the "Capital Special Meeting") of Capital Savings Bancorp, Inc. ("Capital") to
be held at the Capitol Plaza Hotel, located at 415 W. McCarty Street, Jefferson
City, Missouri at ______ __.m., local time, on July __, 1998, notice of which is
enclosed.
At the Capital Special Meeting, you will be asked to consider and vote on
a proposal to adopt the Agreement and Plan of Reorganization (the "Agreement")
by and between Capital and Union Planters Corporation, a Tennessee corporation
("UPC"), and a related Plan of Merger (the "Plan of Merger") by and between
Capital and Union Planters Holding Corporation ("UPHC"), a Tennessee corporation
and wholly-owned subsidiary of UPC. Pursuant to the Agreement and the Plan of
Merger, Capital will merge (the "Merger") with and into UPHC, with the effect
that UPHC will be the surviving corporation resulting from the Merger. Upon
consummation of the Merger, each share of the common stock of Capital, ("Capital
Common Stock") issued and outstanding will be converted into and exchanged for
.3812 of a share of the common stock of UPC, (subject to possible adjustment as
set forth in the Agreement, the "Exchange Ratio"), (together with the associated
Preferred Share Rights as defined in the accompanying Proxy
Statement/Prospectus), with cash being paid in lieu of issuing fractional
shares.
The Agreement provides that in the event that the average trading price
of UPC common stock during a specified period is less than $50.70 and declines
by more than 15% in comparison to the average trading price of a group of 15
bank holding companies specified in the Agreement, then Capital will have the
right to terminate the Agreement unless UPC elects to increase the Exchange
Ratio pursuant to a formula included in the Agreement. For information with
respect to the operation of this provision and the considerations of the Board
of Directors of Capital in determining whether to terminate the Agreement and
of the Board of Directors of UPC in determining whether to increase the
Exchange Ratio, see "SUMMARY -- The Merger" and "DESCRIPTION OF TRANSACTION --
Possible Adjustment of Exchange Ratio" in the accompanying Proxy
Statement/Prospectus. Under no circumstances would the Exchange Ratio be less
than a .3812 of a share of UPC common stock for each share of Capital Common
Stock.
Adoption of the Agreement and Plan of Merger by the Capital shareholders
will also authorize the Capital Board of Directors to exercise its discretion
whether to proceed with the Merger in the event that Capital has the right to
exercise its termination right as described above. THE CAPITAL BOARD OF
DIRECTORS EXPECTS IT WOULD EXERCISE SUCH DISCRETION AND DECIDE WHETHER TO
TERMINATE THE AGREEMENT AND PLAN OF MERGER WITHOUT A RESOLICITATION OF
SHAREHOLDERS.
Enclosed are the (i) Notice of Capital Special Meeting, (ii) Proxy
Statement/Prospectus, (iii) proxy card for the Capital Special Meeting, and (iv)
pre-addressed return envelope for the proxy card. The Proxy Statement/
Prospectus describes in more detail the Agreement, the Plan of Merger, and the
proposed Merger, including a description of the conditions to consummation of
the Merger and the effects of the Merger on the rights of Capital's
shareholders. Please read these materials carefully and consider thoughtfully
the information set forth in them.
ABN AMRO Incorporated, Capital's financial advisor, has issued its opinion
to your Board of Directors regarding the fairness, from a financial point of
view, of the Exchange Ratio to be paid by UPC pursuant to the Agreement. A copy
of the opinion is included as Appendix C to the Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF CAPITAL HAS UNANIMOUSLY APPROVED THE AGREEMENT
AND THE PLAN OF MERGER AND RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE
AGREEMENT AND THE PLAN OF MERGER.
Adoption of the Agreement and the Plan of Merger will require the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Capital Common Stock entitled to be voted at the Capital Special
Meeting. Whether or not you plan to attend the Capital Special Meeting, you are
urged to complete, sign, date, and return promptly the enclosed proxy card. If
you attend the Capital Special Meeting, you may vote in person even if you
previously returned your proxy card. The proposed Merger with UPC is a
significant step for Capital and your vote on this matter is of great
importance.
ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR ADOPTION OF
THE AGREEMENT AND THE PLAN OF MERGER BY MARKING THE ENCLOSED PROXY CARD "FOR"
ITEM 1.
I look forward to seeing you at the Capital Special Meeting.
Sincerely,
Larry V. Schepers
Chairman, President, and
Chief Executive Officer
<PAGE> 3
CAPITAL SAVINGS BANCORP, INC.
425 MADISON STREET
JEFFERSON CITY, MISSOURI 65101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AT ___ __.M. ON JULY __, 1998
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Capital Special Meeting") of Capital Savings Bancorp, Inc. ("Capital") will be
held at the Capitol Plaza Hotel, located at 415 W. McCarty Street, Jefferson
City, Missouri, on July __, 1998, at ___:00 __.m., local time, for the following
purposes:
1. MERGER. To consider and vote upon a proposal to adopt the Agreement
and Plan of Reorganization (the "Agreement"), dated as of November 25, 1997, by
and between Capital and Union Planters Corporation, a Tennessee corporation
("UPC"), and the related Plan of Merger (the "Plan of Merger"), by and between
Capital and Union Planters Holding Corporation, a Tennessee corporation and
wholly-owned subsidiary of UPC ("UPHC"), pursuant to which (i) Capital will
merge (the "Merger") with and into UPHC, with the effect that UPHC will be the
surviving corporation resulting from the Merger, and (ii) each share of the $.01
par value common stock of Capital ("Capital Common Stock") issued and
outstanding at the effective time of the Merger (excluding shares held by
Capital or UPC, or their respective subsidiaries, in each case other than shares
held in a fiduciary capacity or as a result of debts previously contracted) will
be converted into and exchanged for .3812 of a share of the $5.00 par value
common stock of UPC (subject to possible adjustment as set forth in the
Agreement, the "Exchange Ratio"), (together with the associated Preferred Share
Rights (as defined in the accompanying Proxy Statement/Prospectus)), and cash in
lieu of issuing any fractional share. Copies of each of the Agreement and the
Plan of Merger are included in Appendices A and B, respectively, to the
accompanying Proxy Statement/Prospectus and are incorporated by reference
therein.
2. OTHER BUSINESS. To transact such other business as may come properly
before the Capital Special Meeting or any adjournments or postponements of the
Capital Special Meeting.
Only shareholders of record at the close of business on May 29, 1998, will
be entitled to receive notice of and to vote at the Capital Special Meeting or
any adjournment or postponement thereof. ADOPTION OF THE AGREEMENT AND THE PLAN
OF MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
ISSUED AND OUTSTANDING SHARES OF CAPITAL COMMON STOCK ENTITLED TO BE VOTED AT
THE CAPITAL SPECIAL MEETING.
THE BOARD OF DIRECTORS OF CAPITAL UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR ADOPTION OF THE AGREEMENT AND THE PLAN OF MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
Larry V. Schepers
Chairman, President, and
Chief Executive Officer
Jefferson City, Missouri
WHETHER OR NOT YOU PLAN TO ATTEND THE CAPITAL SPECIAL MEETING, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE CAPITAL SPECIAL MEETING.
<PAGE> 4
PROSPECTUS
UNION PLANTERS CORPORATION
COMMON STOCK, $5.00 PAR VALUE
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS OF
CAPITAL SAVINGS BANCORP, INC.
425 MADISON STREET
JEFFERSON CITY, MISSOURI 65101
This Prospectus of Union Planters Corporation, a bank holding company
organized and existing under the laws of the State of Tennessee ("UPC"), relates
to up to 801,338 shares of common stock, $5.00 par value, of UPC (together
with associated Preferred Share Rights (as defined herein), "UPC Common Stock"),
which are issuable to the shareholders of Capital Savings Bancorp, Inc., a
savings and loan holding company organized and existing under the laws of the
State of Delaware ("Capital"), upon consummation of the proposed merger (the
"Merger") of Capital with and into Union Planters Holding Corporation ("UPHC"),
a corporation organized and existing under the laws of the State of Tennessee
and a wholly-owned subsidiary of UPC, with the effect that UPHC will be the
surviving corporation of the Merger.
The Merger will be consummated pursuant to the terms of the Agreement and
Plan of Reorganization, dated as of November 25, 1997 (the "Agreement"), by and
between UPC and Capital and the related Plan of Merger (the "Plan of Merger"),
by and between Capital and UPHC. At the effective time of the Merger (the
"Effective Time"), except as described herein, each issued and outstanding share
of the $.01 par value common stock of Capital ("Capital Common Stock")
(excluding shares held by Capital or UPC, or their respective subsidiaries, in
each case other than shares held in a fiduciary capacity or as a result of debts
previously contracted) will be converted into and exchanged for .3812 of a share
of UPC Common Stock (subject to possible adjustment as set forth in the
Agreement, the "Exchange Ratio"). Cash (without interest) will be paid in lieu
of the issuance of any fractional shares of UPC Common Stock.
This Prospectus also serves as a Proxy Statement of Capital, and is being
furnished to the shareholders of Capital in connection with the solicitation of
proxies by the Board of Directors of Capital (the "Capital Board") for use at
its special meeting of shareholders (including any adjournments or postponements
thereof, the "Capital Special Meeting"), to be held on July __, 1998, to
consider and vote upon the Agreement and the Plan of Merger. This Proxy
Statement/Prospectus (the "Proxy Statement") and related materials enclosed
herewith are being mailed to the shareholders of Capital on or about June __,
1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS, OR OTHER
OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
---------------
The date of this Proxy Statement is June __, 1998.
<PAGE> 5
AVAILABLE INFORMATION
Each of UPC and Capital is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, is required to file reports, proxy and information
statements, and other information with the Securities and Exchange Commission
(the "SEC"). Copies of such reports, proxy and information statements, and other
information can be obtained, at prescribed rates, from the SEC by addressing
written requests for such copies to the Public Reference Section at the SEC at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
such reports, proxy and information statements, and other information can be
inspected and copied at the public reference facilities referred to above and at
the regional offices of the SEC at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The SEC also maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements, and
other information regarding registrants that file electronically with the SEC.
The shares of UPC Common Stock and Capital Common Stock are listed and traded on
the New York Stock Exchange, Inc. (the "NYSE") and the Nasdaq National Market
System ("Nasdaq") under the symbols "UPC" and "CAPS," respectively. Reports,
proxy and information statements, and other information concerning UPC may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005
and such information with respect to Capital may be inspected at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Proxy Statement constitutes part of the Registration Statement on
Form S-4 of UPC (including any exhibits and amendments thereto, the
"Registration Statement") filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the securities offered hereby.
This Proxy Statement does not include all of the information in the Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. For further information about UPC, Capital, and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above.
All information contained in this Proxy Statement or incorporated herein
by reference with respect to UPC was supplied by UPC, and all information
contained in this Proxy Statement or incorporated herein by reference with
respect to Capital was supplied by Capital.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION
OF THE SECURITIES BEING OFFERED PURSUANT TO THIS PROXY STATEMENT SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF UPC OR CAPITAL OR THE INFORMATION SET FORTH OR INCORPORATED BY
REFERENCE HEREIN SINCE THE DATE OF THIS PROXY STATEMENT.
THIS PROXY STATEMENT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH
RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF UPC
AND CAPITAL, AND OF UPC FOLLOWING THE CONSUMMATION OF THE MERGER AND THE OTHER
ACQUISITIONS (AS DEFINED UNDER "BUSINESS OF UPC -- RECENT DEVELOPMENTS"),
INCLUDING STATEMENTS RELATING TO THE COST SAVINGS AND REVENUE ENHANCEMENTS THAT
ARE EXPECTED TO BE REALIZED FROM THE MERGER AND THE OTHER ACQUISITIONS AND THE
EXPECTED IMPACT OF THE MERGER AND THE OTHER ACQUISITIONS ON UPC'S FINANCIAL
PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHER
THINGS, THE FOLLOWING POSSIBILITIES: (i) EXPECTED COST SAVINGS FROM THE MERGER
AND THE OTHER ACQUISITIONS CANNOT BE FULLY REALIZED; (ii) DEPOSIT ATTRITION,
CUSTOMER LOSS, OR REVENUE LOSS FOLLOWING THE MERGER AND THE OTHER ACQUISITIONS
IS GREATER THAN EXPECTED; (iii) COMPETITIVE PRESSURE IN THE BANKING INDUSTRY
INCREASES SIGNIFICANTLY; (iv) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION
OF THE BUSINESSES OF UPC AND THE INSTITUTIONS TO BE ACQUIRED ARE GREATER THAN
EXPECTED; (v) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; (vi)
GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY,
-i-
<PAGE> 6
ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS, A
DETERIORATION IN CREDIT QUALITY; (vii) CHANGES OCCUR IN THE REGULATORY
ENVIRONMENT; (viii) CHANGES OCCUR IN BUSINESS CONDITIONS AND INFLATION; (ix)
CHANGES OCCUR IN THE SECURITIES MARKETS; AND (x) DISRUPTIONS OF THE OPERATIONS
OF UPC, CAPITAL, OR ANY OF THEIR SUBSIDIARIES, OR ANY OTHER GOVERNMENTAL OR
PRIVATE ENTITY AS A RESULT OF THE "YEAR 2000 PROBLEM." THE FORWARD-LOOKING
EARNINGS ESTIMATES INCLUDED IN THIS PROXY STATEMENT HAVE NOT BEEN EXAMINED OR
COMPILED BY THE INDEPENDENT PUBLIC ACCOUNTANTS OF UPC OR CAPITAL, NOR HAVE SUCH
ACCOUNTANTS APPLIED ANY PROCEDURES THERETO. ACCORDINGLY, SUCH ACCOUNTANTS DO NOT
EXPRESS AN OPINION OR ANY OTHER FORM OF ASSURANCE ON THEM. FURTHER INFORMATION
ON OTHER FACTORS THAT COULD AFFECT THE FINANCIAL RESULTS OF UPC AFTER THE MERGER
AND THE OTHER ACQUISITIONS IS INCLUDED IN THE SEC FILINGS INCORPORATED BY
REFERENCE HEREIN.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by UPC pursuant to
the Exchange Act are hereby incorporated by reference herein (SEC File No.
1-10160):
(a) UPC's Annual Report on Form 10-K for the year ended December 31,
1997 (provided that any information included or incorporated by
reference in response to Items 402 (a)(8), (i), (k), or (1) of
Regulation S-K of the SEC shall not be deemed to be incorporated
herein and is not part of the Registration Statement) (the "UPC 1997
Form 10-K");
(b) UPC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and its amendment to such form on Form 10-Q/A (the "UPC March
31, 1998 Form 10-Q");
(c) UPC's Current Reports on Form 8-K dated January 15, February 23, and
April 16, 1998;
(d) The description of the current management and Board of Directors of
UPC contained in the proxy statement of UPC (the "UPC Annual Meeting
Proxy Statement") filed pursuant to Section 14(a) of the Exchange
Act with respect to UPC's 1998 Annual Meeting of shareholders held
on April 16, 1998;
(e) UPC's Registration Statement on Form 8-A dated January 19, 1989,
filed on February 1, 1989; (SEC File No. 0-6919) in connection with
UPC's designation and authorization of its Series A Preferred Stock;
and
(f) The description of the UPC Common Stock contained in UPC's
Registration Statement under Section 12(b) of the Exchange Act and
any amendment or report filed for the purpose of updating such
description.
The following documents previously filed with the SEC by Capital pursuant
to the Exchange Act are hereby incorporated by reference herein (SEC File No.
0-22656):
(a) Capital's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997 (the "Capital 1997 Form 10-K");
(b) Capital's Quarterly Reports on Form 10-QSB for the quarters ended
September 30, 1997, December 31, 1997, and March 31, 1998; and
(c) Capital's Current Report on Form 8-K dated November 25, 1997.
All documents filed by UPC and Capital pursuant to Sections 13(a), 13(c),
14, or 15(d) of the Exchange Act after the date of this Proxy Statement and
prior to final adjournment of the Capital Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes hereof to the extent that a
statement
-ii-
<PAGE> 7
contained herein or in any subsequently filed document which also is, or is
deemed to be, incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
UPC will provide without charge, upon the written or oral request of any
person, including any beneficial owner, to whom this Proxy Statement is
delivered, a copy of any and all information (excluding certain exhibits)
relating to UPC that has been incorporated by reference in the Registration
Statement. Such requests should be directed to E. James House, Jr., Secretary
and Manager of the Legal Department, Union Planters Corporation, 7130 Goodlett
Farms Parkway, Memphis, Tennessee 38018 (telephone (901) 580-6584). Capital will
provide without charge, upon the written or oral request of any person,
including any beneficial owner, to whom this Proxy Statement is delivered, a
copy of any and all information (excluding certain exhibits) relating to Capital
that has been incorporated by reference in the Registration Statement of which
this Proxy Statement is a part. Such requests should be directed to Larry V.
Schepers, Chairman of the Board and Chief Executive Officer, Capital Savings
Bancorp, Inc., 425 Madison Street, Jefferson City, Missouri 65101 (telephone
(573) 635-4151). In order to ensure timely delivery of the documents, any
request should be made by ____________, 1998.
-iii-
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.......................................................................................................... 1
The Parties................................................................................................ 1
Meeting of Shareholders.................................................................................... 2
The Merger................................................................................................. 3
Comparative Market Prices of Common Stock.................................................................. 8
Selected Consolidated Financial Data....................................................................... 8
Historical and Pro Forma Comparative Per Share Data........................................................ 13
MEETING OF SHAREHOLDERS.......................................................................................... 15
Date, Place, Time, and Purpose............................................................................. 15
Record Date, Voting Rights, Required Vote, and Revocability of Proxies..................................... 15
Solicitation of Proxies.................................................................................... 16
No Appraisal Rights........................................................................................ 16
DESCRIPTION OF TRANSACTION....................................................................................... 17
General.................................................................................................... 17
Possible Adjustment of Exchange Ratio...................................................................... 17
Effect of the Merger on Capital Options.................................................................... 19
Background of and Reasons for the Merger................................................................... 20
Opinion of Capital's Financial Advisor..................................................................... 23
Effective Time of the Merger............................................................................... 28
No Appraisal Rights........................................................................................ 28
Distribution of Consideration.............................................................................. 28
Conditions to Consummation of the Merger................................................................... 29
Regulatory Approval........................................................................................ 29
Waiver, Amendment, and Termination......................................................................... 30
Conduct of Business Pending the Merger..................................................................... 31
Management and Operations After the Merger................................................................. 32
Interests of Certain Persons in the Merger................................................................. 33
Certain Federal Income Tax Consequences of the Merger...................................................... 34
Accounting Treatment....................................................................................... 35
Expenses and Fees.......................................................................................... 36
Resales of UPC Common Stock................................................................................ 36
Option Agreement........................................................................................... 37
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS................................................................... 39
Anti-takeover Provisions Generally......................................................................... 39
Authorized Capital Stock................................................................................... 40
Preemptive Rights.......................................................................................... 41
Amendment of Charter and Bylaws............................................................................ 41
Classified Board of Directors and Absence of Cumulative Voting............................................. 42
Director Removal and Vacancies............................................................................. 42
Limitations on Director Liability.......................................................................... 43
Indemnification............................................................................................ 43
Special Meetings of Shareholders........................................................................... 45
Actions by Shareholders Without a Meeting.................................................................. 45
Shareholder Nominations and Proposals...................................................................... 45
Business Combinations...................................................................................... 45
Limitations on Ability to Vote Stock....................................................................... 48
Dissenters' Rights of Appraisal............................................................................ 49
Shareholders' Rights to Examine Books and Records.......................................................... 49
Dividends.................................................................................................. 50
COMPARATIVE MARKET PRICES AND DIVIDENDS.......................................................................... 51
BUSINESS OF CAPITAL.............................................................................................. 52
General.................................................................................................... 52
Lending Activities......................................................................................... 52
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
Originations, Purchases, Sales and Servicing of Loans and Mortgage-Backed Securities....................... 59
Non-Performing Assets and Classified Assets................................................................ 61
Investment Activities...................................................................................... 65
Sources of Funds........................................................................................... 67
Regulation................................................................................................. 70
Competition................................................................................................ 70
Property................................................................................................... 71
Legal Proceedings.......................................................................................... 71
Security Ownership of Certain Beneficial Owners and Management of Capital.................................. 71
CAPITAL'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 73
Overview................................................................................................... 73
Capital's Management Discussion and Analysis of Financial Condition and Results of
Operations For the Three and Nine Month Periods Ended March 31, 1998 and 1997........................ 73
Results of Operations...................................................................................... 73
Changes in Financial Condition............................................................................. 75
Interest Rate Sensitivity.................................................................................. 75
Liquidity and Capital Resources............................................................................ 76
Capital's Management Discussion and Analysis and Results of Operations For the Years
Ended June 30, 1997, 1996, and 1995.................................................................. 77
Results of Operations...................................................................................... 77
Financial Condition........................................................................................ 82
Interest Rate Sensitivity.................................................................................. 82
Liquidity and Capital Resources............................................................................ 84
Regulatory Capital......................................................................................... 86
Impact of Inflation and Changing Prices.................................................................... 86
Impact of New Accounting Standards......................................................................... 86
BUSINESS OF UPC.................................................................................................. 87
General.................................................................................................... 87
Recent Developments........................................................................................ 88
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION........................................................... 91
CERTAIN REGULATORY CONSIDERATIONS................................................................................ 97
General.................................................................................................... 97
Payment of Dividends....................................................................................... 98
Capital Adequacy........................................................................................... 99
Support of Subsidiary Institutions......................................................................... 100
Prompt Corrective Action................................................................................... 100
DESCRIPTION OF UPC CAPITAL STOCK................................................................................. 101
UPC Common Stock........................................................................................... 102
UPC Preferred Stock........................................................................................ 102
SHAREHOLDER PROPOSALS............................................................................................ 103
EXPERTS.......................................................................................................... 103
OPINIONS......................................................................................................... 103
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....................................................................... F-1
</TABLE>
APPENDICES:
Appendix A -- Agreement and Plan of Reorganization, dated as of November
25, 1997, by and between Union Planters Corporation and
Capital Savings Bancorp, Inc.
Appendix B -- Plan of Merger of Capital Savings Bancorp, Inc. into and
with Union Planters Holding Corporation
Appendix C -- Opinion of ABN AMRO Incorporated
-v-
<PAGE> 10
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROXY
STATEMENT AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. THIS SUMMARY IS
NOT INTENDED TO BE A COMPLETE DESCRIPTION OF THE MATTERS COVERED IN THIS PROXY
STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT.
SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE PROXY STATEMENT, INCLUDING
THE APPENDICES. AS USED IN THIS PROXY STATEMENT, THE TERMS "UPC" AND "CAPITAL"
REFER TO UNION PLANTERS CORPORATION AND CAPITAL SAVINGS BANCORP, INC.,
RESPECTIVELY, AND, WHERE THE CONTEXT REQUIRES, TO THOSE ENTITIES AND THEIR
RESPECTIVE SUBSIDIARIES.
THE PARTIES
CAPITAL Capital, a Delaware corporation, is a unitary savings and loan
holding company headquartered in Jefferson City, Missouri. At March 31, 1998,
Capital had total consolidated assets of approximately $231.9 million, total
consolidated loans of approximately $187.2 million, total consolidated deposits
of approximately $171.0 million, and total consolidated shareholders' equity of
approximately $23.5 million.
Capital conducts its business activities through its principal subsidiary,
Capital Savings Bank, F.S.B. ("Capital Bank"). Capital Bank's primary market
area covers all or a portion of Boone, Callaway, Cole, Gasconade, Maries,
Miller, Moniteau, Osage, Phelps and Pulaski counties in central Missouri, which
are serviced through its three full service offices in Jefferson City and five
additional full service offices located in California, Eldon, Fulton, Owensville
and Rolla, Missouri. Through Capital Bank, Capital is engaged generally in the
business of attracting deposits from the public and originating single-family
home mortgage loans and consumer loans.
The principal executive offices of Capital are located at 425 Madison
Street, Jefferson City, Missouri 65101 and its telephone number at such address
is (573) 635-4151. Additional information with respect to Capital and its
subsidiaries is included elsewhere herein and in documents incorporated by
reference in this Proxy Statement. See "AVAILABLE INFORMATION," "DOCUMENTS
INCORPORATED BY REFERENCE," and "BUSINESS OF CAPITAL."
UPC. UPC, a Tennessee corporation, is a bank holding company registered
with the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). As of March 31, 1998, UPC had total consolidated assets of approximately
$18.4 billion, total consolidated loans of approximately $12.7 billion, total
consolidated deposits of approximately $13.6 billion, and total consolidated
shareholders' equity of approximately $1.8 billion.
UPC conducts its business activities through its principal bank
subsidiary, the $15.7 billion asset Union Planters Bank, National Association
("UPBNA"), a multi-state national banking association headquartered in Memphis,
Tennessee, with branches in Alabama, Arkansas, Kentucky, Louisiana, Mississippi,
Missouri, and Tennessee, one federally-chartered savings association
headquartered in Tennessee, two other Tennessee state-chartered banks
headquartered in Tennessee, two recently acquired Arkansas state-chartered
banks, and one Florida state-chartered bank headquartered in Miami, Florida
(collectively with UPBNA, the "UPC Banking Subsidiaries"). Through the UPC
Banking Subsidiaries, UPC provides a diversified range of financial services in
the communities in which it operates and maintains approximately 518 banking
offices and 676 automated teller machines ("ATMs"). UPC's total deposits at
March 31, 1998 are allocable by state (before consolidating adjustments)
approximately as follows: $6.7 billion in Tennessee; $2.9 billion in
Mississippi; $1.3 billion in Florida; $1.2 billion in Missouri; $596 million in
Arkansas; $598 million in Louisiana; $412 million in Alabama; and $103 million
in Kentucky.
Acquisitions have been, and are expected to continue to be, an important
part of UPC's business strategy. UPC completed 13 acquisitions in 1994, three in
1995, seven in 1996, six in 1997, and has recently completed two in 1998, adding
approximately $3.8 billion in total assets in 1994, $1.3 billion in 1995, $4.2
billion in 1996, and
<PAGE> 11
$3.6 billion in 1997, and $520 million in 1998 (the "Recently Completed
Acquisitions"). UPC currently is a party to definitive agreements to acquire ten
financial institutions, not including Capital, and to purchase certain branch
locations and assume deposit liabilities of California Federal Bank in Florida
("CalFed Branch Purchase") (collectively referred to herein as the "Other
Pending Acquisitions.") The Other Pending Acquisitions had aggregate total
assets of approximately $12.9 billion at March 31, 1998. For purposes of this
Proxy Statement, the terms "Recently Completed Acquisitions" and "Other Pending
Acquisitions" are collectively referred to as "Other Acquisitions." The largest
of the Other Pending Acquisitions is UPC's proposed acquisition of Magna Group,
Inc. ("Magna"), St. Louis, Missouri, which had total consolidated assets of
approximately $7.3 billion at March 31, 1998. On May 1, 1998, Magna acquired
Charter Financial, Inc., and its subsidiary, Charter Bank, S.B. (the "Charter
Acquisition") in a transaction accounted for as a purchase. Located in Sparta,
Illinois, Charter Financial, Inc. had at the time of consummation total assets
of approximately $406 million, total deposits of approximately $309 million, and
total shareholders' equity of approximately $67 million. For purposes of this
Proxy Statement, including the historical and equivalent pro forma data, the
terms "Other Acquisitions" and "Other Pending Acquisitions" include the Charter
Acquisition. For a description of the acquisitions in addition to the Merger
which are currently pending, see "BUSINESS OF UPC - Recent Developments."
UPC expects to continue to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial institutions and other entities engaged in lines of
business permissible for banks and bank holding companies. Future acquisitions
may entail the payment by UPC of consideration in excess of the book value of
the underlying net assets acquired, may result in the issuance of additional
shares of UPC Common Stock or the incurring of additional indebtedness by UPC,
and could have a dilutive effect on the earnings or book value per share of UPC
Common Stock. Moreover, significant charges against earnings are sometimes
required incidental to acquisitions. For a description of the acquisitions in
addition to the Merger which are currently pending, see "BUSINESS OF UPC --
Recent Developments."
For a discussion of UPC's acquisition program, including a discussion of
the significant charges UPC has incurred incidental to acquisitions in the past
three fiscal years, see the caption "Acquisitions" (on page 10) in UPC's 1997
Annual Report to Shareholders and Note 2 to UPC's audited consolidated financial
statements for the years ended December 31, 1997, 1996, and 1995 (on pages 49
and 50) contained in UPC's 1997 Annual Report to Shareholders. UPC's 1997 Annual
Report to Shareholders is included as Exhibit 13 to UPC's 1997 Form 10-K and
Exhibit 13 is incorporated by reference herein to the extent indicated herein.
The principal executive offices of UPC are located at 7130 Goodlett Farms
Parkway, Memphis, Tennessee 38018, and its telephone number at such address is
(901) 580-6000. Additional information with respect to UPC and its subsidiaries
is included elsewhere herein and in documents incorporated by reference in this
Proxy Statement. See "AVAILABLE INFORMATION," "DOCUMENTS INCORPORATED BY
REFERENCE," and "BUSINESS OF UPC."
UPHC. UPHC, a Tennessee corporation, is a wholly-owned subsidiary of UPC.
UPHC is a bank holding company which owns all of the common stock of UPBNA and
other permissible investments Certain of the directors and officers of UPHC are
executive officers of UPC.
MEETING OF SHAREHOLDERS
This Proxy Statement is being furnished to the holders of Capital Common
Stock in connection with the solicitation by the Capital Board of proxies for
use at the Capital Special Meeting to be held at the Capitol Plaza Hotel,
located at 415 W. McCarty Street, Jefferson City, Missouri at __:__ _.m., local
time, on July __, 1998. At the Capital Special Meeting, Capital shareholders
will be asked to consider and vote upon a proposal to adopt the Agreement and
the Plan of Merger. See "MEETING OF SHAREHOLDERS."
The Capital Board has fixed the close of business on May 29, 1998 as the
record date (the "Capital Record Date") for determination of the Capital
shareholders who are entitled to notice of and to vote at the Capital Special
Meeting. Only Capital shareholders of record on the Capital Record Date will be
entitled to receive notice of and to vote at the Capital Special Meeting. Each
share of Capital Common Stock validly issued and outstanding on the
-2-
<PAGE> 12
Capital Record Date is entitled to one vote. On the Capital Record Date, there
were 1,891,400 shares of Capital Common Stock validly issued and outstanding. In
order for the Capital Special Meeting to be held, a quorum must be achieved. A
quorum would be achieved if one-third of the outstanding shares of Capital
Common Stock are represented at the Capital Special Meeting in person or by
proxy. Assuming a quorum is achieved, the affirmative vote of a majority of the
outstanding shares of Capital Common Stock is required to adopt the Agreement
and Plan of Merger. Each vote is important and all Capital shareholders are
encouraged to vote their shares, in person or by proxy, at the Capital Special
Meeting. See "MEETING OF SHAREHOLDERS -- Record Date, Voting Rights, Required
Vote, and the Revocability of Proxies."
The directors and executive officers of Capital beneficially owned or
controlled __________ shares of Capital Common Stock as of the Capital Record
Date, or approximately ______%, of the outstanding shares. The members of
Capital's management have indicated that they intend to vote "FOR" adoption of
the Agreement and the Plan of Merger. For information with respect to the number
and percentage of shares of Capital Common Stock beneficially owned by directors
and executive officers of Capital as well as to the beneficial owners of 5% or
more of the outstanding shares of Capital Common Stock, see "MEETING OF
SHAREHOLDERS" and "BUSINESS OF CAPITAL -- Security Ownership of Certain
Beneficial Owners and Management of Capital."
THE MERGER
GENERAL. The Agreement provides for the acquisition of Capital by UPC
pursuant to the merger of Capital with and into UPHC, a wholly-owned subsidiary
of UPC, with the effect that UPHC will be the surviving corporation resulting
from the Merger. At the Effective Time, each share of Capital Common Stock then
issued and outstanding (excluding shares held by Capital, UPC, or their
respective subsidiaries, in each case other than shares held in a fiduciary
capacity or as a result of debts previously contracted) will be converted into
and exchanged for .3812 of a share of UPC Common Stock (subject to possible
adjustment as set forth in the Agreement, the "Exchange Ratio").
In the event both of the following conditions are satisfied, (i) the
"Average Closing Price" (defined in the Agreement as the average of the daily
last sale prices of UPC Common Stock quoted on the NYSE-Composite Transactions
List (as reported by The Wall Street Journal or, if not reported therein,
another authoritative source as reasonably selected by UPC) for the 10
consecutive full trading days for which such shares are traded on the NYSE
ending at the close of trading on the later of the date of the Capital Special
Meeting and the date on which the last required consent of the Federal Reserve
shall be received (the "Determination Date")) is less than $50.70 and (ii)(1)
the quotient obtained by dividing the Average Closing Price by $63.375 (such
quotient being the "UPC Ratio") is less than (2) the quotient obtained by
dividing the weighted average of the closing prices (the "Index Price") of 15
bank holding companies designated in the Agreement (the "Index Group") on the
Determination Date by the Index Price on December 1, 1997, less 15% (such
quotient being the "Index Ratio"), then, Capital will have the right to
terminate the Agreement unless UPC elects to adjust the Exchange Ratio in the
manner described under "DESCRIPTION OF TRANSACTION -- Possible Adjustment of
Exchange Ratio." Under no circumstances would the Exchange Ratio be less than
.3812 of a share of UPC Common Stock for each share of Capital Common Stock.
In making its determination of whether to terminate the Agreement, the
Capital Board will take into account, consistent with its fiduciary duties, all
relevant facts and circumstances that exist at such time, including, without
limitation, information concerning the business, financial condition, results of
operations, and prospects of UPC (including the recent performance of UPC Common
Stock, the historical financial data of UPC, customary statistical measurements
of UPC's financial performance, and the future prospects for UPC Common Stock
following the Merger), and the advice of its financial advisor and legal
counsel. If the Capital Board elects to terminate the Agreement, UPC would then
determine whether to proceed with the Merger at the higher Exchange Ratio. In
making this determination, the principal factors UPC will consider include the
projected effect of the Merger on UPC's pro forma earnings per share and whether
UPC's assessment of Capital's earning potential as part of UPC justifies the
issuance of an increased number of UPC's shares. If UPC declines to adjust the
Exchange Ratio, Capital may elect to proceed without the adjustment, provided it
does so within 10 days of the Determination Date. UPC IS UNDER NO OBLIGATION TO
ADJUST THE EXCHANGE RATIO.
Adoption of the Agreement and Plan of Merger by the Capital shareholders
will also authorize the Capital Board to exercise its discretion whether to
proceed with the Merger in the event that Capital has the right to exercise its
termination right as described above. THE CAPITAL BOARD EXPECTS IT WOULD
EXERCISE SUCH DISCRETION AND DECIDE WHETHER TO TERMINATE THE AGREEMENT AND
PLAN OF MERGER WITHOUT A RESOLICITATION OF SHAREHOLDERS.
-3-
<PAGE> 13
No fractional shares of UPC Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any holder of Capital Common Stock would otherwise be entitled upon
consummation of the Merger, in an amount equal to such fractional part of a
share of UPC Common Stock multiplied by the closing price of one share of UPC
Common Stock on the NYSE (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source as reasonably selected by UPC) on
the last trading day preceding the Effective Time. See "DESCRIPTION OF
TRANSACTION -- General."
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF
CAPITAL. The Capital Board believes that the Agreement, the Plan of Merger, and
the Merger are in the best interests of Capital and its shareholders. The
Capital Board has approved the matters to be adopted or approved by its
shareholders. The Capital Board recommends that the Capital shareholders vote
FOR adoption of the Agreement and the Plan of Merger. The Capital Board believes
that, among other things, the Merger will result in a company with expanded
opportunities for profitable growth and that the combined resources and capital
of Capital and UPC will provide an enhanced ability to compete in the changing
and competitive financial services industry. See "DESCRIPTION OF TRANSACTION --
Background of and Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR. ABN AMRO Incorporated ("ABN AMRO") has
rendered an opinion to the Capital Board dated as of the date of the Agreement
and updated as of the date of the Proxy Statement that, based upon the matters
set forth in such opinion and such other matters as it deemed relevant, as of
the date of its opinion, the Exchange Ratio is fair to the holders of Capital
Common Stock from a financial point of view. The opinion of ABN AMRO dated as of
the date of this Proxy Statement is included as Appendix C to this Proxy
Statement. Capital shareholders are urged to read the ABN AMRO opinion in its
entirety for a description of the procedures followed, matters considered, and
limitations on the reviews undertaken in connection therewith. See "DESCRIPTION
OF TRANSACTION -- Opinion of Capital's Financial Advisor."
EFFECTIVE TIME. Subject to the conditions to the obligations of the
parties to effect the Merger, the Effective Time will occur on the date and at
the time that the Certificate of Merger (as defined in the Agreement) becomes
effective with the Secretary of State of the State of Delaware and the Articles
of Merger (as defined in the Agreement) become effective with the Secretary of
State of the State of Tennessee. Subject to the terms and conditions of the
Agreement, unless otherwise agreed upon in writing by the duly authorized
officers of Capital and UPC. The Agreement provides that the parties will use
their reasonable efforts to cause the Effective Time to occur within 30 days (as
designated by UPC) following the last to occur of (i) the effective date
(including expiration of any applicable waiting period) of the last consent of
any regulatory authority having authority over and approving or exempting the
Merger, (ii) the date on which the shareholders of Capital adopt the Agreement
and Plan of Merger, and (iii) the date on which all other conditions precedent
to each of UPC's or Capital's obligations under the Agreement shall have been
satisfied or waived (to the extent such obligations are waivable under the
Agreement). It is anticipated that the Effective Time will occur within one
business day of the Capital Special Meeting. See "DESCRIPTION OF
TRANSACTION -- Effective Time of the Merger," "-- Conditions to Consummation
of the Merger," and "-- Waiver, Amendment, and Termination."
NO ASSURANCE CAN BE PROVIDED THAT THE NECESSARY SHAREHOLDER AND REGULATORY
APPROVALS CAN BE OBTAINED OR THAT THE OTHER CONDITIONS PRECEDENT TO THE MERGER
CAN OR WILL BE SATISFIED. CAPITAL AND UPC ANTICIPATE THAT ALL CONDITIONS TO THE
CONSUMMATION OF THE MERGER WILL BE SATISFIED SO THAT THE MERGER CAN BE
CONSUMMATED ON OR ABOUT July 8, 1998. HOWEVER, DELAYS IN THE CONSUMMATION OF
THE MERGER COULD OCCUR.
DISTRIBUTION OF CONSIDERATION. Promptly after the Effective Time, UPC will
cause UPBNA, acting in its capacity as exchange agent for UPC (the "Exchange
Agent"), to mail to each holder of record of a certificate or certificates
(collectively, the "Certificates") which, immediately prior to the Effective
Time, represented outstanding shares of Capital Common Stock, a letter of
transmittal and instructions for use in effecting the surrender and cancellation
of the Certificates in exchange for certificates representing shares of UPC
Common Stock. Cash will be paid to the holders of Capital Common Stock in lieu
of issuing any fractional shares of UPC Common Stock. In no event will the
holder of any surrendered Certificate(s) be entitled to receive interest on any
cash to be issued to such holder, and in no event will Capital, UPC, or the
Exchange Agent be liable to any holder
-4-
<PAGE> 14
of Capital Common Stock for any consideration delivered in good faith to a
public official pursuant to any applicable abandoned property, escheat, or
similar law. See "DESCRIPTION OF TRANSACTION -- Distribution of Consideration."
REGULATORY APPROVAL AND OTHER CONDITIONS. The Merger is subject to the
prior approval of the Federal Reserve. An application has been filed with the
Federal Reserve for the requisite approval. THERE CAN BE NO ASSURANCE THAT SUCH
REGULATORY APPROVAL WILL BE OBTAINED OR AS TO THE TIMING OF SUCH APPROVAL.
Consummation of the Merger is subject to various other conditions,
including receipt of the required approvals of the Capital shareholders, receipt
of opinions of counsel as to the tax-free nature of certain aspects of the
Merger, receipt of a letter from UPC's independent accountants to the effect
that the Merger will qualify for pooling-of-interests accounting treatment, and
certain other conditions at the Effective Time. See "DESCRIPTION OF TRANSACTION
- -- Regulatory Approval" and "-- Conditions to Consummation of the Merger."
WAIVER, AMENDMENT, AND TERMINATION. The Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time by mutual consent
of the Capital Board and the Board of Directors of UPC (the "UPC Board"), or by
the action of the Board of Directors of either company under certain
circumstances, including, but not limited to, (i) if the Merger is not
consummated by September 30, 1998, unless the failure to consummate by such date
is due to a breach of the Agreement by the party seeking to terminate, or (ii)
in certain circumstances, if an adjustment is not made to the Exchange Ratio. To
the extent permitted by law and as set forth in the Agreement, the Agreement may
be amended upon the written agreement of UPC and Capital without the approval of
shareholders before or after the matters relating to the Agreement required to
be approved by the Capital shareholders are approved by such shareholders,
provided, that after any such approval by the Capital shareholders, there shall
be no amendment that modifies in any material respect the consideration to be
received by such shareholders without the further approval of such shareholders.
The Merger may be abandoned notwithstanding approval of the matters relating to
the Agreement required to be approved by the Capital shareholders. See
"DESCRIPTION OF TRANSACTION -- Waiver, Amendment, and Termination."
NO APPRAISAL RIGHTS. Holders of Capital Common Stock are not entitled to
appraisal rights under the Delaware General Corporation Law ("DGCL") in
connection with the Merger. See "MEETIING OF SHAREHOLDERS -- No Appraisal
Rights."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of Capital's
management and the Capital Board may be deemed to have certain interests in the
Merger that are in addition to their interests as shareholders of Capital
generally. These additional interests may be deemed to arise from certain
actions UPC has agreed to take regarding the employment and severance
arrangements of certain Capital executive officers and the compensation and
indemnification of Capital directors. The Capital Board was aware of these
interests and considered them, among other matters, in approving the Merger.
Such interests include (i) a new three-year employment agreement for Larry V.
Schepers, President and Chief Executive Officer of Capital, to replace his
existing employment contract with Capital, (ii) new employment agreements for
Arthur Wankum, Executive Vice President of Capital, and Joseph Forck, Senior
Vice President of Capital, with terms expiring in December and July 1998
respectively, (iii) the appointment of the existing directors of Capital as
advisory directors to UPBNA, and (iv) the assumption of outstanding Capital
stock options by UPC. For a more detailed description of the interests of
certain persons in the Merger, see "DESCRIPTION OF TRANSACTION -- Interests of
Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. It is intended that
the Merger will be treated as a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, for
federal income tax purposes, no gain or loss will be recognized by holders of
Capital Common Stock upon the exchange of all of such shareholders' shares of
Capital Common Stock solely for shares of UPC Common Stock (except with respect
to cash received in lieu of a fractional share of UPC Common Stock).
Consummation of the Merger is conditioned upon receipt by UPC and Capital of an
opinion of Alston & Bird LLP,
-5-
<PAGE> 15
dated the date of the Effective Time substantially to this effect. The
conditions relating to the receipt of the tax opinion may be waived by both
Capital and UPC. Neither Capital nor UPC currently intends to waive the
conditions relating to the receipt of the tax opinion. If the conditions
relating to the receipt of the tax opinion were waived and the material federal
income tax consequences of the Merger were materially different from those
described in this Proxy Statement, Capital would resolicit the approval of its
shareholders prior to consummating the Merger. TAX CONSEQUENCES OF THE MERGER
FOR INDIVIDUAL TAXPAYERS CAN VARY, HOWEVER, AND ALL CAPITAL SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF THE MERGER ON
THEM UNDER FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS. For a further
discussion of the federal income tax consequences of the Merger, including a
description of the tax opinion issued as of a recent date of the date of the
filing of the Registration Statement, see "DESCRIPTION OF TRANSACTION --
Certain Federal Income Tax Consequences of the Merger."
ACCOUNTING TREATMENT. It is intended that the Merger will be accounted for
as a pooling-of-interests transaction for accounting and financial reporting
purposes, and UPC will not consummate the Merger if such accounting treatment is
not available See "DESCRIPTION OF TRANSACTION -- Accounting Treatment."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS. At the Effective Time holders
of Capital Common Stock, whose rights are governed by Capital's Certificate of
Incorporation (the "Capital Charter") and Capital's Bylaws (the "Capital
Bylaws") and by the DGCL, will automatically become UPC shareholders, and their
rights as UPC shareholders will be governed by UPC's Amended and Restated
Charter (the "UPC Charter") and UPC's Bylaws (the "UPC Bylaws") and the
Tennessee Business Corporation Act (the "TBCA"). The rights of UPC shareholders
differ from the rights of Capital shareholders in certain important respects,
including but not limited to: (i) anti-takeover provisions generally, (ii)
authorized capital stock, (iii) preemptive rights, (iv) amendment of charter and
bylaws, (v) classified board of directors and absence of cumulative voting, (vi)
director removal and vacancies, (vii) limitations on director liability, (viii)
indemnification, (ix) special meeting of shareholders (x) actions by
shareholders without a meeting, (xi) shareholder nominations and proposals,
(xii) business combinations, (xiii) limitations on ability to vote stock, (xiv)
dissenters' rights of appraisal, (xv) shareholders' rights to examine books and
records, and (xvi) dividends, with respect to certain anti-takeover provisions
provided for in UPC's Charter and Bylaws. See "EFFECT OF THE MERGER ON RIGHTS OF
SHAREHOLDERS."
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Agreement, each of
Capital and UPC generally have agreed that unless the prior written consent of
the other has been obtained, and except as otherwise expressly contemplated in
the Agreement, each of Capital and UPC and their respective subsidiaries will
(i) operate its business only in the usual, regular, and ordinary course, (ii)
preserve intact its business organization and assets and maintain its rights and
franchises, and (iii) take no action which would (a) materially adversely affect
the ability of any party to obtain any consents required for the transactions
contemplated by the Agreement without imposition of a condition or restriction
of the type referred to in the Agreement or (b) adversely affect the ability of
either party to perform its covenants and agreements under the Agreement.
In addition, Capital has agreed that until the earlier of the Effective
Time or termination of the Agreement, Capital will not, except with the prior
written consent of the chief executive officer, president or chief financial
officer of UPC (which consent shall not be unreasonably withheld), agree or
commit to, or permit its subsidiaries to agree or commit to, take certain
actions, including generally, but not limited to: (i) incurring, any additional
debt obligation for borrowed money in excess of $100,000 except in the ordinary
course of business consistent with past practices; (ii) declare or pay any
dividends, except that Capital generally may declare and pay regular quarterly
cash dividends on the shares of Capital Common Stock at a rate of $.06 per
share, with usual and regular record and payments dates in accordance with past
practice (as previously disclosed by Capital to UPC); (iii) subject to certain
exceptions, permit to become outstanding, any additional shares of Capital
Common Stock, or any other capital stock of Capital or any of its subsidiaries
or any rights to acquire such stock or any security convertible into such stock;
(iv) subject to certain exceptions, acquire direct or indirect control of any
other entity; (v) subject to certain exceptions, grant any increase in
compensation or benefits or pay any bonus to the employees or officers of
Capital or any of its subsidiaries; or (vi) subject to certain exceptions, enter
into or amend any employment contract between Capital or any of its subsidiaries
and any person, which Capital or the relevant
-6-
<PAGE> 16
subsidiary does not have an unconditional right to terminate without liability.
See "DESCRIPTION OF TRANSACTION -- Conduct of Business Pending the Merger."
OPTION AGREEMENT. Capital, as issuer, and UPC, as grantee, entered into a
Stock Option Agreement (the "Option Agreement") pursuant to which Capital
granted UPC an option ("the Option") to purchase, under certain circumstances
and subject to certain adjustments and limitations, up to 376,460 shares, or
approximately 19.9%, of Capital Common Stock at a price of $18.75 per share
(subject to adjustment). In no event, however, shall UPC's Total Profit (defined
in the Option Agreement generally as the net amount realizable by UPC upon
transfer of the Option, including, without limitation, transfer of the Option
back to Capital or upon the sale of the Capital Common Stock acquired by
exercise of the Option) exceed $2.4 million. The Option Agreement is exercisable
upon the occurrence of certain events that create the potential for another
party to acquire control of Capital. To the best knowledge of Capital, no such
event which would permit exercise of the Option Agreement has occurred as of the
date of this Proxy Statement. The Option Agreement was granted by Capital as a
condition of and in consideration for UPC entering into the Agreement and is
intended to increase the likelihood that the Merger will be effected by making
it more difficult and more expensive for a third party to acquire control of
Capital. See "DESCRIPTION OF TRANSACTION -- Option Agreement."
-7-
<PAGE> 17
COMPARATIVE MARKET PRICES OF COMMON STOCK
Shares of UPC Common Stock and Capital Common Stock are traded on the NYSE
and Nasdaq under the symbols "UPC" and "CAPS," respectively.
The following table sets forth the reported closing sale prices per share
for UPC Common Stock and Capital Common Stock and the equivalent per share
prices giving effect to the Merger (as explained below) for Capital Common Stock
on (i) November 24, 1997, the last trading day preceding the public announcement
of the execution of the Agreement, and (ii) June ___, 1998, the latest
practicable date prior to the mailing of this Proxy Statement.
<TABLE>
<CAPTION>
UPC Capital Equivalent Price
Common Stock Common Stock Per Capital Share(1)
------------ ------------ --------------------
<S> <C> <C> <C>
November 24, 1997 $59.94 $18.25 $22.85
June __, 1998
</TABLE>
- ----------------------------------
(1) The equivalent price per share of Capital Common Stock at each specified
date represents the closing sale price of a share of UPC Common Stock on
such date multiplied by an Exchange Ratio of .3812. See "COMPARATIVE
MARKET PRICES AND DIVIDENDS."
There can be no assurance as to what the market price of the UPC Common
Stock will be if and when the Merger is consummated, or anytime thereafter.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present for UPC, selected consolidated financial
data for the three-month periods ended March 31, 1998 and 1997 and for the
five-year period ended December 31, 1997, and for Capitol, selected
consolidated financial data for the nine-month periods ended March 31, 1998 and
1997 and for the five-year period ended June 30, 1997. The information for UPC
has been derived from the consolidated financial statements of UPC, including
the unaudited consolidated financial statements of UPC incorporated in this
Proxy Statement by reference to UPC's March 31, 1998 Form 10-Q, and the audited
consolidated financial statements of UPC incorporated in this Proxy Statement
by reference to the UPC 1997 Form 10-K, and should be read in conjunction
therewith and with the notes thereto. See "DOCUMENTS INCORPORATED BY
REFERENCE." The information for Capital has been derived from the consolidated
financial statements of Capital including the unaudited consolidated financial
statements of Capital for the nine months ended March 31, 1998, and included
herein, and the audited consolidated financial statements of Capital for the
year ended June 30, 1997, and should be read in conjunction therewith and with
the notes thereto, all as included herein under "Index to Consolidated
Financial Statements." Historical results are not necessarily indicative of
results to be expected for any future period. In the opinion of the respective
managements of UPC and Capital, all adjustments (which include only normal
recurring adjustments) necessary to arrive at a fair statement of interim
results of operations of UPC and Capital, respectively, have been included.
With respect to UPC and Capital, results for the three month period and nine
month period, respectively, ended March 31, 1998 are not necessarily indicative
of results which may be expedited for any other interim period or for the year
as a whole. See "BUSINESS OF UPC -- Recent Developments" for information
concerning UPC's Other Acquisitions.
-8-
<PAGE> 18
UPC SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended
March 31,(1)
--------------------------
1998 1997
----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C>
INCOME STATEMENT DATA
Net interest income................... $ 190,707 $ 190,590
Provision for losses on loans......... 17,909 22,004
Investment securities gains (losses).. 5,215 173
Other noninterest income.............. 90,503 82,811
Noninterest expense................... 153,624 148,646
----------- -----------
Earnings before income taxes,
extraordinary item, and
accounting changes................. 114,892 102,924
Applicable income taxes............... 40,320 36,479
----------- -----------
Earnings before extraordinary item
and accounting changes............. 74,572 66,445
Extraordinary item and
accounting changes, net of taxes... -- --
----------- -----------
Net earnings.......................... $ 74,572 $ 66,445
=========== ===========
PER COMMON SHARE DATA (3)
Basic
Earnings before extraordinary
item and accounting changes..... $.89 $.82
Net earnings....................... .89 .82
Diluted
Earnings before extraordinary
item and accounting changes..... .86 .79
Net earnings....................... .86 .79
Cash dividends........................ .50 .32
Book value............................ 21.13 20.00
BALANCE SHEET DATA (AT PERIOD END)
Total assets.......................... $18,413,614 $18,054,916
Loans, net of unearned income......... 12,727,659 12,560,838
Allowance for losses on loans......... 223,837 192,943
Investment securities................. 3,287,664 3,449,824
Total Deposits........................ 13,581,227 13,386,397
Short-term borrowings................. 442,051 611,757
Long-term debt (4)
Parent company..................... 373,242 373,468
Subsidiary banks................... 1,630,693 1,473,599
Total shareholders' equity............ 1,809,442 1,663,363
Average assets........................ 18,005,794 18,031,648
Average shareholders' equity.......... 1,760,458 1,615,979
Average shares outstanding
(in thousands)(3)
Basic.............................. 83,379 78,904
Diluted............................ 86,974 84,465
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,(2)
------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income................... $ 770,385 $ 744,852 $ 669,451 $ 627,439 $ 558,036
Provision for losses on loans......... 113,633 68,948 33,917 15,989 35,235
Investment securities gains (losses).. 2,104 4,099 1,433 (21,302) 6,686
Other noninterest income.............. 359,506 316,403 292,277 237,129 228,996
Noninterest expense................... 697,704 731,817 607,189 634,965 550,045
----------- ----------- ----------- ----------- -----------
Earnings before income taxes,
extraordinary item, and
accounting changes................. 320,658 264,589 322,055 192,312 208,438
Applicable income taxes............... 111,897 93,115 110,799 63,058 66,570
----------- ----------- ----------- ----------- -----------
Earnings before extraordinary item
and accounting changes............. 208,761 171,474 211,256 129,254 141,868
Extraordinary item and
accounting changes, net of taxes... -- -- -- -- 4,505
----------- ----------- ----------- ----------- -----------
Net earnings.......................... $ 208,761 $ 171,474 $ 211,256 $ 129,254 $ 146,373
=========== =========== =========== =========== ===========
PER COMMON SHARE DATA (3)
Basic
Earnings before extraordinary
item and accounting changes..... $2.54 $2.13 $2.79 $1.67 $2.19
Net earnings....................... 2.54 2.13 2.79 1.67 2.27
Diluted
Earnings before extraordinary
item and accounting changes..... 2.45 2.05 2.66 1.63 2.13
Net earnings....................... 2.45 2.05 2.66 1.63 2.21
Cash dividends........................ 1.495 1.08 .98 .88 .72
Book value............................ 20.72 19.57 18.34 15.28 14.50
BALANCE SHEET DATA (AT PERIOD END)
Total assets.......................... $18,105,079 $18,330,588 $17,182,861 $15,893,162 $14,180,524
Loans, net of unearned income......... 12,658,564 12,578,571 10,917,307 10,074,458 8,077,152
Allowance for losses on loans......... 225,389 189,118 179,968 174,604 172,330
Investment securities................. 3,247,680 3,387,217 3,970,036 4,016,506 4,124,679
Total Deposits........................ 13,440,269 13,514,144 13,047,488 12,506,212 11,732,707
Short-term borrowings................. 831,627 961,051 974,416 887,074 392,980
Long-term debt (4)
Parent company..................... 373,746 373,459 214,758 114,790 114,729
Subsidiary banks................... 1,176,158 1,332,534 1,087,273 819,982 481,193
Total shareholders' equity............ 1,746,866 1,618,883 1,450,546 1,202,686 1,111,158
Average assets........................ 17,991,160 18,202,355 16,263,164 15,472,568 13,823,185
Average shareholders' equity.......... 1,690,992 1,533,348 1,334,995 1,226,852 973,087
Average shares outstanding
(in thousands)(3)
Basic.............................. 80,336 77,240 72,512 71,678 56,169
Diluted............................ 85,195 83,542 78,798 77,579 60,832
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
-9-
<PAGE> 19
UPC SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,(1) Years Ended December 31,(2)
------------------ ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PROFITABILITY AND CAPITAL RATIOS
Return on average assets ................ 1.68% 1.49% 1.16% .94% 1.30% .84% 1.06%
Return on average common equity ......... 17.50 17.16 12.54 11.38 16.56 10.74 15.88
Net interest income (taxable-equivalent)/
average earning assets (5) ........... 4.80 4.80 4.79 4.56 4.60 4.56 4.58
Loans/deposits .......................... 93.72 93.83 94.18 93.08 83.67 80.56 68.84
Common and preferred dividend payout
ratio ............................... 57.03 37.71 54.96 44.57 29.25 35.03 24.42
Equity/assets (period end) .............. 9.83 9.21 9.65 8.83 8.44 7.57 7.84
Average shareholders' equity/average
total assets ........................ 9.78 8.96 9.40 8.42 8.21 7.93 7.04
Leverage ratio .......................... 10.72 10.05 10.48 9.50 8.11 7.56 7.73
Tier 1 capital/risk-weighted assets ..... 15.66 14.88 15.51 14.92 13.28 12.58 13.65
Total capital/risk-weighted assets ...... 20.71 17.55 18.12 17.60 16.21 14.67 15.92
CREDIT QUALITY RATIOS (6)
Allowance/period-end loans .............. 1.95% 1.76% 1.99% 1.72% 1.82% 1.87% 2.27%
Nonperforming loans/total loans ......... .81 .85 .92 .91 .85 .74 1.18
Allowance/nonperforming loans ........... 240 207 215 188 213 252 193
Nonperforming assets/loans and
foreclosed properties ................ 1.01 1.14 1.13 1.21 1.09 1.08 1.76
Provision/average loans ................. .62 .81 1.01 .65 .35 .19 .47
Net charge-offs/average loans ........... .79 .67 .72 .61 .32 .27 .34
</TABLE>
- -------------------------------
(1) Interim period ratios are annualized.
(2) Reference is made to "Basis of Presentation" in Note 1 to UPC's
consolidated financial statements contained in UPC's 1997 Annual Report to
Shareholders.
(3) Share and per share amounts have been retroactively restated for
significant acquisitions accounted for as poolings of interests and to
reflect the change in presentation of EPS as discussed in Notes 2 and 16
to the consolidated financial statements contained in UPC's 1997 Annual
Report to Shareholders.
(4) Long-term debt includes Medium-Term Bank Notes, Federal Home Loan Bank
(FHLB) advances, Trust Preferred Securities, variable rate asset-backed
certificates, subordinated notes and debentures, obligations under capital
leases, mortgage indebtedness, and notes payable with maturities greater
than one year.
(5) Average balances and calculations do not include the impact of the net
unrealized gain or loss on available for sale securities.
(6) FHA/VA government-insured/guaranteed loans have been excluded, since they
represent minimal credit risk to UPC.
-10-
<PAGE> 20
CAPITAL SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months Ended
March 31,(1)
-----------------------
1998(2) 1997
--------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C>
INCOME STATEMENT DATA
Net interest income ..................... $6,041 $5,482
Provision for losses on loans ........... 90 90
Investment securities gains (losses) .... 558 60
Other noninterest income ................ 1,130 806
Noninterest expense ..................... 4,277 4,666
--------- ---------
Earnings before income taxes,
extraordinary item, and accounting
changes .............................. 3,362 1,592
Applicable income taxes ................. 1,313 627
--------- ---------
Earnings before extraordinary item and
accounting changes .................... 2,049 965
Extraordinary item and accounting
changes net of taxes .................... 0 0
--------- ---------
Net earnings ............................ $2,049 $965
========= =========
PER COMMON SHARE DATA
Basic
Earnings before extraordinary item and
accounting changes ................. $1.13 $0.54
Net earnings ........................... 1.13 0.54
Diluted
Earnings before extraordinary item and
accounting changes .................. 1.01 0.48
Net earnings ........................... 1.01 0.48
Cash dividends .......................... 0.18 0.165
Book value .............................. 12.42 10.89
BALANCE SHEET DATA (AT PERIOD END)
Total assets ............................ $231,850 $237,915
Loans, net of unearned income ........... 188,025 188,165
Allowance for losses on loans ........... 811 712
Investment securities ................... 30,967 39,281
Deposits ................................ 170,998 169,241
Short-term borrowings ................... 0 0
Long-term debt (FHLB/advances only)
Parent company ....................... 0 0
Sub bank (FHLB advances) ............. 34,000 45,000
Total shareholders' equity .............. 23,493 20,607
Average assets .......................... 239,709 230,700
Average shareholders' equity ............ 22,456 20,140
Average shares outstanding (in thousands)
Primary .............................. 1,807 1,799
Fully diluted ........................ 1,938 1,894
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------------------------------------------
1997(2) 1996 1995 1994 1993(3)
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net interest income ..................... $7,362 $6,551 $6,175 $5,465 5,354
Provision for losses on loans ........... 120 120 60 40 47
Investment securities gains (losses) .... 83 24 (67) (21) 18
Other noninterest income ................ 1,152 805 847 748 1,062
Noninterest expense ..................... 5,911 4,223 4,057 3,495 3,112
--------- --------- --------- --------- ---------
Earnings before income taxes,
extraordinary item, and accounting
changes .............................. 2,566 3,037 2,838 2,657 3,275
Applicable income taxes ................. 1,016 1,177 1,056 885 1,059
--------- --------- --------- --------- ---------
Earnings before extraordinary item and
accounting changes .................... 1,550 1,860 1,782 1,772 2,216
Extraordinary item and accounting
changes net of taxes .................... 0 0 0 0 (32)
--------- --------- --------- --------- ---------
Net earnings ............................ $1,550 $1,860 $1,782 $1,772 $2,184
========= ========= ========= ========= =========
PER COMMON SHARE DATA
Basic
Earnings before extraordinary item and
accounting changes ................. $0.86 $0.96 $0.85 n/a n/a
Net earnings ............................ 0.86 0.96 0.85 n/a n/a
Diluted
Earnings before extraordinary item and
accounting changes .................. 0.77 0.87 0.78 n/a n/a
Net earnings ............................ 0.77 0.87 0.78 n/a n/a
Cash dividends .......................... 0.225 0.17 0.15 0 n/a
Book value .............................. 11.28 10.38 9.48 8.5 n/a
BALANCE SHEET DATA (AT PERIOD END)
Total assets ............................ $242,518 $217,954 186,677 170,235 $163,060
Loans, net of unearned income ........... 190,942 167,257 152,357 135,335 131,160
Allowance for losses on loans ........... 739 634 514 454 425
Investment securities ................... 40,163 44,385 29,108 28,151 19,888
Deposits ................................ 171,039 152,345 145,688 143,054 151,382
Short-term borrowings ................... 0 0 0 0 0
Long-term debt (FHLB/advances only)
Parent company ....................... 0 0 0 0 0
Sub bank (FHLB advances) ............. 46,500 42,000 18,500 5,200 1,000
Total shareholders' equity .............. 21,340 20,481 19,697 19,604 8,207
Average assets .......................... 233,700 198,059 178,877 165,889 164,540
Average shareholders' equity ............ 20,380 20,448 19,982 19,665 7,115
Average shares outstanding (in thousands)
Primary .............................. 1,798 1,928 2,098 n/a n/a
Fully diluted ........................ 1,897 1,976 2,106 n/a n/a
</TABLE>
-11-
<PAGE> 21
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Fiscal Year Ended June 30,
------------------ -----------------------------------------------------
1998 1997(1) 1997(1) 1996 1995 1994 1993(3)
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PROFITABILITY AND CAPITAL RATIOS
Return on average assets .................... 1.14% 0.56% 0.66% 0.94% 1.00% 1.07% 1,33%
Return on average common equity ............. 12.17 6.39 7.61 9.10 8.92 9.01 n/a
Net interest income (taxable-
equivalent/average earning assets ......... 3.47 3.27 3.26 3.41 3.49 3.39 3.36
Loans/deposits .............................. 1.10 1.11 1.12 1.10 1.05 0.95 .87
Common and preferred dividend payout ratio .. 16.62 32.30 27.43 18.84 19.14 n/a n/a
Equity/assets (period end) .................. 10.13 8.66 8.80 9.40 10.55 11.52 5.03
Average shareholders' equity/average # assets 9.37 8.73 8.72 10.32 11.17 11.85 4.32
Leverage ratio .............................. 8.76 7.85 7.90 8.70 9.10 8.80 5.00
Tier 1 capital/risk weighted assets ......... 17.14 15.90 16.00 17.90 18.44 18.79 10.73
Total capital/risk weighted assets .......... 17.81 16.51 16.60 18.50 19.00 19.30 11.30
CREDIT QUALITY RATIOS
Allowance/period-end loans .................. 0.43 0.38 0.39 0.38 0.34 0.34 0.33
Nonperforming loans/total loans ............. 0.41 0.29 0.36 0.28 0.08 0.07 0.13
Allowance/nonperforming loans ............... 106.57 132.10 107.41 136.93 411.20 458.59 250.00
Nonperforming assets/loans and
foreclosed properties .................... 0.47 0.32 0.40 0.30 0.15 1.22 1.48
Provision/average loans ..................... 0.06 0.07 0.07 0.08 0.04 0.03 0.04
Net charge-offs/average loans ............... 0.01 0.01 0.01 0.00 0.00 0.01 0.02
</TABLE>
- --------------------------------
(1) Interim period ratios are annualized.
(2) Nine months ended March 31, 1998 and fiscal year ended June 30, 1997
include the impact of the special SAIF assessment.
(3) Capital converted from mutual to stock form in December 1993.
-12-
<PAGE> 22
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data relating
to earnings before extraordinary items and accounting changes, cash dividends,
and book value on: (i) a historical basis for UPC and Capital; (ii) a pro forma
combined basis per share of UPC Common Stock, giving effect to the Merger and
the Other Acquisitions (as defined under "BUSINESS OF UPC -- Recent
Developments"); (iii) an equivalent pro forma basis per share of Capital
Common Stock, giving effect to UPC only; and (iv) an equivalent pro forma basis
per share of Capital Common Stock, giving effect to the Merger and the Other
Acquisitions. The UPC pro forma combined information and the Capital equivalent
pro forma information give effect to the Merger and the Other Acquisitions and
reflect an Exchange Ratio of .3812 of a share of UPC Common Stock for each
outstanding share of Capital Common Stock. The Merger and each of the Other
Pending Acquisitions (with the exception of the acquisition of Duck Hill Bank,
the Charter Acquisition, and the CalFed Branch Purchase) are expected to be, and
the Recently Completed Acquisition of Security Bancshares, Inc. was, accounted
for using the pooling of interests method of accounting. The Recently Completed
Acquisition of Sho-Me Financial Corp. and the Charter Acquisition were, and the
acquisition of Duck Hill Bank and the CalFed Branch Purchase are expected to
be, accounted for using the purchase method of accounting. The pro forma
information for the three months ended March 31, 1998, and for 1997 reflects
the acquisition of Capital and the Other Acquisitions as of January 1, 1997.
The pro forma information for 1996 and 1995 reflect only the acquisitions of
Magna, Peoples First Corporation ("Peoples"), AMBANC Corp. ("AMBANC"), and
Merchants Bancshares, Inc. ("Merchants") because the Merger and the Other
Acquisitions (other than Magna, Peoples, AMBANC, and Merchants) are not
individually or in the aggregate, considered to be material to UPC from a
financial statement presentation standpoint. Furthermore, the pro forma impact
of the CalFed Branch Purchase on the pro forma statement of earnings for each
of the periods presented has been excluded due to the lack of information
available for operation of the branches on a historical basis. The pro forma
data are presented for information purposes only and are not necessarily
indicative of the results of operations or combined financial position that
would have resulted had the Merger or the Other Acquisitions been consummated
at the dates or during the periods indicated, nor are they necessarily
indicative of future results of operations or combined financial position. The
pro forma book value per share data reflects preliminary estimates by UPC of
certain acquisition-related charges to be incurred in connection with the
Merger and the Other Acquisitions; however the earnings per share amounts do
not reflect the estimated acquisition-related charges. For additional
information with respect to the estimated charges UPC anticipates it would
incur in connection with the Merger and the Other Acquisitions, see "BUSINESS
OF UPC -- Recent Developments." For a discussion of UPC's acquisition program,
including a discussion of the significant charges UPC has incurred incidental
to acquisitions over the past three fiscal years, see the caption
"Acquisitions" (on page 10) in UPC's 1997 Annual Report to Shareholders and
Note 2 to UPC's audited consolidated financial statements for the years ended
December 31, 1997, 1996, and 1995 (on pages 49 and 50) contained in UPC's 1997
Annual Report to Shareholders. UPC's 1997 Annual Report to Shareholders is
included as Exhibit 13 to UPC's 1997 Form 10-K, and Exhibit 13 is incorporated
by reference herein to the extent indicated herein. See "DOCUMENTS INCORPORATED
BY REFERENCE."
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical consolidated financial statements
of UPC and Capital, including the respective notes thereto. See "DOCUMENTS
INCORPORATED BY REFERENCE," "-- Selected Consolidated Financial Data," "BUSINESS
OF UPC -- Recent Developments," and "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION."
-13-
<PAGE> 23
UPC AND CAPITAL HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31, (1)
--------------- -----------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS BEFORE EXTRAORDINARY ITEMS
AND ACCOUNTING CHANGES
UPC
Basic................................................... $.89 $2.54 $2.13 $2.79
Diluted................................................. .86 2.45 2.05 2.66
Capital(2)
Basic................................................... .45 1.32 .73 .93
Diluted................................................. .40 1.18 .66 .83
UPC pro forma (all Other Acquisitions and Capital)
Basic................................................... .80 2.52 2.24 2.56
Diluted................................................. .78 2.45 2.17 2.46
Capital equivalent pro forma (UPC only)....................
Basic.................................................... .34 .97 .81 1.06
Diluted.................................................. .33 .93 .78 1.01
Capital equivalent pro forma (all Other Acquisitions
and Capital)(1).........................................
Basic.................................................... .30 .96 .85 .98
Diluted.................................................. .30 .93 .83 .94
CASH DIVIDENDS PER SHARE
UPC........................................................ .50 1.495 1.08 .98
Capital.................................................... .06 .24 .195 .155
Capital equivalent pro forma (1)........................... .19 .57 .41 .37
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
BOOK VALUE PER COMMON SHARE
UPC...................................................... $21.13 $20.72
Capital.................................................. 12.42 12.08
UPC pro forma (Capital and all Other Acquisitions) ...... 20.82 21.73
Capital equivalent pro forma (UPC only)(1)............... 8.05 7.90
Capital equivalent pro forma (all Other Acquisitions
and Capital) (1)...................................... 7.94 8.28
</TABLE>
- -----------------------------------------
(1) The equivalent pro forma per share data for Capital are computed by
multiplying UPC's pro forma information by .3812, the Exchange Ratio.
(2) Converted from fiscal year end (June 30) to UPC's fiscal year end
(December 31).
-14-
<PAGE> 24
MEETING OF SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
This Proxy Statement is being furnished to the holders of Capital Common
Stock in connection with the solicitation by the Capital Board of proxies for
use at the Capital Special Meeting at which Capital shareholders will be asked
to vote upon a proposal to adopt the Agreement and the Plan of Merger, and such
other business as may be properly come before the Capital Special Meeting. The
Capital Special Meeting will be held at the Capitol Plaza Hotel, located at 415
W. McCarty Street, Jefferson City, Missouri on July __, 1998. See "DESCRIPTION
OF TRANSACTION."
RECORD DATE, VOTING RIGHTS, REQUIRED VOTE, AND REVOCABILITY OF PROXIES
The close of business on June ___, 1998, has been fixed as the Capital
Record Date for determining holders of outstanding shares of Capital Common
Stock entitled to notice of and to vote at the Capital Special Meeting. Only
holders of Capital Common Stock of record on the books of Capital at the close
of business on the Capital Record Date are entitled to notice of and to vote at
the Capital Special Meeting. As of the Capital Record Date, there were
____________ shares of Capital Common Stock issued and outstanding held by
approximately _____ holders of record.
Each holder of record of shares of Capital Common Stock on the Capital
Record Date is entitled to cast one vote per share on the proposal to adopt the
Agreement and the Plan of Merger and on any other matter properly submitted for
the vote of the Capital shareholders at the Capital Special Meeting. The
presence, either in person or by properly executed proxy, of the holders of one
third of the outstanding shares of Capital Common Stock entitled to vote at the
Capital Special Meeting is necessary to constitute a quorum at the Capital
Special Meeting.
Capital intends to count shares of Capital Common Stock present in person
at the Capital Special Meeting but not voting, and shares of Capital Common
Stock for which it has received proxies but with respect to which holders of
shares have abstained on any matter, as present at the Capital Special Meeting
for purposes of determining the presence or absence of a quorum for the
transaction of business. Adoption of the Agreement and the Plan of Merger
requires the affirmative vote of the holders of a majority of the issued and
outstanding shares of Capital Common Stock entitled to vote at the Capital
Special Meeting. Brokers who hold shares in street name for customers who are
the beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the adoption of the Agreement and the Plan of
Merger without specific instructions from such customers. Given that the
adoption of the Agreement and the Plan of Merger requires the affirmative vote
of the holders of a majority of the outstanding shares of Capital Common Stock
entitled to vote thereon, any abstention, non-voting share or "broker non-vote"
with respect to such shares of Capital Common Stock will have the same effect as
a vote AGAINST the adoption of the Agreement and the Plan of Merger.
Shares of Capital Common Stock represented by properly executed proxies,
if such proxies are received prior to or at the Capital Special Meeting and not
revoked, will be voted in accordance with the instructions indicated on the
proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR THE
PROPOSAL TO ADOPT THE AGREEMENT AND THE PLAN OF MERGER, AND IN THE DISCRETION OF
THE PROXYHOLDER AS TO ANY OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE
CAPITAL SPECIAL MEETING. IF NECESSARY, THE PROXYHOLDER MAY VOTE IN FAVOR OF A
PROPOSAL TO ADJOURN THE CAPITAL SPECIAL MEETING IN ORDER TO PERMIT FURTHER
SOLICITATION OF PROXIES IN THE EVENT THERE ARE NOT SUFFICIENT VOTES TO APPROVE
THE FOREGOING PROPOSAL AT THE TIME OF THE CAPITAL SPECIAL MEETING. HOWEVER, NO
PROXYHOLDER WILL VOTE ANY PROXIES VOTED AGAINST ADOPTION OF THE AGREEMENT AND
THE PLAN OF MERGER FOR A PROPOSAL TO ADJOURN THE CAPITAL SPECIAL MEETING.
A Capital shareholder who has given a proxy solicited by the Capital Board
may revoke it at any time prior to its exercise at the Capital Special Meeting
by either (i) giving written notice of revocation to the Corporate Secretary of
Capital (ii) properly submitting to Capital a duly executed proxy bearing a
later date, or (iii) attending
-15-
<PAGE> 25
the Capital Special Meeting and voting in person. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed as follows: Capital Savings Bancorp, Inc., 425 Madison Street,
Jefferson City, Missouri 65101, Attention: Marilyn Curtit, Secretary.
The directors and executive officers of Capital (including immediate
family members and affiliated entities) owned, as of the Capital Record Date,
_______ shares, or approximately ____% of the outstanding shares of Capital
Common Stock. The directors and executive officers of UPC owned, as of the
Capital Record Date, _________ shares, or approximately ___% of the outstanding
shares of Capital Common Stock.
For information with respect to beneficial owners of 5% or more of the
outstanding shares of Capital Common Stock, and information with respect to the
number and percentage of outstanding shares of Capital Common Stock beneficially
owned by the directors and executive officers of Capital, see "BUSINESS OF
CAPITAL -- Security Ownership of Certain Beneficial Owners and Management of
Capital."
SOLICITATION OF PROXIES
Proxies may be solicited by the directors, officers, employees, and agents
of Capital by mail, in person, or by telephone or telegraph. Such persons will
receive no additional compensation for such services. Capital may make
arrangements with brokerage firms and other custodians, nominees, and
fiduciaries, if any, for the forwarding of solicitation materials to the
beneficial owners of Capital Common Stock held of record by such persons. Any
such brokers, custodians, nominees, and fiduciaries will be reimbursed for the
reasonable out-of-pocket expenses incurred by them for such services. All
expenses associated with the solicitation of proxies, other expenses associated
with the Capital Special Meeting and expenses related to the printing and
mailing of this Proxy Statement will be borne by UPC and Capital as provided in
the Agreement. See "DESCRIPTION OF TRANSACTION -- Expenses and Fees."
NO APPRAISAL RIGHTS
Under Section 262 of the DGCL, appraisal rights are available to
dissenting shareholders in connection with certain mergers or consolidations.
However, unless the certificate of incorporation otherwise provides and the
Capital Charter does not, Section 262 does not provide for appraisal rights (i)
if the shares of the corporation are listed on a national securities exchange or
designated as a national market system security on an inter-dealer quotations
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 shareholders (as long as the shareholders receive in the
merger shares of the surviving corporation or of any other corporation the
shares of which are listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotations system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 shareholders) or (ii) if the corporation is the surviving corporation and
no vote of its shareholders is required on the merger. Accordingly, shareholders
of Capital are not entitled to appraisal rights in connection with the Merger.
-16-
<PAGE> 26
DESCRIPTION OF TRANSACTION
The following information describes material aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Agreement and the Plan of
Merger, which are included as Appendices A and B, respectively, to this Proxy
Statement and incorporated herein by reference. All shareholders are urged to
read the Appendices in their entirety.
GENERAL
The Agreement provides for the acquisition of Capital by UPC pursuant to
the merger of Capital with and into UPHC, a wholly-owned subsidiary of UPC
organized under the laws of the State of Tennessee, with the effect that UPHC
will be the surviving corporation resulting from the Merger. At the Effective
Time, each share of Capital Common Stock then issued and outstanding (excluding
shares held by Capital, UPC, or their respective subsidiaries, in each case
other than shares held in a fiduciary capacity or as a result of debts
previously contracted) will be converted into and exchanged for .3812 of a share
of UPC Common Stock.
No fractional shares of UPC Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share to which any
holder of Capital Common Stock would be entitled upon consummation of the
Merger, in an amount equal to such fractional part of a share of UPC Common
Stock multiplied by the closing price of such common stock on the NYSE (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as reasonably selected by UPC) on the last trading day
preceding the Effective Time.
POSSIBLE ADJUSTMENT OF EXCHANGE RATIO
Under certain circumstances described below, the Exchange Ratio could be
adjusted pursuant to certain provisions of the Agreement. UNDER NO CIRCUMSTANCES
WOULD THE EXCHANGE RATIO BE LESS THAN .3812 OF A SHARE OF UPC COMMON STOCK FOR
EACH SHARE OF CAPITAL COMMON STOCK. An adjustment could occur only if the
Capital Board elects to terminate the Agreement pursuant to the provisions of
the Agreement described below, and if UPC then elects to avoid termination of
the Agreement by increasing the Exchange Ratio.
If:
(i) the Average Closing Price (as defined below) is less than
$50.70 and
(ii)(a) the number obtained by dividing the Average Closing Price
by $63.375 (the "UPC Ratio") is less than (b) the number obtained by
dividing the weighted average of the closing prices of the common stock of
the bank holding companies defined as the "Index Group" in the Agreement
(the "Index Price") on the Determination Date (as defined below) by the
Index Price on December 1, 1997, less 15% (the "Index Ratio"), then
Capital may elect to terminate the Agreement (the "Stock Price Termination
Right") unless UPC increases the Exchange Ratio such that the shares of UPC
Common Stock issued in exchange for each share of Capital Common Stock have a
value (based on the Average Closing Price) equal to the lesser of (i) $50.70 and
(ii) the value (based on the Average Closing Price) of the shares of UPC Common
Stock that would have been exchanged for each share of Capital Common Stock if
the relative performance of UPC Common Stock as determined above was 15% lower
than the relative performance of the Index Group. If the Merger is approved by
the Capital shareholders, the Capital Board may elect not to terminate the
Agreement and to consummate the Merger without resoliciting the Capital
shareholders even if Capital's Stock Price Termination Right is triggered and as
a result of the Exchange Ratio, the value of the shares of UPC Common Stock
(valued at the Average Closing Price) issued in exchange for each share of
Capital Common Stock would be less than the lesser of (i) $50.70 and (ii) the
value (based on the Average Closing Price) of the shares of UPC Common Stock
that would have been exchanged for each share of Capital Common Stock if the
relative performance of UPC Common Stock as determined above was 15% lower than
the relative performance of the Index Group.
-17-
<PAGE> 27
The Average Closing Price is the average of the daily last sales prices of
UPC Common Stock as reported on the NYSE (as reported by The Wall Street
Journal, or, if not reported thereby, another authoritative source as chosen by
UPC) for 10 consecutive full trading days in which such shares are traded on the
NYSE ending at the close of trading on the Determination Date.
The Determination Date is the later of the date of the Capital Special
Meeting and the date on which consent of the Federal Reserve shall be received
(without regard to any requisite waiting period thereof).
These conditions reflect the parties' agreement that Capital's
shareholders will assume the risk of declines in the value of UPC Common Stock
to $50.70. Any adjustment of the Exchange Ratio below a decline in the price of
UPC Common Stock to $50.70. would be dependent on whether the Average Closing
Price of UPC Common Stock is less than a market basket of comparable bank
holding company common stocks (the Index Group referenced above) by more than
15%.
In making its determination of whether to terminate the Agreement, the
Capital Board will take into account, consistent with its fiduciary duties, all
relevant facts and circumstances that exist at such time, including, without
limitation, information concerning the business, financial condition, results of
operations, and prospects of UPC (including the recent performance of UPC Common
Stock, the historical financial data of UPC, customary statistical measurements
of UPC's financial performance, and the future prospects for UPC Common Stock
following the Merger), and the advice of its financial advisor and legal
counsel. If the Capital Board elects to terminate the Agreement, UPC would then
determine whether to proceed with the Merger at the higher Exchange Ratio. In
making this determination, the principal factors UPC will consider include the
projected effect of the Merger on UPC's pro forma earnings per share and whether
UPC's assessment of Capital's earning potential as part of UPC justifies the
issuance of an increased number of UPC's shares. If UPC declines to adjust the
Exchange Ratio, Capital may elect to proceed without the adjustment, provided it
does so within 10 days of the Determination Date. UPC IS UNDER NO OBLIGATION TO
ADJUST THE EXCHANGE RATIO.
The operation of the adjustment mechanism can be illustrated by three
scenarios. (For purposes of the scenarios, it has been assumed that the initial
Exchange Ratio is .3812, the Starting Price of UPC Common Stock is $63.375, and
the Index Price, as of the Starting Date, is $100.)
(1) The first scenario occurs if the Average Closing Price is not less
than $50.70 Under this scenario, regardless of any comparison
between the UPC Ratio and the Index Ratio, there would be no
possible adjustment to the Exchange Ratio, even though the value of
the consideration to be received by Capital shareholders could have
fallen from a pro forma $24.16 per share, as of the Starting Date,
to $19.32 per share, as of the Determination Date.
(2) The second scenario occurs if the Average Closing Price is less than
$50.70, but the UPC Ratio is not below the Index Ratio (meaning the
decline in the price of the UPC Common Stock does not represent a
decline from the Starting Price of more than 15% than the decline of
the common stock prices of the Index Group). Under this scenario,
there also would be no possible adjustment to the Exchange Ratio,
even though the value of the consideration to be received by Capital
shareholders would have fallen from a pro forma $24.16 per share, as
of the Starting Date, to an amount based on the then lower Average
Closing Price of UPC Common Stock, as of the Determination Date.
(3) The third scenario occurs if the Average Closing Price declines
below $50.70 and the UPC Ratio is below the Index Ratio (meaning the
decline in the price of UPC Common Stock represents a decline from
the Starting Price of more than 15% than the decline of the common
stock price of the Index Group). Under this scenario, the adjustment
in the Exchange Ratio is designed to ensure, subject to the Capital
Board exercising its right to terminate the Agreement and the UPC
Board electing to avoid such termination that, if the Merger is
consummated the Capital shareholders receive shares of UPC Common
Stock having a value (based upon the Average Closing Price) that
corresponds to at least
-18-
<PAGE> 28
$50.70 or a 15% decline from the stock price performance reflected
by the Index Group, whichever is less.
For example, if the Average Closing Price were $40, and the Index
Price as of the Determination Date were $90, the UPC Ratio (.6311)
would be below the Index Ratio (.75), Capital could terminate the
Agreement unless UPC elected within five days to increase the
Exchange Ratio to equal .453, which represents the lesser of (a)
0.4831 [the result of dividing $19.327 (the product of $50.70 and
the .3812 Exchange Ratio) by the Average Closing Price ($40),
rounded to the nearest thousandth] and (b) .453 [the result of
dividing the Index Ratio at the Determination Date (.75) times
.3812, by the UPC Ratio (.6311), rounded to the nearest thousandth].
Based upon the assumed $40.00 Average Closing Price, the new
Exchange Ratio would represent a value to the Capital shareholders
of $18.12 per share.
If the Average Closing Price were $40, and the Index Price as of the
Determination Date, were $100, the UPC Ratio (.6311) would be below
the Index Ratio (.85, or 1 minus .15), Capital could terminate the
Agreement unless UPC elected within five days to increase the
Exchange Ratio to equal .4831, which represents the lesser of (a)
.4831 [the result of dividing $19.327 (the product of $50.70 and the
.3812 Exchange Ratio) by the Average Closing Price ($40), rounded to
the nearest thousandth] and (b) .5134 [the result of dividing the
Index Ratio at the Determination Date (.85) times .3812, by the UPC
Ratio (.6311), rounded to the nearest thousandth]. Based upon the
assumed $40 Average Closing Price, the new Exchange Ratio would
represent a value to the Capital shareholders of $19.324 per share.
However, it is possible that the Capital Board would not elect to exercise its
termination right even if the Average Closing Price is below $50.70 and the UPC
Ratio is below the Index Ratio. Under these circumstances, the Exchange Ratio
would remain at .3812, regardless of the fact that the Average Closing Price is
below $50.70. Conversely it is possible that if the Capital Board does elect to
exercise its termination right, the UPC Board would not elect to increase the
Exchange Ratio to prevent such termination, and under these circumstances the
Agreement would terminate.
As of the date of this Proxy Statement, the closing price of UPC Common
Stock on the NYSE was $________, which represents a value to Capital
shareholders based on the Exchange Ratio of .3812 of $________ per share.
The actual market value of a share of UPC Common Stock at the Effective
Time and at the time certificates for those shares are delivered following
surrender and exchange of Certificates for shares of Capital Common Stock may be
more or less than the Average Closing Price. Capital shareholders are urged to
obtain current market quotations for UPC Common Stock. See "COMPARATIVE MARKET
PRICES AND DIVIDENDS."
As of the Capital Record Date, Capital had 1,891,400 shares of Capital
Common Stock outstanding. Based upon the Exchange Ratio, upon consummation of
the Merger, UPC will issue approximately ______________ shares of UPC Common
Stock.
EFFECT OF THE MERGER ON CAPITAL OPTIONS
At the Effective Time, each Capital Option granted by Capital under the
Capital Stock Plans, as such terms are defined in the Agreement, that is
outstanding at the Effective Time, whether or not exercisable, will be converted
into and become an option with respect to UPC Common Stock, and UPC will assume
each Capital Option, in accordance with the terms of the Capital Stock Plan and
stock option or other agreement by which it is evidenced, except that from and
after the Effective Time, (i) UPC and its Salary and Benefits Committee will be
substituted for Capital and the committee of the Capital Board administering
such Capital Stock Plan, (ii) each Capital Option assumed by UPC may be
exercised solely for or converted into shares of UPC Common Stock, (iii) the
number of shares of UPC Common Stock subject to such Capital Option will be
equal to the number of shares of Capital Common Stock subject to such Capital
Option immediately prior to the Effective Time multiplied by the Exchange Ratio
and rounding down to the nearest whole share, and (iv) the per share exercise
price under
-19-
<PAGE> 29
each such Capital Option will be adjusted by dividing the per share exercise
price under each such Capital Option by the Exchange Ratio and rounding up to
the nearest cent.
For information with respect to Capital Options held by the Capital Board
and management, see "-- Interests of Certain Persons in the Merger."
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF AND CAPITAL'S REASONS FOR THE MERGER. Effective December 28,
1993, Capital became the holding company for Capital Bank, upon its conversion
from mutual to stock ownership. As part of the mutual-to-stock conversion,
Capital completed an initial public offering of 1,173,000 shares of Capital
Common Stock at $10.00 per share. On November 22, 1996 Capital completed a
two-for-one stock split in the form of a 100% stock dividend, resulting in a
split-adjusted initial public offering price of $5.00 per share.
Following the conversion, Capital proceeded to improve shareholder value
through business and financial initiatives. Capital's business initiatives
centered upon transforming the organization from a traditional thrift
institution into a community bank. In this regard Capital expanded its consumer
loan portfolio and its securities, mutual-fund, and annuity-brokerage services.
Capital also relocated one of its branch offices to a supermarket location and
in June 1997 opened a second supermarket branch office. In June 1996, Capital
developed a program to increase its checking-account base, resulting in 6,000
new checking accounts within a year's time.
Capital periodically evaluated financial and strategic alternatives to
improve shareholder value and implemented certain financial alternatives. In
June 1995 and December 1995, Capital conducted reviews of long-term corporate
financial management (including cash and stock dividends, stock repurchases,
stock offerings, and investor relations), strategic alternatives (including
continued independence, growth by acquisition, and sale of Capital to another
institution), and acquisition strategies. In January 1996, Capital reviewed
detailed financial models of its various strategic alternatives, including (i)
independence and growth, (ii) growth by acquisitions, (iii) a "merger-of-equals"
transaction, (iv) a merger-of-equals transaction and subsequent sale of the
combined enterprise, and (v) a sale of Capital. In addition, Capital
periodically received contacts from representatives of potential
strategic-alliance partners. As a result of these and other internal management
reviews, Capital implemented an on-going cash dividend, periodic stock
repurchase programs, and a 100% stock dividend. Capital also studied an
in-market acquisition opportunity and held exploratory discussions with a
potential merger-of-equals candidate.
In April 1997, the Capital Board conducted another review of its strategic
alternatives. At this meeting the Capital Board decided to give serious
consideration to pursuing a potential strategic-alliance transaction with one or
more of the banking organizations whose representatives had contacted Capital
over the years since the conversion. In May 1997, Capital contacted
representatives of ABN AMRO and Silver, Freedman & Taff, L.L.P., legal counsel
to Capital ("SFT"), to make a presentation to Capital's Board regarding the
financial and legal aspects of a potential strategic-alliance process.
On June 12, 1997, The Capital Board convened with representatives of ABN
AMRO and SFT to review strategic alternatives, potential strategic-alliance
partners, and legal aspects of a potential strategic-alliance transaction. At
that meeting the Capital Board determined to respond to an inquiry from one of
the potential strategic-alliance partners and authorized management to engage
ABN AMRO and SFT to pursue discussions with that party.
ABN AMRO responded to the potential strategic-alliance partner's inquiry
on Capital's behalf, and that party expressed an interest in pursuing
discussions with Capital, provided it could do so on an "exclusive" basis.
Capital agreed to pursue discussions with that party on an exclusive basis for a
limited period of time, and the parties entered into a confidentiality
agreement. Over the ensuing weeks, ABN AMRO prepared and forwarded an
informational brochure describing Capital to the potential strategic-alliance
partner. This party also requested, and ABN AMRO and Capital provided to it,
certain additional "due diligence" information pertaining to Capital as well as
access to Capital's Chief Executive Officer. On August 19, 1997 this party
communicated orally to ABN
-20-
<PAGE> 30
AMRO an expression of interest in entering into a strategic-alliance transaction
with Capital. Capital's management, in consultation with ABN AMRO, reviewed the
proposal, determined that the party's proposal did not meet Capital's financial
objectives, and directed ABN AMRO to inform the party that Capital no longer
wished to pursue discussions on an exclusive basis toward a strategic alliance
with that party.
On August 29, 1997, the Capital Board met with an ABN AMRO representative
to review the strategic-alliance proposal received on August 19, 1997 along with
other strategic alternatives available to Capital. At this meeting, the Capital
Board authorized ABN AMRO to approach three potential strategic-alliance
partners for Capital, one of which was UPC.
Between August 29 and September 5, 1997, ABN AMRO contacted
representatives of the three banking organizations authorized by the Capital
Board. Each party expressed an interest in pursuing a strategic alliance with
Capital, and ABN AMRO forwarded to each party a confidentiality agreement, each
of which was subsequently returned to ABN AMRO. From September 5 to September
15, 1997, ABN AMRO prepared and distributed to the three parties informational
brochures describing Capital. On September 12 and September 15, 1997, ABN AMRO
representatives met with senior executives of each party in their respective
offices to discuss the prospects of a strategic alliance with Capital.
From September 23 through September 30, 1997, ABN AMRO contacted each of
the three parties to assess its interest in pursuing a strategic alliance with
Capital. Two of the three parties, one of which was UPC, communicated orally to
ABN AMRO an expression of interest in pursuing such a transaction. The UPC
proposal included a price range per share of Capital Common Stock in an
all-stock transaction with the exchange ratio to be based upon an average price
of UPC Common Stock prior to the execution of a definitive merger agreement.
Other terms of the UPC proposal were to be similar to those found in recent UPC
merger transactions. The other proposal included a maximum price per share for
Capital Common Stock based upon a multiple of Capital's shareholders' equity in
a cash-and-stock transaction. The third potential strategic-alliance partner
declined to present a proposal.
On October 3, 1997, Capital's management, assisted by ABN AMRO and SFT,
discussed the competing proposals and determined to continue discussions with
UPC, subject to gaining additional information about and a possible improvement
of UPC's proposal. During the ensuing weeks, ABN AMRO, on behalf of Capital,
held discussions with UPC leading to an improvement in the price per share for
Capital Common Stock and the clarification and modification of certain aspects
of UPC's proposal. On October 15, 1997, Capital and UPC agreed upon the
principal economic terms of a possible strategic-alliance transaction and
determined to proceed toward that end.
On October 16, 1997, UPC forwarded to ABN AMRO a request for additional
information pertaining to Capital, and Capital's management and ABN AMRO
responded to UPC over the ensuing weeks. On October 23, 1997 Larry V. Schepers,
Capital's Chief Executive Officer, and an ABN AMRO representative met with UPC's
President and Chief Operating Officer, Jackson W. Moore, in UPC's Memphis
offices. Mr. Moore discussed UPC and outlined UPC's banking philosophies and
proposed integration strategy for Capital. Mr. Moore also responded to questions
regarding UPC's business and finances. From November 4 through November 6, 1997,
UPC representatives conducted a due diligence investigation of Capital at an
off-site location in Jefferson City. From November 7 through November 24, 1997,
Capital's management, assisted by ABN AMRO and SFT, negotiated the terms of a
definitive merger agreement with UPC.
On November 25, 1997, Capital held a meeting that included the
participation of ABN AMRO and SFT. The meeting included a detailed discussion of
the proposed transaction and proposed definitive merger agreement previously
furnished to the Capital Board. ABN AMRO reviewed the process leading to the
proposed transaction, provided a financial analysis of the proposed transaction,
and expressed orally its opinion that the proposed transaction was fair from a
financial point of view to shareholders of Capital. ABN AMRO confirmed this oral
opinion in writing by letter dated November 25, 1997. At the conclusion of this
portion of the meeting, Capital's Board determined that the proposed transaction
with UPC was in the best interests of its shareholders and
-21-
<PAGE> 31
unanimously approved the Agreement and Plan of Reorganization, including the
transactions contemplated thereby.
CAPITAL'S REASONS FOR THE MERGER. The terms of the Agreement, including
the consideration to be paid to Capital's shareholders, were the result of arm's
length negotiations between the authorized representatives of UPC and Capital.
The Capital Board considered the following factors that it deemed material: (i)
the consideration to be paid to Capital's shareholders in relation to the market
value, book value, earnings per share, and dividend rates of Capital Common
Stock; (ii) the financial condition, results of operations, capital levels,
asset quality and prospects for Capital; (iii) industry and economic conditions;
(iv) the impact of the Merger on the depositors, employees, customers and
communities served by Capital; (v) the opinion of Capital's financial advisor as
to the fairness of the consideration to be received in the Merger based on the
Exchange Ratio, from a financial point of view, to the holders of Capital Common
Stock; (vi) the general structure of the transaction and the compatibility of
the management and business philosophies of both organizations; (vii) the
likelihood of receiving the required approvals in a timely manner; and (viii)
the ability of the combined enterprise to compete in relevant banking and
non-banking markets. In making its determination, the Capital Board did not find
it practicable to, and did not quantify or otherwise attempt to, assign relative
weights to the specific factors considered in reaching its determination.
In approving the Agreement, the Capital Board was aware that (i) the
Agreement contains certain provisions prohibiting Capital from initiating,
soliciting, or negotiating other offers or agreements to acquire Capital and
(ii) the Option Agreement may have the effect of discouraging persons who may
now, or prior to the Effective Time, be interested in acquiring all of or a
significant interest in Capital from considering or proposing such an
acquisition, even if such person were prepared to offer to pay consideration to
shareholders of Capital which had a higher current market price than the
consideration to be received for each share of Capital Common Stock pursuant to
the Agreement. See " -- Option Agreement." However, the Capital Board was also
aware that such terms were specifically bargained for inducements for UPC to
enter into the Agreement, and that the obligation of the Capital Board under the
Agreement to recommend approval of the Agreement by its shareholders was
explicitly made subject to, among other conditions, the fiduciary obligations of
the Capital Board under applicable law. Accordingly, the Agreement permits the
Capital Board, if required by the exercise of its fiduciary duties under
applicable law, to withdraw, modify or change such recommendations. See " --
Conduct of Business Pending the Merger."
For the reasons described above, the Capital Board has adopted and
approved the Merger Agreement and Plan of Merger, and believes that the Merger
is in the best interest of Capital and the Capital shareholders. ACCORDINGLY,
THE CAPITAL BOARD RECOMMENDS THAT THE CAPITAL SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE PROPOSAL TO ADOPT THE AGREEMENT AND THE PLAN OF MERGER. See "THE MERGER
- -- Background of and Reasons for the Merger."
UPC'S REASONS FOR THE MERGER. The terms of the Merger, including the
Exchange Ratio, are the result of arm's-length negotiations between
representatives of UPC and Capital. In reaching its decision to approve the
Agreement, the UPC Board consulted with its legal advisors regarding the terms
of the transaction, and with management of UPC, and, without assigning any
relative or specific weights, considered a number of factors, both from a
short-term and long-term perspective, and the following: (i) the information
presented to the directors by the management of UPC concerning the business,
operations, earnings, asset quality, and financial condition of Capital,
including the composition of the earning assets portfolio of Capital; (ii) the
financial terms of the Merger, including the relationship of the value of the
consideration issuable in the Merger to the market value, tangible book value,
and earnings per share of Capital Common Stock; (iii) the nonfinancial terms of
the Merger, including the treatment of the Merger as a tax-free exchange of
Capital Common Stock for UPC Common Stock for federal income tax purposes; (iv)
the likelihood of the Merger being approved by applicable regulatory authorities
without undue conditions or delay; (v) the opportunity for reducing the
noninterest expense of the operations of Capital and the ability of the
operations of Capital after the Effective Time to contribute to the earnings of
UPC; (vi) the attractiveness of the Capital franchise, the market position of
Capital in each of the markets in which it operates, and the compatibility of
the franchise of Capital with the operations of UPC; and (vii) the compatibility
of the community bank orientation of the operations of Capital to that of UPC.
-22-
<PAGE> 32
The foregoing discussion is not intended to be exhaustive but includes all
of the material factors considered by the UPC Board in determining to approve
the Agreement and the Plan of Merger. The UPC Board did not quantify or
otherwise attempt to assign relative or specific weights to the factors
considered in reaching its determination that the Agreement, the Plan of Merger
and the Merger are in the best interests of shareholders.
OPINION OF CAPITAL'S FINANCIAL ADVISOR
Capital retained ABN AMRO to act as financial advisor and agent in
connection with Capital's review of its strategic alternatives and a potential
transaction to enhance shareholder value. In connection with such engagement,
Capital requested that ABN AMRO render its opinion as to the fairness to
Capital's shareholders of the Exchange Ratio to be received in the Merger.
Capital imposed no limitations upon the scope of investigation or procedures
followed by ABN AMRO in connection with its opinion, nor did Capital give ABN
AMRO any specific instructions in connection therewith. The Exchange Ratio, upon
which the merger consideration will be based, was determined through
arm's-length negotiations between UPC and Capital, although Capital was advised
during such negotiations by ABN AMRO.
On November 25, 1997, in connection with the evaluation by Capital's Board
of the transaction proposed by UPC, ABN AMRO rendered an opinion that, as of
such date, and subject to certain assumptions, factors, and limitations set
forth in such written opinion as described below, the Exchange Ratio to be
received by Capital shareholders is fair to such shareholders from a financial
point of view (the "Opinion"). ABN AMRO has also delivered an updated Opinion to
the Capital Board dated as of the date of this Proxy Statement. The updated
Opinion is based upon a review of the financial and other information set forth
in this Proxy Statement and the financial results for Capital and UPC since
November 25, 1997.
THE FULL TEXT OF ABN AMRO'S WRITTEN OPINION, DATED AS OF THE DATE OF THIS
PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED
AS APPENDIX C TO THIS PROXY STATEMENT AND SHOULD BE READ IN ITS ENTIRETY FOR
INFORMATION WITH RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE, AND MATTERS
CONSIDERED BY ABN AMRO IN RENDERING ITS OPINION. ABN AMRO'S OPINION WAS PREPARED
FOR THE CAPITAL BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO TO
THE HOLDERS OF CAPITAL COMMON STOCK. THE ABN AMRO OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE PROPOSED MERGER AND DOES NOT CONSTITUTE AN OPINION AS TO WHAT THE
VALUE OF UPC COMMON STOCK ACTUALLY WILL BE WHEN ISSUED TO CAPITAL SHAREHOLDERS
PURSUANT TO THE MERGER. THE SUMMARY OF THE ABN AMRO OPINION SET FORTH IN THIS
PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION.
In connection with its Opinion, ABN AMRO reviewed this Proxy Statement as
well as the Agreement and certain related documents. ABN AMRO held discussions
with certain senior officers, directors, and other representatives and advisors
of Capital and certain senior officers and other representatives of UPC
concerning the businesses, operations, and prospects of Capital and UPC. ABN
AMRO examined certain publicly available business and financial information
relating to Capital and UPC as well as certain financial information and other
data for Capital and certain financial information and other data related to UPC
which were provided to or otherwise discussed with ABN AMRO by the respective
managements of Capital and UPC. ABN AMRO reviewed the financial terms of the
Merger as set forth in the Agreement in relation to: (i) current and historical
market prices and trading volumes of Capital Common Stock and UPC Common Stock;
(ii) the respective companies' financial and other operating data; and (iii) the
capitalization and financial condition of Capital and UPC. ABN AMRO also
considered, to the extent publicly available, the financial terms of certain
other thrift-industry transactions recently effected which ABN AMRO considered
relevant in evaluating the Merger, and analyzed certain financial, stock market,
and other publicly available information relating to the businesses of other
companies whose operations ABN AMRO considered relevant in evaluating those of
Capital and UPC. ABN AMRO identified, approached, and held discussions with
certain third parties to solicit indications of interest in a possible
transaction with Capital.
-23-
<PAGE> 33
In rendering its Opinion, ABN AMRO assumed and relied upon the accuracy
and completeness of the financial and other information reviewed by it and it
did not make or obtain or assume any responsibility for independent verification
of such information. In addition, ABN AMRO did not make an independent
evaluation or appraisal of the assets and liabilities of Capital and UPC or any
of their respective subsidiaries.
The following is a summary of the financial analyses ABN AMRO employed and
reviewed with the Capital Board in connection with its written Opinion to
Capital's Board dated November 25, 1997. In connection with its written Opinion
dated the date of this Proxy Statement, ABN AMRO performed procedures to update
certain of its analyses and reviewed the assumptions on which such analyses were
based and the factors considered in connection therewith. In updating its
Opinion, ABN AMRO did not utilize any method of analysis in additional to those
described below.
(a) Stock Trading Histories. ABN AMRO examined the history of closing
prices for Capital Common Stock. This examination showed that during the period
from January 2 to November 19, 1997, the closing price of Capital Common Stock
ranged from $12.75 per share to $19.25 per share. ABN AMRO calculated the prices
per share of Capital Common Stock implied by multiplying each closing price per
share of UPC Common Stock by the then-most-recent estimate of the Exchange
Ratio. Over the same time period, such implied prices per share of Capital
Common Stock ranged from approximately $14.60 to $24.10. ABN AMRO also examined
the relative total-return performance of Capital Common Stock and UPC Common
Stock as compared to that of the Philadelphia Stock Exchange Bank Index ("PHX
Bank Index") and the Standard & Poor's 500 Index ("S&P500") over the period
December 31, 1993 through November 19, 1997. This total-return analysis
indicated that both Capital Common Stock and UPC Common Stock outperformed the
S&P500 and that Capital Common Stock also outperformed the PHX Bank Index, which
in turn outperformed the S&P 500. ABN AMRO also examined the history of closing
prices and trading volumes for shares of UPC Common Stock from November 20, 1996
to November 19, 1997. This examination showed that during this twelve-month
period, the closing price of UPC Common Stock ranged from $37.875 per share to
$63.25 per share and was $60.25 per share on November 19, 1997. This examination
also showed that the average trading volume of UPC Common Stock was
approximately 157,000 shares per day over the twelve-month period. ABN AMRO
noted that the total number of shares of UPC Common Stock then estimated to be
issued to Capital shareholders pursuant to the proposed transaction represented
approximately 4 to 5 days of such average daily trading volume.
(b) Comparable Group Analyses. ABN AMRO compared selected historical
financial and current trading-market data of Capital and UPC to those of
separate groups of comparable companies which ABN AMRO deemed to be reasonably
similar to each of Capital and UPC in size, financial and operating character,
and/or geographic market. Financial data were as of the then-most-recently
available financial-statement date and for the twelve-month period then ended.
Market price data were as of November 18, 1997. For each company in the
comparable groups for Capital and UPC, ABN AMRO calculated the multiples of each
company's market price per share to: (i) latest twelve-month earnings per share
("LTM P/E"); (ii) latest twelve-month tangible core earnings per share ("LTM
Core P/E"); (iii) the median estimated earnings per share for the current fiscal
year ("Current-Year P/E"); and (iv) the median estimated earnings per share for
the next fiscal year ("Next-Year P/E"). "Tangible core earnings" excludes
intangible-asset amortization expense and non-recurring income and expense
items. "Estimated earnings per share" figures are those prepared by securities
analysts following each company. ABN AMRO also calculated the ratio of each
company's market price per share to: (i) book value (stockholders' equity) per
share ("P/BV") and (ii) tangible book value (stockholders' equity less
intangible assets) per share ("P/TBV").
The comparable companies for Capital ("Capital Comparable Group")
consisted of selected publicly traded Midwestern thrift holding companies with
total assets ranging from $150 million to $350 million. The Capital Comparable
Group included the following 16 companies: Community Bank Shares, New Albany,
IN; Community Financial Corp., Olney, IL; Cameron Financial Corp., Cameron, MO;
1st Bancorp, Vincennes, IN; First Bancshares Inc., Mountain Grove, MO; First
Federal Bancorp Inc., Zanesville, OH; Fidelity Federal Bancorp, Evansville, IN;
Home Bancorp, Ft. Wayne, IN; Kankakee Bancorp, Kankakee, IL; Landmark Bancshares
Inc., Dodge City, KS; MBLA Financial Corp., Macon, MO; MFB Corp., Mishawaka, IN;
Milton Federal Financial Corp., West Milton, OH; Peoples Bancorp, Auburn, IN;
Southern Missouri Bancorp Inc., Poplar Bluff, MO; and Wells Financial Corp.,
Wells, MN.
-24-
<PAGE> 34
The analysis indicated that Capital Common Stock traded at: (i) a
15.4x LTM P/E multiple compared to a median of 19.7x for the comparable
companies, (ii) a 15.3x LTM Core P/E multiple compared to a median of 17.4x for
the comparable companies, (iii) a 13.5x Current-Year P/E multiple compared to a
median of 18.6x for the comparable companies, and (iv) a 13.1x Next-Year P/E
multiple compared to a median of 16.6x for the comparable companies. ABN AMRO
focused on the LTM Core P/E multiple, noting that several of the comparable
companies had not yet reported September 30, 1997 financial data, which for the
prior twelve-month period would exclude the non-recurring charge incurred by
savings institutions in the quarter ended September 30, 1996 to recapitalize the
Savings Association Insurance Fund. ABN AMRO also noted that, due to the
relatively small size of Capital and the Capital Comparable Group companies,
relatively few earnings estimates were available. The analysis also indicated
that Capital Common Stock traded at: (i) a 157.1% P/BV ratio compared to a
median of 120.4% for the comparable companies, and (ii) a 157.1% P/TBV ratio
compared to a median of 121.2% for the comparable companies.
The comparable companies for UPC ("UPC Comparable Group") consisted
of selected Southeastern and Midwestern commercial bank holding companies with
total assets ranging from $10 billion to $30 billion. The UPC Comparable Group
included the following 18 companies: Mercantile Bancorporation, St. Louis, MO;
SouthTrust Corp., Birmingham, AL; BB&T Corp., Winston-Salem, NC; Huntington
Bancshares, Inc., Columbus, OH; Crestar Financial Corp., Richmond, VA; Regions
Financial Corp., Birmingham, AL; First of America Bank Corp., Kalamazoo, MI;
Fifth Third Bancorp, Cincinnati, OH; Firstar Corp., Milwaukee, WI; AmSouth
Bancorp, Birmingham, AL; Marshall & Isley Corp., Milwaukee, WI; First Tennessee
National Corp., Memphis, TN; Old Kent Financial Corp., Grand Rapids, MI; Compass
Bancshares Inc., Birmingham, AL; Star Banc Corp., Cincinnati, OH; First American
Corp., Nashville, TN; Hibernia Corp., New Orleans, LA; and Commerce Bancshares,
Inc., Kansas City, MO.
The analysis indicated that UPC Common Stock traded at: (i) a 22.0x
LTM P/E multiple compared to a median of 19.6x for the comparable companies,
(ii) a 21.6x LTM Core P/E multiple compared to a median of 18.4x for the
comparable companies, (iii) a 17.2x Current-Year P/E multiple compared to a
median of 18.3x for the comparable companies, and (iv) a 15.4x Next-Year P/E
multiple compared to a median of 16.2x for the comparable companies. ABN AMRO
focused on the comparisons of Current-Year P/E and Next-Year P/E multiples,
noting UPC's comparatively rapid growth rates and abundance of available
securities-analyst earnings per share estimates. The analysis also indicated
that UPC Common Stock traded at: (i) a 279.0% P/BV ratio compared to a median of
303.4% for the comparable companies, and (ii) a 289.9% P/TBV ratio compared to a
median of 368.7% for the comparable companies.
(c) Discounted Cash Flow Analyses. ABN AMRO performed discounted cash
flow ("DCF") analyses of Capital and UPC, each on a "stand-alone" basis (i.e.,
without giving effect to the proposed transaction between them). In preparing
the DCF analyses, ABN AMRO studied the historical earnings and growth patterns
of Capital and UPC and then projected income statements and balance sheets for
each company for a five-year period using a series of assumptions pertaining to
growth, interest margins, loan losses, non-interest income and expenses, income
taxes, and cash dividends. With respect to UPC, ABN AMRO also assumed that all
of UPC's then-pending announced acquisitions would be completed in the first
projected year and that UPC would continue to grow through acquisitions. Prior
to their completion, ABN AMRO reviewed and discussed with Capital's management,
the financial projections for each of Capital and UPC. To estimate projected net
cash flows over the five-year projection period, ABN AMRO adjusted projected
earnings for certain non-cash expense items such as intangible-asset
amortization expense and accruals of certain stock-related benefit plans. ABN
AMRO calculated the terminal value (the value of cash flows following the
five-year projection period) based upon a perpetuity of the fifth projected
year's estimated net cash flow. To estimate the present value of the five years'
projected net cash flows and terminal value, ABN AMRO used a discount rate of
12.5%. The DCF analyses yielded imputed values of $20.22 per share of Capital
Common Stock and $60.46 per share of UPC Common Stock.
(d) Comparable Transactions Analysis. ABN AMRO reviewed the financial
terms of recently announced thrift-industry merger and acquisition transactions
in which the acquired company was headquartered in the Midwest and had total
assets ranging from $150 million to $350 million. Financial data for each
acquired
-25-
<PAGE> 35
company and Capital were as of the most-recent financial-statement date
available at the date the transaction was announced, and for the twelve-month
period then ended. Merger prices and related multiples and ratios were as of the
respective transaction-announcement dates. The 13 comparable transactions
included (the acquirer is the first name and is in italics followed by the
seller): AMCORE Financial, Rockford, IL-Midwest Federal Financial, Baraboo, WI;
Mercantile Bancorporation, St. Louis, MO-HomeCorp. Inc., Rockford, IL; Union
Planters Corporation, Memphis, TN-Sho-Me Financial, Mt. Vernon, MO; Charter One
Financial, Cleveland, OH-Haverfield Corp., Cleveland, OH; Fifth Third Bancorp,
Cincinnati, OH-Suburban Bancorp, Cincinnati, OH; Pinnacle Financial, St. Joseph,
MI-CB Bancorp, Inc., Michigan City, IN; Shoreline Financial, Benton Harbor,
MI-SJS Bancorp, St. Joseph, MI; Commercial Federal, Omaha, NE-Heritage Financial
Ltd., Boone, IA; Fidelity Financial, Norwood, OH-Circle Financial Corp.,
Sharonville, OH; Pinnacle Banc Group, Oak Brook, IL-Financial Security, Chicago,
IL; Security Banc Corp, Springfield, OH-Third Financial, Piqua, OH; Old National
Bancorp, Evansville, IN-Workingmens Capital, Bloomington, IN; and Roosevelt
Financial, Chesterfield, MO-Sentinal Financial; Kansas City, MO.
ABN AMRO calculated several merger-pricing multiples and ratios
based upon the then-most-recent estimate of the Exchange Ratio (the "Estimated
Exchange Ratio") and price of UPC Common Stock, which together implied a merger
price of $23.00 per share of Capital Common Stock. With respect to the aggregate
price for all of Capital's outstanding Common Stock and options to purchase
Capital Common Stock, the proposed transaction with UPC represented: (i) a 20.6x
multiple of Capital's earnings compared to a median of 21.3x for the comparable
transactions; (ii) a 20.6x multiple of Capital's tangible earnings compared to a
median of 25.5x for the comparable transactions; (iii) an 18.0x multiple of
Capital's estimated earnings for the current fiscal year compared to a median of
18.5x for the comparable transactions; (iv) 211.9% of Capital's book value and
tangible book value compared to identical medians of 150.2% for the comparable
transactions; (v) 249.4% of Capital's adjusted tangible book value compared to a
median of 193.7% for the comparable transactions; and (vi) premiums of 21.2%
over Capital's previous day's market price, 27.8% over Capital's
one-month-earlier market price, and 73.6% over Capital's one-year-earlier market
price, compared to medians of 17.8%, 24.1%, and 56.5%, respectively, for the
comparable transactions. The ratio of transaction value to "adjusted book value"
adjusts both transaction value and book value for the "excess" capital of each
acquired company relative to a 7% tangible equity-to-assets ratio.
(e) Pro Forma Analysis. ABN AMRO prepared a pro forma merger analysis
illustrating the estimated effects on selected historical and projected
financial data of Capital using the projected financial data for each of Capital
and UPC derived from the DCF analyses described previously, giving effect to the
Estimated Exchange Ratio and to certain estimated after-tax merger benefits.
This analysis indicated that, as compared to Capital's stand-alone historical
and projected financial data, the proposed transaction with UPC: (i) would have
increased Capital's historical stock price per share by 26.9% and could increase
Capital's projected stock prices per share by a range of 26.6% to 35.7%, (ii)
would have increased Capital's historical diluted earnings per share by 11.9%
and could affect Capital's projected diluted earnings per share in a range of
1.5% to negative 5.0%, (iii) would have diluted Capital's historical book value
per share by 27.9% and could dilute Capital's projected book value per share in
a range of 28.7% to 29.2%, and (iv) would have increased Capital's historical
cash dividend per share by 157.8% and could increase Capital's projected cash
dividend per share in a range of 100.0% to 110.5%.
(f) Contribution Analysis. ABN AMRO prepared a contribution analysis
displaying selected financial data of Capital and UPC along with the percentages
these financial data for each of Capital and UPC would represent of the combined
company on a pro forma basis. Using recent historical financial data, ABN AMRO
calculated that, of the combined company on a pro forma basis, Capital would
have contributed: (i) 1.61% of total assets; (ii) 1.86% of net loans receivable;
(iii) 1.53% of total deposits; (iv) 1.47% of common equity; (v) 0.86% of net
income to common; (vi) 0.93% of recurring net income to common; (vii) 0.84% of
market capitalization; and (viii) 0.93% of estimated present value of net cash
flows. Based on the Estimated Exchange Ratio, Capital shareholders would have
owned 1.06% of the pro forma number of shares of UPC Common Stock outstanding.
ABN AMRO noted that UPC had several mergers pending which were likely to be
consummated within a year of UPC's proposed transaction with Capital. Using the
first-year projected financial data derived from the DCF analyses described
previously, ABN AMRO calculated that, of the combined company's first-year
projected financial data, Capital would contribute: (i) 1.23% of total assets;
(ii) 1.49% of net loans receivable; (iii) 1.16% of total deposits; (iv) 1.09% of
common equity; (v) 0.88% of net income to common; and (vi) 0.59% of
-26-
<PAGE> 36
market capitalization. Based on the Estimated Exchange Ratio, Capital
shareholders would own 0.80% of the shares of UPC Common Stock projected to be
outstanding.
(g) Hypothetical Return-to-Investor Analysis. Using projected financial
data derived from the DCF analyses described previously and certain assumptions
regarding future potential merger prices for each of Capital and UPC, ABN AMRO
calculated the hypothetical investment returns Capital shareholders could
achieve over a five-year period under a number of scenarios. This analysis
indicated hypothetical compound annual rates of return to Capital shareholders
of: (i) 10.9% assuming Capital would remain indefinitely an independent company;
(ii) 19.0% assuming Capital would remain independent and then merge at the end
of the five-year analysis period; (iii) 17.7% assuming Capital would consummate
the proposed transaction with UPC upon the Estimated Exchange Ratio and UPC
would remain indefinitely an independent company; and (iv) 21.7% assuming
Capital would consummate the proposed transaction with UPC upon the Estimated
Exchange Ratio and UPC would merge at the end of the five-year analysis period.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the process
underlying ABN AMRO's Opinion. In arriving at its fairness determination, ABN
AMRO considered the results of all of such analyses. No company or transaction
used in the above analyses as a comparison is identical to Capital or UPC or the
Merger. The analyses were prepared solely for purposes of ABN AMRO's Opinion
provided to Capital's Board as to the fairness of the Exchange Ratio to be
received by the shareholders of Capital pursuant to the Merger and do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon projections of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or ABN AMRO, none of
Capital, ABN AMRO, or any other person assumes responsibility if future results
are materially different from those projected.
ABN AMRO, as part of its investment banking business, is continually
engaged in the valuation of businesses in connection with mergers and
acquisitions, as well as initial and secondary offerings of securities and
valuations for other purposes. Capital selected ABN AMRO as its financial
advisor because ABN AMRO is a nationally recognized investment banking firm that
has substantial experience in transactions similar to the Merger.
In the ordinary course of ABN AMRO's business, ABN AMRO and its affiliates
may actively trade securities of Capital and UPC for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Capital retained ABN AMRO as its financial advisor by letter agreement
dated June 20, 1997 ("Engagement Letter"). Upon execution thereof, Capital paid
ABN AMRO a cash retainer fee of $25,000. Pursuant to the terms of the Engagement
Letter, upon delivery of ABN AMRO's fairness Opinion Capital paid ABN AMRO an
additional cash fee of $25,000. Pursuant to the terms of the Engagement Letter,
upon closing of the Merger Capital will pay ABN AMRO a cash financial advisory
fee based upon varying percentages of transaction value, as defined in the
Engagement Letter. The Engagement Letter provides that the financial advisory
fee is calculated with a "base" percentage for transaction value up to a given
level and a higher "incentive" percentage for transaction value in excess of
that level, reduced by the retainer and Opinion fee previously paid. Based upon
the closing price of UPC Common Stock of $___ per share on the date of this
Proxy Statement, the balance of the financial advisory fee payable by Capital to
ABN AMRO upon closing of the Merger would be $___. Further, in the Engagement
Letter Capital agreed to reimburse ABN AMRO for its reasonable out-of-pocket
expenses incurred in connection with its engagement, and to indemnify ABN AMRO
against certain liabilities, including liabilities under securities laws.
-27-
<PAGE> 37
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Time will occur on the date and at the time that the
Certificate of Merger becomes effective with the Secretary of State of the State
of Delaware and the Articles of Merger become effective with the Secretary of
State of the State of Tennessee. Subject to the terms and conditions of the
Agreement, unless otherwise agreed upon in writing by UPC and Capital, the
Agreement provides that the parties will use their reasonable efforts to cause
the Effective Time to occur within 30 days (as designated by UPC) following the
last to occur of (i) the effective date (including any applicable waiting period
in respect thereof) of the last required consent of any regulatory authority
having authority over and approving or exempting the Merger, (ii) the date on
which the shareholders of Capital adopt the Agreement and Plan of Merger and
(iii) the date on which all other conditions precedent under the Agreement have
been satisfied or waived. It is anticipated that the Effective Time will occur
within one business day of the Capital Special Meeting.
No assurance can be provided that the necessary shareholder and regulatory
approvals can be obtained or that other conditions precedent to the Merger can
or will be satisfied. Capital and UPC anticipate that all conditions to
consummation of the Merger will be satisfied so that the Merger can be
consummated on or about July 8, 1998. However, delays in the consummation of
the Merger could occur.
The Board of Directors of either Capital or UPC generally may terminate
the Agreement and the Plan of Merger if the Merger is not consummated by
September 30, 1998, unless the failure to consummate the transactions
contemplated by the Agreement on or before such date is caused by any breach of
the Agreement by the party seeking termination or certain other specific
conditions exist. See "-- Conditions to Consummation of the Merger" and "--
Waiver, Amendment, and Termination."
NO APPRAISAL RIGHTS
Under Section 262 of the DGCL, appraisal rights are available to
dissenting shareholders in connection with certain mergers or consolidations.
However, unless the certificate of incorporation otherwise provides and the
Capital Charter does not, Section 262 does not provide for appraisal rights (i)
if the shares of the corporation are listed on a national securities exchange or
designated as a national market system security on an inter-dealer quotations
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 shareholders (as long as the shareholders receive in the
merger shares of the surviving corporation or of any other corporation the
shares of which are listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotations system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 shareholders) or (ii) if the corporation is the surviving corporation and
no vote of its shareholders is required on the merger. Accordingly, shareholders
of Capital are not entitled to appraisal rights in connection with the Merger.
DISTRIBUTION OF CONSIDERATION
Promptly after the Effective Time, UPC will cause the exchange agent
selected by UPC (the "Exchange Agent") to mail to the former shareholders of
Capital a letter of transmittal, together with instructions for the exchange of
the Certificates representing shares of Capital Common Stock for certificates
representing shares of UPC Common Stock.
CAPITAL SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of Certificates for Capital Common
Stock, together with a properly completed letter of transmittal, there will be
issued and mailed to each holder of Capital Common Stock surrendering such items
a certificate or certificates representing the number of shares of UPC Common
Stock to which such holder is entitled and a check for the amount to be paid in
lieu of any fractional share (without interest), if any, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon), if any. UPC will not be obligated to deliver the
consideration to which any former holder of Capital
-28-
<PAGE> 38
Common Stock is entitled as a result of the Merger until the holder surrenders
such holder's Certificates representing the shares of Capital Common Stock.
Whenever a dividend or other distribution is declared by UPC on UPC Common
Stock, the record date for which is at or after the Effective Time, the
declaration will include dividends or other distributions on all shares of UPC
Common Stock issuable pursuant to the Agreement, but beginning 30 days after the
Effective Time, no dividend or other distribution payable after the Effective
Time with respect to UPC Common Stock will be paid to the holder of any
unsurrendered Capital Common Stock Certificate until the holder duly surrenders
such Certificate. Upon surrender of such Capital Common Stock Certificate,
however, both the UPC Common Stock certificate, together with all undelivered
dividends or other distributions (without interest) and any undelivered cash
payment to be paid in lieu of a fractional share (without interest), will be
delivered and paid with respect to the shares represented by such Certificate.
In the event any Capital Common Stock Certificate has been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
the Certificate to be lost, stolen, or destroyed and, if required by UPC, the
posting by such person of a bond in such amount as UPC may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen, or
destroyed Certificate the consideration to which the former holder of Capital
Common Stock is entitled.
At the Effective Time, the stock transfer books of Capital will be closed
to holders of Capital Common Stock and no transfer of shares of Capital Common
Stock by any such holder will thereafter be made or recognized. If Certificates
representing shares of Capital Common Stock are presented for transfer after the
Effective Time, they will be canceled and exchanged for the consideration to
which such holder of Capital Stock is entitled.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including (i)
adoption of the Agreement and Plan of Merger by the shareholders of Capital,
(ii) receipt of certain regulatory approvals required for consummation of the
Merger, (iii) receipt by UPC and Capital of a written opinion of counsel from
Alston & Bird LLP as to the tax-free nature of the Merger (except to the extent
of cash received), (iv) approval of the shares of UPC Common Stock issuable
pursuant to the Merger for listing on the NYSE, subject to official notice of
issuance, (v) the Registration Statement being declared effective under the
Securities Act, (vi) the accuracy, as of the date of the Agreement and as of the
Effective Time, of the representations and warranties of Capital and UPC as set
forth in the Agreement, (vii) the performance of all agreements and the
compliance with all covenants of Capital and UPC as set forth in the Agreement,
(viii) receipt of all consents required for consummation of the Merger or for
the preventing of any default under any contract or permit which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect on Capital or UPC, (ix) receipt by UPC and
Capital of a letter from Price Waterhouse LLP dated as of the date of the
filing of the Registration Statement and as of the Effective Time to the
effect that the Merger will qualify for pooling-of-interests accounting
treatment, (x) the absence of any law or order or any action taken by any
court, governmental, or regulatory authority of competent jurisdiction
prohibiting, restricting, or making illegal the consummation of the
transactions contemplated by the Agreement, (xi) receipt by UPC of agreements
from each person Capital reasonably believes may be deemed an affiliate of
Capital, (xii) the execution of employment agreements between UPC and certain
officers of Capital and (xiii) satisfaction of certain other conditions,
including the receipt of various certificates from the officers of Capital and
UPC. See "-- Regulatory Approval" and "-- Waiver, Amendment, and Termination."
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. Except in limited circumstances, in the event the Merger is
not effected on or before September 30, 1998, the Agreement may be terminated
and the Merger abandoned by the Board of Directors of either Capital or UPC. See
"-- Waiver, Amendment, and Termination."
REGULATORY APPROVAL
THE MERGER MAY NOT PROCEED IN THE ABSENCE OF RECEIPT OF THE REQUISITE
REGULATORY APPROVALS. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS
WILL BE OBTAINED OR AS TO THE TIMING OF SUCH APPROVALS.
-29-
<PAGE> 39
APPLICATIONS FOR THE APPROVALS DESCRIBED BELOW HAVE BEEN SUBMITTED TO THE
APPROPRIATE REGULATORY AUTHORITIES.
It is a condition to the consummation of the Merger that UPC and Capital
shall have received all applicable regulatory approvals to consummate the
transactions contemplated by the Agreement. There can be no assurance that such
approvals will not contain terms, conditions or requirements which cause such
approvals to fail to satisfy such condition to the consummation of the Merger.
Neither Capital nor UPC are aware of any material governmental approvals
or actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it presently is
contemplated that such approval or action would be sought.
The Merger is subject to the prior approval of the Federal Reserve,
pursuant to Sections 3 and 4 of the BHC Act. In evaluating the Merger, the
Federal Reserve must consider, among other factors, the financial and managerial
resources and future prospects of the institutions and the convenience and needs
of the communities to be served. The relevant statutes prohibit the Federal
Reserve from approving the Merger if (i) it would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States or (ii) its
effect in any section of the country could be to substantially lessen
competition or to tend to create a monopoly, or if it would result in a
restraint of trade in any other manner, unless the Federal Reserve should find
that any anticompetitive effects are outweighed clearly by the public interest
and the probable effect of the transaction in meeting the convenience and needs
of the communities to be served. The Merger may not be consummated until the
30th day (which the Federal Reserve may reduce to 15 days) following the date of
the Federal Reserve approval, during which time the United States Department of
Justice would be afforded the opportunity to challenge the transaction on
antitrust grounds. The commencement of any antitrust action would stay the
effectiveness of the approval of the agencies, unless a court of competent
jurisdiction should specifically order otherwise.
WAIVER, AMENDMENT, AND TERMINATION
To the extent permitted by law, the Agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Board
of Directors of each of the parties, before or after adoption of the Agreement
and the Plan of Merger by the Capital shareholders; provided, that after such
adoption by Capital shareholders no amendment may be made which modifies in any
material respect the consideration to be received by the holders of Capital
Common Stock without the further approval of such shareholders. In addition,
prior to or at the Effective Time, generally either Capital or UPC, or both,
acting through their respective Boards of Directors, chief executive officers,
or other authorized officers, may waive any default in the performance of any
term of the Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Agreement, except any condition that, if not
satisfied, would result in the violation of any applicable law or governmental
regulation. No such waiver will be effective unless written and unless executed
by a duly authorized officer of Capital or UPC, as the case may be.
The Agreement and the Plan of Merger may be terminated and the Merger
abandoned at any time prior to the Effective Time, notwithstanding the
provisions of the Agreement and the adoption of the Agreement and the Plan of
Merger by the Capital shareholders, (i) by the mutual consent of the Boards of
Directors of Capital and UPC and (ii) by the Capital Board or the UPC Board (a)
in the event of any inaccuracy of any representation or warranty of the other
party contained in the Agreement which cannot be or has not been cured within 30
days after giving written notice to the breaching party of such inaccuracy and
which inaccuracy would provide the terminating party the ability to refuse to
consummate the Merger under the applicable standards set forth in the Agreement
(provided that the terminating party is not then in
-30-
<PAGE> 40
breach of any representation or warranty contained in the Agreement under the
applicable standards set forth in the Agreement or in material breach of any
covenant or other agreement contained in the Agreement), (b) in the event of a
material breach by the other party of any covenant or agreement contained in the
Agreement which cannot be or has not been cured within 30 days after the giving
of written notice to the breaching party of such breach (provided that the
terminating party is not then in breach of any representation or warranty
contained in the Agreement under the applicable standards set forth in the
Agreement or in material breach of any covenant or other agreement contained in
the Agreement), (c) if (1) any consent of any regulatory authority required for
consummation of the Merger and the other transactions contemplated by the
Agreement has been denied by final nonappealable action, or if any action taken
by such authority is not appealed within the time limit for appeal or (2) the
shareholders of Capital fail to vote their approval of the matters submitted for
the approval of such shareholders at the Capital Special Meeting, (d) if the
Merger is not consummated by September 30, 1998, provided that the failure to
consummate is not caused by any breach of the Agreement by the party electing to
terminate, or (e) by the Capital Board pursuant to the relevant provisions of
the Agreement described in "DESCRIPTION OF TRANSACTION-Possible Adjustment of
Exchange Ratio."
If the Merger is terminated as described above, the Agreement and the Plan
of Merger will become void and have no effect, except that certain provisions of
the Agreement, including those relating to the obligations to share certain
expenses, maintain the confidentiality of certain information obtained, and
return all documents obtained from the other party under the Agreement, will
survive. See "-- Expenses and Fees."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Agreement, each of Capital and UPC generally have agreed
that except as otherwise expressly contemplated in the Agreement, each of such
parties and its subsidiaries will: (i) operate its business only in the usual,
regular, and ordinary course; (ii) preserve intact its business organization and
assets and maintain its rights and franchises; and (iii) take no action which
would (a) materially adversely affect the ability of any party to obtain any
consents required for the transactions contemplated by the Agreement without
imposition of or condition or restriction of the type referred to in the
Agreement or (b) adversely affect the ability of any party to perform its
covenants and agreements under the Agreement.
In addition, Capital has agreed that until the earlier of the Effective
Time or termination of the Agreement, Capital will not, except with the prior
written consent of the chief executive officer, president or chief financial
officer of UPC (which consent shall not be unreasonably withheld), agree or
commit to do, or permit any of its subsidiaries to agree or commit to do, any of
the following: (i) amend the charter, bylaws, or other governing instruments of
Capital or any Capital subsidiary (each a "Capital company" and together, the
"Capital companies")(ii) incur any additional debt obligation for borrowed money
(other than indebtedness of a Capital company to another Capital company) in
excess of an aggregate of $100,000 (for the Capital companies on a consolidated
basis) except in the ordinary course of business consistent with past practices
(which shall include, for Capital Bank, the creation of deposit liabilities,
purchases of federal funds, advances from the Federal Reserve Bank or the
Federal Home Loan Bank, and entry into repurchase agreements fully secured by
U.S. government or agency securities), or impose, or suffer the imposition, on
any asset of any Capital company of any lien or permit any such lien to exist
(other than in connection with deposits, repurchase agreements, bankers
acceptances, "treasury tax and loan" accounts established in the ordinary course
of business, the satisfaction of legal requirements in the exercise of trust
powers, and liens in effect as of the date of the Agreement that were previously
disclosed to UPC by Capital); (iii) repurchase, redeem, or otherwise acquire or
exchange (other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities convertible into
any shares, of the capital stock of any Capital company, or declare or pay any
dividend or make any other distribution in respect of any Capital capital stock,
provided that Capital may (to the extent legally and contractually permitted to
do so), but shall not be obligated to, declare and pay regular quarterly cash
dividends on the shares of Capital Common Stock at a rate of $.06 per share with
usual and regular record and payment dates in accordance with past practice,
provided that, notwithstanding the provisions of the Agreement, or the Option
Agreement, or pursuant to rights outstanding as of the date of the Agreement,
the parties shall cooperate in selecting the Effective Time to ensure that, with
respect to the quarterly period in which the Effective Time occurs, the holders
of Capital Common Stock do not receive both a dividend in respect of their
Capital Common Stock and a dividend in respect of UPC Common Stock or fail to
receive any dividend; (iv) except for the Agreement, or pursuant to the Option
Agreement or the exercise of rights outstanding as of the date of the Agreement
and the terms thereof in existence on the date of the Agreement, issue, sell,
pledge, encumber, authorize the issuance of, enter into any contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise permit to
become outstanding, any additional shares of Capital Common Stock, or any other
capital stock of any Capital company, or
-31-
<PAGE> 41
any stock appreciation rights, or any option, warrant, conversion, or other
right to acquire any such stock, or any security convertible into any such
stock; (v) adjust, split, combine, or reclassify any capital stock of any
Capital company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Capital Common Stock, or sell,
lease, mortgage, or otherwise dispose of or otherwise encumber (a) any shares of
stock of any subsidiary of Capital (unless any such shares of stock are sold or
otherwise transferred to another Capital company) or (b) any asset having a book
value in excess of $100,000 other than in the ordinary course of business for
reasonable and adequate consideration; (vi) except as previously disclosed to
UPC by Capital and for purchases of certain investment securities described in
the Agreement, purchase any securities or make any material investment, either
by purchase of stock or securities, contributions to capital, asset transfers,
or purchase of any assets, in any person other than a wholly-owned Capital
subsidiary, or otherwise acquire direct or indirect control over any person,
with certain exceptions; (vii) grant any increase in compensation or benefits to
the employees or officers of any Capital company, except in the ordinary course
of business consistent with past practices as previously disclosed to UPC by
Capital or as required by law, pay any severance or termination pay or any bonus
other than pursuant to written policies or written contracts in effect on the
date of the Agreement, enter into or amend any severance agreements with
officers of any Capital company, grant any material increase in fees or other
increases in compensation or other benefits to directors of any Capital company,
or voluntarily accelerate the vesting of any stock options or other stock-based
compensation or employee benefits; (viii) enter into or amend any employment
contract between any Capital company and any person (unless such amendment is
required by law or a pre-existing contractual obligation) that the Capital
company does not have the unconditional right to terminate without liability
(other than liability for services already rendered), at any time on or after
the Effective Time; (ix) adopt any new employee benefit plan of any Capital
company or terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Capital company other than any such
change that is required by law or that, in the opinion of counsel, is necessary
or advisable to maintain the tax qualified status of any such plan; (x) make any
significant change in any tax or accounting methods or systems of internal
accounting controls, except as may be appropriate to conform to changes in tax
laws or regulatory accounting requirements or generally accepted accounting
principles; (xi) commence any litigation other than in accordance with past
practices, or settle any litigation involving any liability of any Capital
company for money damages in excess of $100,000, or restrictions upon the
operations of any Capital company; or (xii) except in the ordinary course of
business, modify, amend, or terminate any material contract or waive, release,
compromise, or assign any material rights or claims.
Capital has also agreed, that, except with respect to the Agreement, the
Plan of Merger, and the transactions contemplated thereby, no Capital company or
any representative thereof will, directly or indirectly, solicit or engage in
negotiations concerning any acquisition proposal, or provide any confidential
information or assistance to, or have any discussions with, any person with
respect to an acquisition proposal; provided, that Capital may, and may
authorize and permit its representatives to, provide persons with confidential
information, have discussions or negotiations with, or otherwise facilitate an
effort or attempt by such person to make or implement an acquisition proposal
not solicited in violation of the Agreement if Capital's Board, after having
consulted with, and based upon the advice of, outside counsel, determines in
good faith that the failure to take such actions could constitute a breach of
the fiduciary duties of Capital's Board under applicable law, subject to the
satisfaction of certain conditions.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, the current directors of UPC will
continue to serve as directors of UPC. Similarly, the current officers of UPC
will continue to serve in their respective capacities on behalf of UPC.
Information concerning the management of UPC is included in the documents
incorporated herein by reference. See "DOCUMENTS INCORPORATED BY REFERENCE." For
additional information regarding the interests of certain persons in the Merger,
see "-- Interests of Certain Persons in the Merger."
UPHC will be the surviving corporation resulting from the Merger and shall
continue to be governed by the laws of the State of Tennessee and operate in
accordance with its Charter and Bylaws.
-32-
<PAGE> 42
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Generally. Certain members of Capital's management and the Capital Board
may be deemed to have interests in the Merger in addition to their interests as
shareholders of Capital generally. The Capital Board was aware of these
interests and considered them in approving the Agreement and the Plan of Merger.
Set forth below are descriptions of the material interests of Capital's
management and the Capital Board in the Merger in addition to their interests as
shareholders of Capital generally.
Employment Agreements. Pursuant to the terms of the Agreement, Larry V.
Schepers, President and Chief Executive Officer of Capital, has agreed to
terminate his existing employment agreement with Capital Bank dated December 28,
1993 (the "Old Employment Contract") and enter into a new employment agreement
with UPC (the "New Employment Contract"). It was the intent of the parties for
the New Employment Contract to bring Mr. Schepers' employment contract in line
with the corporate policies and practices of UPC and with other UPC employment
contracts with similarly situated employees.
The Old Employment Contract provided, among other things, for an annual
base salary in an amount not less than Mr. Schepers' current salary and a
rolling three-year term (with annual extensions subject to an annual performance
review and approval by the Capital Board). The Old Employment Contract provided
for payment to Mr. Schepers of his salary for the remainder of the term of the
agreement, plus up to 299% of his "base compensation" (five-year average) under
certain circumstances in the event of a change in control of Capital. The Old
Employment Contract also entitled Mr. Schepers to continuing insurance coverage
for the term of his Old Employment Contract in the event of termination other
than for cause.
Under the New Employment Contract, Mr. Schepers will be President of the
Jefferson City, Missouri, branch of UPBNA. The New Employment Contract will have
a three year term. During that period of time his annual salary will be at least
$150,000 per year, substantially his current salary. Mr. Schepers will be
entitled to receive a retention bonus of $470,119, with the first installment of
$156,706 being paid at the Effective Time and the second and third installments
of the same amount being paid on the first and second anniversaries of the
Effective Time. The retention bonus is payable to Mr. Schepers, or his
representative, in the event of any termination of the New Employment Contract,
including his voluntary termination, with the exception, however, that should
Mr. Schepers' employment under the New Employment Contract be terminated for
cause (which includes the willful and continued failure to perform his duties or
the willful engagement in gross misconduct which is materially and demonstrably
injurious to UPC), UPC's obligation to pay the retention bonus would cease as of
the date of termination. Mr. Schepers is also entitled to participate in any
benefit plan or program provided to similarly situated officers of UPC, and UPC
will continue to provide to Mr. Schepers the automobile supplied to him by
Capital during his employment by UPBNA. Mr. Schepers' New Employment Contract
contains a covenant not to compete for a period of three years from the
Effective Time of the Merger. Mr. Schepers will be paid $331,269 on the third
anniversary of the Effective Time as consideration for his covenant not to
compete. The New Employment Contract also contains provisions regarding
non-competition, non-solicitation, and maintenance of trade secrets and
confidential information not covered in the Old Employment Contract.
Two additional members of Capital's management, Mr. Wankum, Executive Vice
President and a director of Capital, and Mr. Forck, Senior Vice President and a
director of Capital, will receive employment contracts with UPC as of the
Effective Time. It was the intent of the parties for these contracts with
Messrs. Wankum and Forck to guarantee them employment until they reach
retirement age. The term of each of these contracts will commence on the
Effective Date and, in the case of Mr. Wankum, terminate on December 31, 1998,
and in the case of Mr. Forck, terminate during July 1998. During these periods
of time their annual salaries will be substantially the same as their current
salaries.
Executive Salary Continuation Agreement. Mr. Schepers has an Executive
Salary Continuation Agreement ("ESCA"), dated November 1, 1994, with Capital.
Mr. Schepers has agreed to terminate, as of the Effective Time of the Merger,
his ESCA with Capital. However, Mr. Schepers will be entitled to receive, and
UPC has agreed to assume the obligation to pay, $91,855 representing the earned
(or vested) portion of his severance benefits under the ESCA. Such amount shall
be paid at the Effective Time.
-33-
<PAGE> 43
Defined Benefit Pension Plan. Capital has agreed not to make any further
accruals of benefits under its pension plan after the Effective Time, and will
take such steps as are necessary or practicable to terminate the pension plan on
or before the Effective Time of the Merger. Pursuant to the Agreement, Capital
may make any necessary amendments or adjustments to ensure that the excess
funding, if any, at the Effective Time goes to the benefit of participants in
the Capital pension plan, provided such actions do not adversely affect the
qualified status of such plan.
Stock Option Plan. Each Capital Option under its stock option plan will be
assumed by UPC. The number of shares subject to Capital Options will be adjusted
to allow the holder, upon exercise, to receive shares of UPC Common Stock
calculated by multiplying the Exchange Ratio (.3812) by the number of shares of
Capital Common Stock subject to the Capital Options, and the exercise price of
the Capital Options will be adjusted by dividing the exercise price per share by
the Exchange Ratio. All other terms and conditions of the Capital Options will
remain unchanged. See "-- Effect of the Merger on Capital Options."
Advisory Board. The current members of the Board of Capital are to be
offered positions as advisory directors of UPBNA for approximately two years
from the Effective Time. As advisory directors they would not be voting members
of the UPBNA Board. Persons accepting advisory director positions would be paid
to the same extent as other advisory members.
Indemnification. The Agreement provides that after the Effective Time, UPC
shall indemnify, defend and hold harmless Capital's management, among others,
against all liabilities arising out of actions or omissions occurring at or
prior to the Effective Time (including the transactions contemplated by the
Agreement and the Option Agreement) to the fullest extent permitted under
Delaware law and by the Capital Charter and Capital Bylaws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING IS A DISCUSSION OF THE ANTICIPATED MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO HOLDERS OF CAPITAL COMMON STOCK. THE
DISCUSSION MAY NOT APPLY TO SPECIAL SITUATIONS, SUCH AS CAPITAL SHAREHOLDERS, IF
ANY, WHO RECEIVED CAPITAL COMMON STOCK UPON THE EXERCISE OF EMPLOYEE STOCK
OPTIONS OR OTHERWISE AS COMPENSATION, THAT HOLD CAPITAL COMMON STOCK OTHER THAN
AS A CAPITAL ASSET, THAT HOLD CAPITAL COMMON STOCK AS PART OF A "STRADDLE" OR
"CONVERSION TRANSACTION," OR THAT ARE INSURANCE COMPANIES, SECURITIES DEALERS,
FINANCIAL INSTITUTIONS OR FOREIGN PERSONS, AND DOES NOT DISCUSS ANY ASPECTS OF
STATE, LOCAL, OR FOREIGN TAXATION. THIS DISCUSSION IS BASED UPON LAWS,
REGULATIONS, RULINGS AND DECISIONS NOW IN EFFECT AND ON PROPOSED REGULATIONS,
ALL OF WHICH ARE SUBJECT TO CHANGE (POSSIBLY WITH RETROACTIVE EFFECT) BY
LEGISLATION, ADMINISTRATIVE ACTION, OR JUDICIAL DECISION. NO RULING HAS BEEN OR
WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE ON ANY MATTER RELATING TO
THE TAX CONSEQUENCES OF THE MERGER.
As of a recent date of the date of the filing of the Registration
Statement and based upon the assumption that the Merger is consummated in
accordance with the Agreement and in conformity with certain factual
representations made by Capital and UPC, Alston & Bird LLP, counsel for UPC,
has advised UPC and Capital that the transaction will have the following
federal income tax consequences:
(a) The Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Code, and each of UPC, UPHC and Capital will be a
party to the reorganization within the meaning of Section 368(b) of the
Code.
(b) No gain or loss will be recognized by Capital, UPC or UPHC as
a result of the Merger.
(c) No gain or loss will be recognized by a shareholder of Capital
upon the receipt of UPC Common Stock and UPC Rights solely in exchange for
all of his or her shares of Capital Common Stock.
-34-
<PAGE> 44
(d) The basis of the UPC Common Stock received by a shareholder of
Capital in the Merger will be the same as the basis of the Capital Common
Stock surrendered in exchange therefor less the basis allocated to any
fractional share of UPC Common Stock settled by cash payment.
(e) The holding period of the UPC Common Stock received by a
shareholder of Capital (including the holding period of any fractional
share interest) will include the holding period of the Capital Common
Stock surrendered in exchange therefor, provided the Capital Common Stock
was held as a capital asset on the date of the exchange.
(f) The payment of cash in lieu of a fractional share of interest
in UPC Common Stock will be treated as if the fractional shares were
issued as part of the exchange and then redeemed by UPC. These cash
payments will be treated under Section 302(a) of the Code as having been
received as distributions in full payment in exchange for the fractional
shares of UPC Common Stock redeemed. Generally, any gain or loss
recognized upon such exchange will be capital gain or loss, provided the
fractional share would constitute a capital asset in the hands of the
exchanging shareholder.
In addition, the obligation of each party to consummate the Merger is
conditioned, among other things, upon receipt by UPC and Capital of an opinion
of Alston & Bird LLP dated the date of the Effective Time, substantially to the
foregoing effect. The conditions relating to the receipt of the tax opinion may
be waived by both UPC and Capital. Neither UPC nor Capital currently intends to
waive the conditions relating to the receipt of the tax opinion. If the
conditions relating to the receipt of the tax opinion were waived and the
material federal income taxe consequences were materially different from those
summarized above, Capital would resolicit the approval of its shareholders prior
to its consummating the Merger. The tax opinion of Alston & Bird LLP summarized
above is or will be based, among other things, on representations relating to
certain facts and circumstances of, and the intentions of the parties to, the
Merger.
Because certain tax consequences of the Merger may vary depending upon the
particular circumstances of each holder of Capital Common Stock and other
factors, each such holder is urged to consult such holder's own tax advisor to
determine the particular tax consequences of the Merger to such holder
(including the application and effect of state and local income and other tax
laws).
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a
pooling-of-interests. Under the pooling-of-interests method of accounting, the
recorded amounts of the assets and liabilities of Capital will be carried
forward at their previously recorded amounts. Since the Merger is not
considered material to UPC from a financial statement presentation standpoint,
the operating results of Capital will be included in UPC's results from the
Effective Time of the Merger forward.
In order for the Merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding Capital Common
Stock must be exchanged for UPC Common Stock with substantially similar terms.
There are certain other criteria that must be satisfied in order for the Merger
to qualify as a pooling-of-interests, some of which criteria cannot be satisfied
until after the Effective Time. In addition, it is a condition to closing that
each party receive a letter from Price Waterhouse LLP to the effect that the
Merger will qualify for pooling-of-interests accounting treatment. UPC will not
consummate the Merger if pooling-of-interests accounting treatment is not
available.
For information concerning certain conditions to be imposed on the
exchange of Capital Common Stock for UPC Common Stock in the Merger by
affiliates of Capital and certain restrictions to be imposed on the
transferability of the UPC Common Stock received by those affiliates in the
Merger in order, among other things, to ensure the availability of
pooling-of-interests accounting treatment, see "--Resales of UPC Common Stock."
-35-
<PAGE> 45
EXPENSES AND FEES
The Agreement provides that each of the parties will bear and pay its own
expenses in connection with the transactions contemplated by the Agreement,
including filing, negotiation, and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that UPC will bear and pay all of the filing
fees and printing costs incurred in connection with the Registration Statement
and this Proxy Statement.
RESALES OF UPC COMMON STOCK
UPC Common Stock to be issued to shareholders of Capital in connection
with the Merger will be registered under the Securities Act. All shares of UPC
Common Stock received by holders of Capital Common Stock and all shares of UPC
Common Stock issued and outstanding immediately prior to the Effective Time will
be freely transferable upon consummation of the Merger by those shareholders of
Capital not deemed to be "Affiliates" of Capital or UPC. "Affiliates" generally
are defined as persons or entities who control, are controlled by, or are under
common control with Capital or UPC at the time of the Capital Special Meeting
(generally, executive officers, directors, and 10% or greater shareholders).
Rule 145 promulgated under the Securities Act restricts the sale of UPC
Common Stock received in the Merger by Affiliates and certain of their family
members and related interests. Under the rule, during the one-year period
following the Effective Time, Affiliates of Capital or UPC may resell publicly
the UPC Common Stock received by them in the Merger within certain limitations
as to the amount of UPC Common Stock sold in any three-month period and as to
the manner of sale. After the one-year period, such Affiliates of Capital who
are not Affiliates of UPC may resell their shares without restriction. The
ability of Affiliates to resell shares of UPC Common Stock received in the
Merger under Rule 145 will be subject to UPC having satisfied its Exchange Act
reporting requirements for specified periods prior to the time of sale.
Affiliates will receive additional information regarding the effect of Rule 145
on their ability to resell UPC Common Stock received in the Merger. Affiliates
also would be permitted to resell UPC Common Stock received in the Merger
pursuant to an effective registration statement under the Securities Act or an
available exemption from the Securities Act registration requirements. This
Proxy Statement does not cover any resales of UPC Common Stock received by
persons who may be deemed to be Affiliates of Capital or UPC.
Capital has agreed to use its reasonable efforts to cause each person who
may be deemed to be an Affiliate of Capital to execute and deliver to UPC not
later than 30 days prior to the Effective Time, an agreement (each, an
"Affiliate Agreement") providing that such Affiliate will not sell, pledge,
transfer, or otherwise dispose of any Capital Common Stock held by such
Affiliate except as contemplated by the Agreement or the Affiliate Agreement,
and will not sell, pledge, transfer or otherwise dispose of any UPC Common Stock
received by such Affiliate upon consummation of the Merger (i) except in
compliance with the Securities Act and the rules and regulations thereunder and
(ii) until such time as financial results covering 30 days of combined
operations of UPC and Capital have been published. Shares of UPC Common Stock
issued to such Affiliates of Capital in exchange for shares of Capital Common
Stock will not be transferable until such time as financial results covering at
least 30 days of combined operations of UPC and Capital have been published,
regardless of whether each such Affiliate has provided an Affiliate Agreement
(and UPC shall be entitled to place restrictive legends upon certificates for
shares of UPC Common Stock issued to Affiliates of Capital). Certificates
representing shares of Capital Common Stock surrendered for exchange by any
person who is an Affiliate of Capital for purposes of Rule 145(c) under the
Securities Act shall be exchanged for certificates representing shares of UPC
Common Stock as described under "-- Distribution of Consideration," with the
certificates representing such shares of UPC Common Stock containing a legend
summarizing the foregoing restrictions. Prior to publication of such results,
UPC will not transfer on its books any shares of UPC Common Stock received by an
Affiliate pursuant to the Merger. See "-- Conditions to Consummation of the
Merger."
-36-
<PAGE> 46
OPTION AGREEMENT
As an inducement and a condition to UPC entering into the Agreement,
Capital and UPC entered into the Option Agreement, pursuant to which Capital
granted UPC an option (the "Option") entitling it to purchase up to 376,460
shares (representing approximately 19.9% of the shares issued and outstanding
before giving effect to the issuance of additional shares of Capital Common
Stock pursuant to the exercise of such option) of Capital Common Stock under the
circumstances described below, at a cash price per share equal to $18.75,
subject to possible adjustment in certain circumstances (the "Purchase Price").
This description of the Option Agreement and the Option does not purport to be
complete and is qualified in its entirety by reference to the Option Agreement,
which is filed as an exhibit to the Registration Statement and incorporated
herein by reference.
Notwithstanding anything to the contrary contained in the Option
Agreement, in no event shall the Total Profit (as defined below) of UPC exceed
$2.4 million and, if it otherwise would exceed such amount, UPC, at its sole
election, shall either (a) reduce the number of shares of Capital Common Stock
subject to the Option, (b) deliver to Capital for cancellation, without
consideration, the shares of Capital Common Stock previously purchased pursuant
to the Option, (c) pay cash to Capital or (d) any combination thereof so that
UPC will not actually realize Total Profit (together with the Total Profit
realized by all other holders) in excess of $2.4 million after taking into
account the foregoing actions. In addition, the Option may not be exercised for
a number of shares of Capital Common Stock as would, as of the date of exercise,
result in UPC's (taking into account all other holders) Notional Total Profit
(as defined below) exceeding $2.4 million; provided, however, that this
limitation will not restrict any exercise of the Option permitted by the Option
Agreement on any subsequent date.
"Total Profit" means the aggregate sum (prior to payment of taxes) of the
following: (a) the amount received by UPC pursuant to Capital's repurchase of
the Option (or any portion thereof) (b)(i) the amount received by UPC pursuant
to Capital's repurchase of shares of Capital Common Stock purchased pursuant to
the Option Agreement, less (ii) UPC's purchase price for such shares; (c)(i) the
net cash amounts received by UPC pursuant to the sale of Capital Common Stock
purchased pursuant to the Option (or any other securities into which such shares
may be converted or exchanged) to any unaffiliated party, less (ii) UPC's
purchase price of such shares; and (d) any amounts received by UPC on the
transfer of the Option (or any portion thereof) to any unaffiliated party.
"Notional Total Profit" means the Total Profit determined as of the date
of such proposed exercise, assuming that the Option were exercised on such date
for such number of shares and assuming that such shares, together with all other
Capital Common Stock purchased pursuant to the Option held by UPC and its
affiliates as of such date, were sold for cash at the closing sale price per
share of Capital Common Stock as quoted on the Nasdaq National Market (or, if
Capital Common Stock is not then quoted on the Nasdaq National Market, the
highest bid per share as quoted on the principal trading market or securities
exchange on which such shares are traded as reported by a recognized source
selected by UPC) as of the close of business on the preceding trading day (less
customary brokerage commissions).
Provided no preliminary or permanent injunction or other order against the
delivery of the shares of Capital Common Stock covered by the Option issued by
any court of competent jurisdiction shall be in effect, UPC may exercise the
Option, in whole or in part, at any time, from time to time, if, but only if, a
Purchase Event (as defined below) occurs prior to the Option's termination;
provided that UPC, at the time, is not in material breach of the Option
Agreement or the Agreement. As defined in the Option Agreement, "Purchase Event"
means either of the following events:
(a) without UPC's prior written consent, Capital authorizes,
recommends, publicly proposes, or publicly announces an intention to
authorize, recommend or propose or enter into an agreement with any third
party to effect (i) a merger, consolidation, or similar transaction
involving Capital or any of its subsidiaries (other than transactions
solely between Capital's subsidiaries and transactions involving Capital
or any of Capital's subsidiaries), (ii) the disposition, by sale, lease,
exchange, or otherwise, of 25% or more of the consolidated assets of
Capital and its subsidiaries, or (iii) the issuance, sale, or other
disposition (including by way of merger, consolidation, share exchange, or
any similar transaction) of securities representing 25% or more of the
voting power of Capital or any of its subsidiaries; or
-37-
<PAGE> 47
(b) any person (other than UPC or any subsidiary of UPC) acquires
beneficial ownership (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), or the right to acquire beneficial ownership of,
or the formation of any "group" (as defined under the Exchange Act), other
than a group of which UPC or any UPC subsidiary is a member, that
beneficially owns or has the right to acquire beneficial ownership of, 25%
or more of the outstanding shares of Capital Common Stock.
The Option will terminate upon the earliest of the following:
(a) the Effective Time;
(b) termination of the Agreement in accordance with the terms
thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event (as defined below) (other than a termination of the
Agreement under certain circumstances involving generally a willful breach
by Capital of a representation, warranty or covenant contained in the
Agreement (each a "Default Termination");
(c) 12 months after termination of the Agreement by UPC pursuant
to a Default Termination; and
(d) 12 months after any termination of the Agreement other than a
Default Termination following the occurrence of a Purchase Event or a
Preliminary Purchase Event.
As defined in the Option Agreement, "Preliminary Purchase Event" includes
either of the following events:
(a) commencement or filing of a registration statement under the
Securities Act by any third party of a tender offer or exchange offer to
purchase any shares of Capital Common Stock such that, upon consummation
of such offer, such person would own or control 25% or more of the
then-outstanding shares of Capital Common Stock (a "Tender Offer" or an
"Exchange Offer," respectively); or
(b) failure of the shareholders of Capital Common Stock to adopt
the Agreement and the Plan of Merger at the Capital Special Meeting, the
failure to have, or the cancellation of the Capital Special Meeting prior
to termination of the Agreement, or the withdrawal or modification by the
Capital Board in a manner adverse to UPC of the recommendation of the
Capital Board with respect to the Agreement, in each case, after public
announcement that a third party (i) made a proposal to engage in an
acquisition transaction, (ii) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer or (iii) filed an application or gave a notice under any
federal or state statute or regulation for approval or consent to engage
in an acquisition transaction.
In the event of any change in Capital Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of securities subject to the
Option, and the purchase price therefor shall be adjusted appropriately. In the
event that any additional shares of Capital Common Stock are issued after
November 25, 1997 (other than pursuant to an event described in the preceding
sentence), the number of shares of Capital Common Stock subject to the Option
will be adjusted so that, after such issuance, it, together with any shares of
Capital Common Stock previously issued pursuant to the Option Agreement, equals
19.9% of the number of shares then issued and outstanding, without giving effect
to any shares subject to or issued pursuant to the Option.
Upon the occurrence of a Repurchase Event (as defined below) that occurs
prior to the exercise or termination of the Option, at the request of UPC,
delivered within 12 months of the Repurchase Event, Capital will, subject to
regulatory restrictions, be obligated to repurchase the Option and any shares of
Capital Common Stock therefor purchased pursuant to the Option Agreement at a
specified price. After the occurrence of a Purchase Event, UPC may assign the
Option Agreement and its rights thereunder in whole or in part.
-38-
<PAGE> 48
As defined in the Option Agreement, a "Repurchase Event" shall occur if
(i) any person (other than UPC or any UPC subsidiary) shall have acquired actual
ownership or control, or any "group" (as such term is defined under the Exchange
Act) shall have been formed which shall have acquired actual ownership or
control, of 50% or more of the then-outstanding shares of Capital Common Stock,
or (ii) any of the following transactions is consummated: (a) Capital
consolidates with or merges into any person, other than UPC or one of UPC's
subsidiaries, and is not the continuing or surviving corporation of such
consolidation or merger; (b) Capital permits any person, other than UPC or one
of UPC's subsidiaries, to merge into Capital and Capital shall be the continuing
or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Capital Common Stock shall be changed into or
exchanged for stock or other securities of Capital or any other person or cash
or any other property or the outstanding shares of Capital Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (c)
Capital sells or otherwise transfers all or substantially all of its assets to
any person, other than UPC or one of UPC's subsidiaries.
In the event that prior to the exercise or termination of the Option,
Capital enters into an agreement to engage in any of the transactions described
in clause (ii) of the definition of Repurchase Event above, the agreement
governing such transaction must make proper provision so that UPC will receive a
substitute option with terms as similar as possible and in no event less
advantageous to UPC.
Upon the occurrence of certain events, Capital has agreed to file with the
SEC and to cause to become effective certain registration statements under the
Securities Act with respect to dispositions by UPC and its assigns of all or
part of the Option and/or any shares of Capital Common Stock into which the
Option is exercisable.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of Capital Common Stock will be
exchanging their shares of a Delaware corporation governed by the DGCL, the
Capital Charter and Capital Bylaws, for shares of UPC, a Tennessee corporation
governed by the TBCA, the UPC Charter and UPC Bylaws. Certain significant
differences exist between the rights of Capital shareholders and those of UPC
shareholders. In particular, the UPC Charter and UPC Bylaws contain several
provisions that may be deemed to have an anti-takeover effect in that they could
impede or prevent an acquisition of UPC unless the potential acquirer has
obtained the approval of the UPC Board. The following discussion is necessarily
general; it is not intended to be a complete statement of all differences
affecting the rights of shareholders and their respective entities, and it is
qualified in its entirety by reference to the DGCL and the TBCA as well as to
the UPC Charter and UPC Bylaws and the Capital Charter and Capital Bylaws.
ANTI-TAKEOVER PROVISIONS GENERALLY
The provisions of the UPC Charter and UPC Bylaws described below under the
headings, "-- Authorized Capital Stock," "-- Amendment of Charter and Bylaws,"
"-- Classified Board of Directors and Absence of Cumulative Voting," "--
Director Removal and Vacancies," "-- Limitations on Director Liability," "--
Indemnification," "--Special Meetings of Shareholders," "-- Actions by
Shareholders Without a Meeting," "-- Shareholder Nominations and Proposals" and
"-- Business Combinations" are referred to herein as the "Protective
Provisions." In general, one purpose of the Protective Provisions is to assist
the UPC Board in playing a role if any group or person attempts to acquire
control of UPC, so that the UPC Board can further protect the interests of UPC
and its shareholders as appropriate under the circumstances, including, if the
UPC Board determines that a sale of control is in the best interests of UPC's
shareholders, by enhancing the UPC Board's ability to maximize the value to be
received by the shareholders upon such a sale.
Although UPC's management believes the Protective Provisions are,
therefore, beneficial to UPC's shareholders, the Protective Provisions also may
tend to discourage some takeover bids. As a result, UPC's shareholders may be
deprived of opportunities to sell some or all of their shares at prices that
represent a premium over prevailing market prices. On the other hand, defeating
undesirable acquisition offers can be a very expensive
-39-
<PAGE> 49
and time-consuming process. To the extent that the Protective Provisions
discourage undesirable proposals, UPC may be able to avoid those expenditures of
time and money.
The Protective Provisions also may discourage open market purchases by a
potential acquirer. Such purchases may increase the market price of UPC Common
Stock temporarily, enabling shareholders to sell their shares at a price higher
than that which otherwise would prevail. In addition, the Protective Provisions
may decrease the market price of UPC Common Stock by making the stock less
attractive to persons who invest in securities in anticipation of price
increases from potential acquisition attempts. The Protective Provisions also
may make it more difficult and time consuming for a potential acquirer to obtain
control of UPC through replacing the Board of Directors and management.
Furthermore, the Protective Provisions may make it more difficult for UPC's
shareholders to replace the Board of Directors or management, even if a majority
of the shareholders believe such replacement is in the best interests of UPC. As
a result, the Protective Provisions may tend to perpetuate the incumbent Board
of Directors and management.
AUTHORIZED CAPITAL STOCK
UPC. The UPC Charter currently authorizes the issuance of up to (i)
300,000,000 shares of UPC Common Stock, of which 84,893,432 shares were
outstanding as of April 30, 1998, and (ii) 10,000,000 shares of no par value
preferred stock ("UPC Preferred Stock" and, together with the UPC Common Stock,
the "UPC Capital Stock"), of which no shares of UPC Series A Preferred Stock,
and 1,179,343 shares of UPC's 8% Cumulative, Convertible Preferred Stock, Series
E (the "Series E Preferred Stock") were issued and outstanding as of April 30,
1998. At the 1998 annual meeting of UPC, the UPC shareholders approved an
amendment to the UPC Charter to increase the number of authorized shares of UPC
Common Stock from 100,000,000 shares to 300,000,000 shares. Accordingly, UPC has
sufficient authorized shares of UPC Common Stock to consummate the Merger and
all Other Pending Acquisitions.
The UPC Board may authorize the issuance of additional authorized shares
of UPC Common Stock without further action by UPC's shareholders, unless such
action is required in a particular case by applicable laws or regulations or by
any stock exchange upon which UPC Common Stock may be listed.
With certain exceptions, the UPC Board may issue, without any further
action by the shareholders, shares of UPC Preferred Stock, in one or more
classes or series, with the voting, conversion, dividend, and liquidation rights
specified in the UPC Charter. In providing for the issuance of such shares, the
UPC Board may determine, among other things, the distinctive designation and
number of shares comprising a series of preferred stock, the dividend rate or
rates on the shares of such series and the relation of such dividends to the
dividends payable on other classes of stock, whether the shares of such series
shall be convertible into or exchangeable for shares of any other class or
series of UPC Capital Stock, the voting powers if any of such series, and any
other preferences, privileges, and powers of such series.
In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets, or winding up of UPC, the holders of any series of UPC
Preferred Stock will have priority over holders of UPC Common Stock.
The authority to issue additional authorized shares of UPC Common Stock or
UPC Preferred Stock provides UPC with the flexibility necessary to meet its
future needs without the delay resulting from seeking shareholder approval. The
authorized but unissued shares of UPC Common Stock and UPC Preferred Stock will
be issuable from time to time for any corporate purpose, including, without
limitation, stock splits, stock dividends, employee benefit and compensation
plans, acquisitions, and public or private sales for cash as a means of raising
capital. Such shares could be used to dilute the stock ownership of persons
seeking to obtain control of UPC. In addition, the sale of a substantial number
of shares of UPC voting stock to persons who have an understanding with UPC
concerning the voting of such shares, or the distribution or declaration of a
dividend of shares of UPC voting stock (or the right to receive UPC voting
stock) to UPC shareholders, may have the effect of discouraging or increasing
the cost of unsolicited attempts to acquire control of UPC.
-40-
<PAGE> 50
In 1989, the UPC Board adopted a Share Purchase Rights Plan ("Preferred
Share Rights Plan") and distributed a dividend of one Preferred Share Unit
Purchase Right ("Preferred Share Right") for each outstanding share of UPC
Common Stock. In addition, under the Preferred Share Rights Plan, one Preferred
Share Right is to be automatically, and without further action by UPC,
distributed in respect to each share of UPC Common Stock issued after adoption
of the Preferred Share Rights Plan. The Preferred Share Rights are generally
designed to deter coercive takeover tactics and to encourage all persons
interested in potentially acquiring control of UPC to treat each shareholder on
a fair and equal basis. Each Preferred Share Right trades in tandem with the
share of UPC Common Stock to which it relates until the occurrence of certain
events indicating a potential change in control of UPC. Upon the occurrence of
such an event, the Preferred Share Rights would separate from UPC Common Stock
and each holder of a Preferred Share Right (other than the potential acquirer)
would be entitled to purchase certain equity securities of UPC at prices below
their market value. UPC has authorized 750,000 shares of Series A Preferred
Stock for issuance under the Preferred Share Rights Plan and no shares have been
issued as of the date of this Proxy Statement. Until a Preferred Share Right is
exercised, the holder thereof, as such, has no rights of a shareholder of UPC,
including the right to vote or receive dividends.
CAPITAL. The Capital Charter currently authorizes the issuance of up to
(i) 5,200,000 shares of Capital Common Stock, of which 1,891,400 shares were
outstanding as of March 31, 1998, and (ii) 800,000 shares of preferred stock
("Capital Preferred Stock," and together with the Capital Common Stock, the
"Capital Capital Stock"), of which no shares of Capital Preferred Stock were
issued or outstanding as of March 31, 1998.
Capital's Charter provides the Capital Board with substantially the same
powers with respect to the issuance of additional shares of Capital Common Stock
and the issuance of Capital Preferred Stock as possessed by the UPC Board
described above. Capital has not adopted any plan similar to the Preferred Share
Rights Plan described above.
PREEMPTIVE RIGHTS
UPC. The TBCA provides that, unless a Tennessee corporation's charter
expressly provides for preemptive rights, shareholders of a Tennessee
corporation do not have a preemptive right to acquire proportional amounts of
the corporation's unissued shares upon a decision of the board of directors to
issue shares. The UPC Charter does not provide for preemptive rights to its
shareholders.
CAPITAL. The DGCL provides that, unless a Delaware corporation's
certificate of incorporation expressly provides for preemptive rights,
shareholders of a Delaware corporation do not have a preemptive right to acquire
proportionate amounts of the corporation's unissued shares upon a decision of
the board of directors to issue shares. The Capital Charter denies preemptive
rights to its shareholders.
AMENDMENT OF CHARTER AND BYLAWS
UPC. The UPC Charter generally provides that amendments thereto may be
adopted in any manner permitted by the TBCA. The TBCA provides that a Tennessee
corporation's charter may be amended by a majority of votes entitled to be cast
on the amendment, subject to any condition the board of directors may place on
its submission of the amendment to the shareholders. The UPC Charter requires a
super-majority vote of the shares of capital stock entitled to vote in an
election of directors to amend the articles of the UPC Charter governing
directors and to remove a director from office whether with or without cause. A
super-majority vote is also required to amend, alter, or repeal the article of
the UPC Charter relating to business combinations.
The UPC Board may adopt, amend or repeal the UPC Bylaws by a majority vote
of the entire Board of Directors. The UPC Bylaws may also be amended or repealed
by action of UPC's shareholders.
The UPC Charter provides that all corporate powers of UPC shall be
exercised by the UPC Board except as otherwise provided by law. The UPC Board
may designate an executive committee consisting of five or more directors and
may authorize such committee to exercise all of the authority of the UPC Board,
including the
-41-
<PAGE> 51
authority to adopt, amend and repeal the Bylaws, to submit any action to the
shareholders, to fill vacancies on the UPC Board or any committee, to declare
dividends or other corporate distributions, and to issue or reissue any capital
stock or any warrant, right, or option to acquire capital stock of the
corporation.
CAPITAL. Amendments to the Capital Charter must be approved by a majority
of its Board of Directors and also by a majority of the outstanding shares of
Capital's voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required to amend certain provisions of
the Capital Charter (i.e., provisions relating to number, classification,
election and removal of directors, amendment of bylaws, call of special
stockholder meetings, voting limitation, offers to acquire and acquisitions of
control, certain business combinations, power of indemnification, and amendments
to provisions relating to the foregoing).
The Capital Bylaws may be amended by a majority vote of its Board of
Directors or the affirmative vote of at least 80% of the total votes eligible to
be voted at a duly constituted meeting of its stockholders.
CLASSIFIED BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING
UPC. The UPC Charter provides that the UPC Board is divided into three
classes, with each class to be as nearly equal in number as possible. The
directors in each class serve three-year terms of office. The effect of UPC
having a classified Board of Directors is that only approximately one-third of
the members of the UPC Board are elected each year, which effectively requires
two annual meetings for UPC's shareholders to change a majority of the members
of the UPC Board. The purpose of dividing the UPC Board into classes is to
facilitate continuity and stability of leadership of UPC by ensuring that
experienced personnel familiar with UPC will be represented on the UPC Board at
all times, and to permit UPC's management to plan for the future for a
reasonable amount of time. However, by potentially delaying the time within
which an acquirer could obtain working control of the UPC Board, this provision
may discourage some potential mergers, tender offers, or takeover attempts.
Pursuant to the UPC Charter, each holder of UPC Common Stock is entitled
to one vote for each share of UPC Common Stock held in the election of
directors, and is not entitled to cumulative voting rights in the election of
directors. With cumulative voting, a shareholder has the right to cast a number
of votes equal to the total number of such holder's shares multiplied by the
number of directors to be elected. The shareholder has the right to distribute
all of his or her votes in any manner among any number of candidates or to
accumulate such shares in favor of one candidate. Directors are elected by a
plurality of the total votes cast by all shareholders. With cumulative voting,
it may be possible for minority shareholders to obtain representation on the UPC
Board. Without cumulative voting, the holders of more than 50% of the shares of
UPC Common Stock generally have the ability to elect 100% of the UPC Board. As a
result, the holders of the remaining UPC Common Stock effectively may not be
able to elect any person to the UPC Board. The absence of cumulative voting thus
could make it more difficult for a shareholder who acquires less than a majority
of the shares of UPC Common Stock to obtain representation on the UPC Board.
CAPITAL. The Capital Charter provides that the Capital Board is divided
into three classes, with each class to be as nearly equal in number as possible.
The directors in each class serve for three-year terms of office. In addition,
the Capital Charter provides that each holder of Capital Common Stock is
entitled to one vote for each share of Capital Common Stock held in the election
of directors, and that shareholders are not entitled to cumulative voting rights
in the election of directors.
DIRECTOR REMOVAL AND VACANCIES
UPC. The UPC Charter provides that a director may be removed by the UPC
shareholders only upon the affirmative vote of the holders of a super-majority
of the voting power of all shares of UPC Common Stock entitled to vote generally
in the election of directors. The purpose of this provision is to prevent a
majority shareholder from circumventing the classified board system by removing
directors and filling the vacancies with new individuals selected by that
shareholder. Accordingly, the provision may have the effect of impeding efforts
to gain control of the Board of Directors by anyone who obtains a controlling
interest in UPC Common Stock. Vacancies on the UPC Board may be filled by the
members of the UPC Board or by UPC shareholders, as provided under the
-42-
<PAGE> 52
UPC Bylaws and the TBCA. The term of a director appointed to fill a vacancy
expires at the next meeting of shareholders at which directors are elected.
CAPITAL. The DGCL provides that, unless the corporation's certificate of
incorporation provides otherwise, the shareholders of a corporation that has a
classified board (as described above) may remove a director only for cause. In
addition, the DGCL provides that, unless the corporation's certificate of
incorporation provides for a higher voting requirement, directors may be removed
by the holders of a majority of the shares then entitled to vote in the election
of such directors. Under the Capital Charter, subject to the rights of the
holders of any series of Capital Preferred Stock then outstanding, any
directors, or the entire Capital Board of Directors, may be removed from office
at any time, but only for cause and only by the affirmative vote of the holders
of at least 80% of the voting power of all of the then-outstanding shares of
Capital Capital Stock of the corporation entitled to vote generally in the
election of directors, voting together as a single class. The Capital Charter
further states that, notwithstanding the foregoing, any director who has at any
time been disqualified (for reasons enumerated in the Capital Charter) from
office may be removed from office by the affirmative vote of the holders of at
least a majority of the voting power of all of the then outstanding shares of
Capital Capital Stock entitled to vote generally in the election of directors,
voting together as a single class.
The Capital Charter provides that vacancies on the Capital Board, whether
occurring by reason of an increase in the number of directors, by resignation or
otherwise, may be filled by the Capital Board acting by a vote of a majority of
directors then in office, even if less than a quorum. The overall effect of such
a provision may be to prevent a person or entity from immediately acquiring
control of Capital through an increase in the number of Capital directors
followed by election of that person's or entity's nominees to fill the newly
created vacancies. Furthermore, the ability of the Capital Board to fill
vacancies resulting from newly created directorships could allow the Board to
retain control of Capital by creating new directorships and filling the
vacancies created thereby. The term of a director appointed to fill a vacancy
expires at the annual meeting of stockholders at which the term of office of the
class to which such director has been elected expires, and until such director's
successor shall have been duly elected and qualified.
LIMITATIONS ON DIRECTOR LIABILITY
UPC. The UPC Charter does not address the issue of director liability to
the corporation.
CAPITAL. Under Delaware law, a Delaware corporation may include in its
certificate of incorporation a provision that eliminates or limits a director's
personal liability for monetary damages for breach of his or her fiduciary duty,
subject to certain limitations. The Capital Charter provides that a director
shall not be personally liable to Capital or its stockholders for monetary
damages arising out of the director's breach of his or her duty of care, except
(i) for any breach of a director's duty of loyalty to Capital or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law (iii) under Section 174 of
the DGCL which imposes liability on directors for unlawful payment of dividends
or unlawful stock repurchases, or (iv) for any transactions from which the
director derived any improper personal benefit. Further, the Capital Charter
provides that if Delaware law is subsequently amended to eliminate or limit
director liability with respect to these actions, then the liability of the
directors shall be eliminated or limited to the fullest extent of the law. These
provisions do not, however, relieve directors of their duty to act with due
care. In addition, these provisions do not prevent a stockholder from seeking
equitable remedies, including an injunction prohibiting a proposed action or
transaction or rescission of a consummated action or transaction.
Under federal regulations, there is no provision for limitation of
directors' liability to Capital Bank, nor does Capital Bank's charter or bylaws
contain any limitation on the liability of directors of Capital Bank for conduct
in their official capacities.
INDEMNIFICATION
UPC. Under the TBCA, subject to certain exceptions, a Tennessee
corporation may indemnify an individual made a party to a proceeding, because he
or she is or was a director, against liability incurred in the proceeding if (i)
he or she conducted himself or herself in good faith, (ii) he or she reasonably
believed (a) in the
-43-
<PAGE> 53
case of conduct in his or her official capacity with the corporation, that his
or her conduct was in the best interests of the corporation, and (b) in all
other cases, that his or her conduct was at least not opposed to the
corporation's best interests, and (iii) in the case of any criminal proceeding,
he or she had no reasonable cause to believe his or her conduct was unlawful
(the "Standard of Conduct"). Moreover, unless limited by its charter of
incorporation, a Tennessee corporation must indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he or she was a party because he or she is or was a director of the
corporation against reasonable expenses incurred by him or her in connection
with the proceeding. Expenses incurred by a director in defending a proceeding
may be paid by the corporation in advance of the final disposition of such
proceeding upon receipt of a written affirmation by the director of his or her
good faith belief that he or she has met the Standard of Conduct and a written
undertaking by or on behalf of a director to repay such amount if it shall
ultimately be determined that he or she is entitled to be indemnified by the
corporation against such expenses and a determination is made that the facts
known to those making the determination would preclude indemnification. Before
any such indemnification is made, it must be determined that such
indemnification would not be precluded by the TBCA.
A director of a Tennessee corporation may also apply for court-ordered
indemnification under certain circumstances. Unless a Tennessee corporation's
charter of incorporation provide otherwise, (i) an officer of a corporation is
entitled to mandatory indemnification and is entitled to apply for court-ordered
indemnification to the same extent as a director; (ii) the corporation may
indemnify and advance expenses to an officer, employee, or agent of the
corporation to the same extent as to a director; and (iii) a corporation may
also indemnify and advance expenses to an officer, employee, or agent who is not
a director to the extent, consistent with public policy, that may be provided by
its charter of incorporation, bylaws, general or specific action of its board of
directors, or contract.
The UPC Charter and UPC Bylaws provide for the indemnification of its
directors and officers to the fullest extent permitted by Tennessee law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling UPC pursuant
to the foregoing provisions, UPC has been informed that, in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
CAPITAL. Under Delaware law, directors, officers, employees and other
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by, or in the right of the corporation - a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, regarding any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in the case
of derivative actions, except that indemnification only extends to expenses
(including attorneys fees) incurred in connection with the defense or settlement
of such actions. In the case of derivative actions, the DGCL requires court
approval before there can be any indemnification when the person seeking
indemnification has been found liable to the corporation. The extent that a
person otherwise eligible to be indemnified is successful on the merits or
otherwise of any claim or defense described above, indemnification for expenses
(including attorneys' fees) actually and reasonably incurred is made mandatory
by the DGCL.
In addition to the indemnification provisions contained in the DGCL, the
Capital Charter also permits the payment of expenses in advance of the full
disposition of an action, to the extent permitted by law. Additionally,
Capital's provision specifies that any indemnification payment to which an
individual is entitled must be made within 60 days of receipt of a written
request from the individual. Any advancement of expenses must be made within 20
days of the receipt of a written request. The Capital Charter also provides for
the continuation of indemnification after the termination of the person's
association with the company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling Capital
pursuant to the foregoing provisions, Capital has been informed that, in the
-44-
<PAGE> 54
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
SPECIAL MEETINGS OF SHAREHOLDERS
UPC. The UPC Bylaws provide that special meetings of UPC shareholders may
be called, unless otherwise prescribed by law, for any purpose or purposes
whatever at any time by the Chairman of the Board, the President, the Secretary,
or the holders of not less than one-tenth of the shares entitled to vote at such
meeting.
CAPITAL. The DGCL provides that the board of directors or those persons
authorized by the corporation's certificate of incorporation or bylaws may call
a special meeting of the corporation's stockholders. The Capital Charter
provides that a special meeting may only be called by a majority of the whole
Capital Board (the total number of directors which Capital would have if there
were no vacancies on the Capital Board.
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
UPC. The UPC Charter and UPC Bylaws provide that any action required or
permitted to be taken by UPC shareholders at a duly called meeting of UPC
shareholders may be effected by the unanimous written consent of the
shareholders entitled to vote on such action.
CAPITAL. The DGCL permits any action required or permitted to be taken at
a stockholder's meeting to be taken by written consent signed by the holders of
the number of shares that would have been required to effect the action at an
actual meeting of stockholders. Generally, holders of a majority of outstanding
shares can effect such an action. The DGCL also provides that a corporation's
certificate of incorporation may restrict or prohibit stockholders' actions
without a meeting. The Capital Charter prohibits stockholders action without a
meeting.
SHAREHOLDER NOMINATIONS AND PROPOSALS
UPC. The UPC Charter and UPC Bylaws do not address whether a shareholder
may nominate members of the UPC Board.
CAPITAL. The Capital Bylaws specify that notice of any stockholder
nomination or proposal for new business must be received by Capital at least 30
days in advance of the annual meeting; however, in the event that fewer than 40
days' notice or prior public disclosure of the date of the meeting is given or
made, written notice must be submitted no later than the tenth day following the
earlier of the date such notice is given or public disclosure made.
BUSINESS COMBINATIONS
UPC. The UPC Charter requires the affirmative vote of the holders of a
super-majority or more of the outstanding shares of UPC Common Stock for
approval of a merger, consolidation, or a sale or lease of all or substantially
all of the assets of UPC if the other party to the sale or lease is a beneficial
owner of 10% or more of the outstanding shares of UPC Common Stock. The approval
of the UPC shareholders is not required for any merger or consolidation of UPC
with or into any corporation or entity of which a majority of the outstanding
shares of all classes of capital stock is owned by UPC or any UPC subsidiary.
The requirement of a super-majority vote of UPC's shareholders to approve
certain business transactions, as described above, may discourage a change in
control of UPC by allowing a minority of UPC's shareholders to prevent a
transaction favored by the majority of the shareholders. Also, in some
circumstances, the UPC Board could cause a super-majority vote to be required to
approve a transaction thereby enabling management to retain control over the
affairs of UPC and their positions with UPC. The primary purpose of the
super-majority vote requirement, however, is to encourage negotiations with
UPC's management by groups or corporations interested in acquiring control of
UPC and to reduce the danger of a forced merger or sale of assets.
-45-
<PAGE> 55
As a Tennessee corporation, UPC is or could be subject to various
legislative acts set forth in Chapter 103 of Title 48 of the Tennessee Code,
which impose certain restrictions on business combinations, including, but not
limited to, combinations with interested shareholders similar to those described
above.
The TBCA generally prohibits a "business combination" (generally defined
to include mergers, share exchanges, sales and leases of assets, issuances of
securities, and similar transactions) by UPC or a subsidiary with an "interested
shareholder" (generally defined as any person or entity which beneficially owns
10% or more of the voting power of any class or series of UPC's stock then
outstanding) within five years after the person or entity becomes an interested
shareholder, unless the business combination or the transaction pursuant to
which the interested shareholder became such was approved by the UPC Board
before the interested shareholder became such, and the business combination
satisfies any other applicable requirements imposed by law or by the UPC Charter
or Bylaws. The TBCA also severely limits the extent to which UPC or any of its
officers or directors could be held liable for resisting any business
combination.
The Tennessee Control Share Acquisition Act (the "Tennessee CSAA")
generally provides that any person or group of persons that acquires the power
to vote more than specified levels (one-fifth, one-third, or a majority) of the
shares of certain Tennessee corporations will not have the right to vote such
shares unless granted voting rights by the holders of a majority of the votes
entitled to be cast, excluding "interested shares." Interested shares are those
shares held by the acquiring person, officers of the corporation, and employees
of the corporation who are also directors of the corporation. If approval of
voting power for the shares is obtained at one of the specified levels,
additional shareholder approval is required when a shareholder seeks to acquire
the power to vote shares at the next level. In the absence of such approval, the
additional shares acquired by the shareholder may not be voted until they are
transferred to another person in a transaction other than a control share
acquisition. The Tennessee CSAA applies only to those Tennessee corporations
whose charters or bylaws contain an express declaration that control share
acquisitions in respect of the shares of such corporations are governed by and
subject to the provisions of such act. The UPC Charter and Bylaws do not
currently contain such an express declaration.
The Tennessee Greenmail Act (the "Tennessee GA") prohibits a Tennessee
corporation having a class of voting stock registered or traded on a national
securities exchange or registered with the SEC pursuant to Section 12(g) of the
Exchange Act from purchasing, directly or indirectly, any of its shares at a
price above the market value of such shares (defined as the average of the
highest and lowest closing market price of such shares during the 30 trading
days preceding the purchase or preceding the commencement or announcement of a
tender offer if the seller of such shares has commenced a tender offer or
announced an intention to seek control of the corporation) from any person who
holds more than 3% of the class of securities to be purchased if such person has
held such shares for less than two years, unless the purchase has been approved
by the affirmative vote of a majority of the outstanding shares of each class of
voting stock issued by such corporation or the corporation makes an offer, of at
least equal value per share, to all holders of shares of such class.
The TBCA provides that no Tennessee corporation having any class of voting
stock registered or traded on a national securities exchange or registered with
the SEC pursuant to Section 12(g) of the Exchange Act or any of its officers or
directors may be held liable at law or in equity for either having failed to
approve the acquisition of shares by an interested shareholder on or before such
interested shareholder's share acquisition date, or for seeking to enforce or
implement the provisions of the TBCA or the Tennessee CSAA, or for failing to
adopt or recommend any charter or bylaw amendment or provision in respect of any
one or more of these acts or the Tennessee GA, or for opposing any merger,
exchange, tender offer, or significant disposition of the assets of the resident
domestic corporation or any subsidiary of such corporation because of a good
faith belief that such merger, exchange, tender offer, or significant
disposition of assets would adversely affect the corporation's employees,
customers, suppliers, the communities in which the corporation or its
subsidiaries operate or are located or any other relevant factor if such factors
are permitted to be considered by the board of directors under the corporation's
charter in connection with the merger, exchange, tender offer or significant
disposition of assets.
The acts described above along with the provisions of the UPC Charter
regarding business combinations might be deemed to make UPC less attractive as a
candidate for acquisition by another company than would
-46-
<PAGE> 56
otherwise be the case in the absence of such provisions. For example, if another
company should seek to acquire a controlling interest of less than 66-2/3% of
the outstanding shares of UPC Common Stock, the acquiror would not thereby
obtain the ability to replace a majority of the UPC Board until at least the
second Capital special meeting of shareholders following the acquisition, and
furthermore the acquiror would not obtain the ability immediately to effect a
merger, consolidation, or other similar business combination unless the
described conditions were met.
As a result, UPC's shareholders may be deprived of opportunities to sell
some or all of their shares at prices that represent a premium over prevailing
market prices in a takeover context. The provisions described above also may
make it more difficult for UPC's shareholders to replace the UPC Board or
management, even if the holders of a majority of the UPC Common Stock should
believe that such replacement is in the interests of UPC. As a result, such
provisions may tend to perpetuate the incumbent UPC Board and management.
CAPITAL. The DGCL requires the approval of the Capital Board and the
holders of a majority of the outstanding stock of Capital entitled to vote
thereon for mergers or consolidations, and for sales, leases, or exchanges of
substantially all of Capital's property and assets. The DGCL permits Capital to
merge with another corporation without obtaining the approval of Capital's
shareholders if: (i) Capital is the surviving corporation of the merger; (ii)
the merger agreement does not amend the Capital Charter; (iii) each share of
Capital Capital Stock outstanding immediately prior to the effective date of the
merger is to be an identical outstanding or treasury share of Capital after the
merger; and (iv) any authorized unissued shares or treasury shares of Capital
Common Stock to be issued or delivered under the plan of merger plus those
initially issuable upon conversion of any other securities or obligations to be
issued or delivered under such plan do not exceed 20% of the shares of Capital
Common Stock outstanding immediately prior to the effective date of the merger.
As a result, the Capital Board could effect significant acquisitions and issue
significant amounts of Capital Capital Stock on terms that may dilute the
interests of existing Capital shareholders, without seeking shareholder
approval.
Section 203 of the DGCL ("Section 203") generally prohibits any person who
acquires 15% or more of a corporation's outstanding voting stock (an "Interested
Shareholder") from entering into any "Business Combination" with the corporation
for three years, unless one of the specified exceptions applies. "Business
Combination" is defined generally to include mergers and consolidations,
dispositions of the corporation's assets, transactions resulting in the issuance
or transfer by the corporation of its stock, transactions having the effect of
increasing the proportionate share of the stock of any class or series of the
corporation, and the receipt by the Interested Shareholder of certain financial
benefits provided by or through the corporation.
That three-year prohibition does not apply, however, if (i) the
corporation's Board of Directors approved the Business Combination prior to the
time such person became an Invested Shareholder or approved (in advance) the
transaction that resulted in 15% ownership; (ii) in the transaction in which the
Interested Shareholder acquired 15% ownership, that shareholder acquired at
least 85% of the voting stock outstanding when the transaction was initiated
(excluding shares owned by officer-directors and certain employee stock plan);
or (iii) the Business Combination subsequently is approved by the Board of
Directors and authorized at a shareholders' meeting by at least 66-2/3% of the
outstanding voting stock, excluding the stock owned by the Interested
Shareholder. In addition, Section 203 does not apply at all if (i) the
corporation's original certificate of incorporation expressly elects to avoid
application of Section 203; (ii) the Board of Directors amended the
corporation's bylaws within 90 days of the effective date of Section 203
expressly to avoid application of Section 203; (iii) the corporation's
shareholders amend the certificate or bylaws to avoid application of Section 203
(although such amendment will not be effective for 12 months); (iv) the
corporation's voting stock is not listed on a national securities exchange,
authorized for quotation on an interdealer quotation system on a registered
national securities association, or held of record by more than 2,000
shareholders (unless the corporation nonetheless elects to be governed by
Section 203); (v) the shareholder acquires 15% ownership inadvertently and then
disposes of sufficient shares to eliminate that status; or (vi) the Business
Combination is proposed after the public announcement, or the publication of
notice, of a proposed business-combination type of transaction and prior to the
consummation or abandonment of such transaction. Because the Capital Board has
approved the Merger, the provisions of Section 203 would not apply to the
Merger.
-47-
<PAGE> 57
In connection with certain "Business Combinations" (as defined in the
Capital Charter) and related transactions between Capital and a "Related Person"
(which generally includes any person or entity owning or controlling more than
10% of the outstanding voting stock of Capital), the Capital Charter provides
that any Business Combination involving any Related Person must be approved by
at least two-thirds of all outstanding shares of voting stock, voting together
as a single class, unless the transaction (i) is authorized by a majority of the
directors of the Capital Board who are unaffiliated with the Related Person and
who were directors prior to the time that the Related Person became a Related
Person, or (ii) meets certain fair price requirements. If the Capital Board
gives such approval or such fair price requirements are met, only the
affirmative vote of the majority of the outstanding stock, voting as a single
class, would be required.
The Capital Charter defines "Business Combination" as (i) any merger or
consideration of Capital or any of its subsidiaries with or into any Related
Person, (ii) any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition other than in the ordinary course of business to or with a Related
Person or any assets of Capital having an aggregate fair market value equal to
or exceeding 25% or more of the combined assets of Capital and its subsidiaries,
(iii) the issuance or transfer by Capital of any securities to any Related
Person in exchange for cash, securities or other property (or combination
thereof) having an aggregate fair market value equal to or exceeding 25% of the
combined assets of Capital and its subsidiaries, except pursuant to an employee
benefit plan of Capital. (iv) the adoption of any plan or proposal for the
liquidation or dissolution of Capital or any of its subsidiaries proposed by, or
on behalf of, a Related Person, or (v) any reclassification, recapitalization,
merger or consolidation of Capital with any of its subsidiaries or any other
transaction that would have the effect of increasing the voting power of a
Related Person.
Under Delaware law, absent such a super-majority voting provision,
Business Combinations, including mergers, consolidations and sales of
substantially all of the assets of Capital must be approved by the vote of
holders of a majority of the outstanding shares of Capital Common Stock, subject
to certain exceptions. The increased stockholder vote required to approve a
Business Combination may have the effect of foreclosing mergers and other
business combinations which a majority of stockholders deem desirable and may
place the power to prevent such a merger or combination in the hands of a
minority of stockholders.
The Capital Charter generally would prohibit Capital from acquiring,
directly or indirectly, from an "interested person" (generally, a beneficial
owner of 5% or more of Capital's voting stock) any of its equity securities of
any class, unless (i) the acquisition is approved by the holders of at least 80%
of Capital's voting stock not owned by the interested person, (ii) the
acquisition is made as part of a tender or exchange offer by Capital or a
Capital Subsidiary to purchase securities of the same class on the same terms to
all holders of such securities and in compliance with the Exchange Act and the
rules and regulations thereunder, (iii) the acquisition is pursuant to an open
market purchase program approved by a majority of the Capital Board, including a
majority of the Disinterested Directors, or (iv) the acquisition is at or below
the market price (generally, the highest sale price for the stock on the
acquisition is at or below the market price (generally, the highest sale price
for the stock on the acquisition date on the Nasdaq) and is approved by a
majority of the Capital Board of Directors, including a majority of the
Disinterested Directors.
LIMITATIONS ON ABILITY TO VOTE STOCK
UPC. The UPC Charter and UPC Bylaws do not contain any provision
restricting a shareholder's ability to vote shares of UPC voting stock.
-48-
<PAGE> 58
CAPITAL. The Capital Charter imposes a voting limitation on any record
owner who beneficially owns in excess of 10% of the outstanding shares of
Capital Common Stock (the "Limit") by prohibiting such owner from voting the
shares held in excess of the Limit. This provision would make it impractical for
a third party to acquire beneficial ownership of more than 10% of the
outstanding voting stock of Capital without first receiving stockholder and
regulatory approvals, since any party who acquired shares in excess of the Limit
would lose all significant rights associated with the voting of such shares.
DISSENTERS' RIGHTS OF APPRAISAL
UPC. Under the TBCA, a shareholder of a Tennessee corporation is generally
entitled to dissent from certain corporate actions, and obtain payment of the
fair value of his or her shares in the event of: (i) consummation of a plan of
merger to which the corporation is a party, unless shareholder approval is not
required by the TBCA; (ii) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired if the
shareholder is entitled to vote on the plan; (iii) consummation of a sale or
exchange of substantially all of the corporation's property other than in the
usual and regular course of business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or to a plan by which substantially all of the net
proceeds of the sale will be distributed in cash to the shareholders within one
year after the date of sale; (iv) an amendment of the charter that materially
and adversely affects rights in respect of a dissenter's shares because it (a)
alters or abolishes a preferential right of the shares, (b) creates, alters, or
abolishes a right in respect of redemption of the shares, including a provision
respecting a sinking fund for the redemption or repurchase of the shares, (c)
alters or abolishes a preemptive right of the holder of the shares to acquire
shares or other securities, (d) excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting rights, or
(e) reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under the
TBCA; or (v) any corporate action taken pursuant to a shareholder vote, to the
extent the charter, bylaws, or a resolution of the board of directors provide
that voting or nonvoting shareholders are entitled to dissent and obtain payment
for their shares. The UPC Charter and Bylaws do not provide for any such
additional dissenters' rights. Because the transactions contemplated by the
Agreement and Plan of Merger do not need to be approved by the shareholders of
UPC, such shareholders do not have dissenters' rights with respect to the
merger.
CAPITAL. The rights of appraisal of dissenting shareholders of Capital are
governed by the DGCL. Pursuant thereto, except as described below, any
shareholder has the right to dissent from any merger of which Capital could be a
constituent corporation. No appraisal rights are available, however, for (i) the
shares of any class or series of stock that is either listed on a national
securities exchange, quoted on the Nasdaq National Market System, or held of
record by more than 2,000 shareholders or (ii) any shares of stock of the
constituent corporation surviving a merger if the merger did not require the
approval of the surviving corporation's shareholders, unless, in either case,
the holders of such stock are required by an agreement of merger or
consolidation to accept for that stock something other than: (a) shares of stock
of the corporation surviving or resulting from the merger or consolidation; (b)
shares of stock of any other corporation that will be listed at the effective
time of the merger on a national securities exchange, quoted on the Nasdaq
National Market System, or held of record by more than 2,000 shareholders; (c)
cash in lieu of fractional shares of stock described in clause (a) or (b)
immediately above; or (d) any combination of the shares of stock and cash in
lieu of fractional shares described in clauses (a) through (c) immediately
above.
SHAREHOLDERS' RIGHTS TO EXAMINE BOOKS AND RECORDS
UPC. The TBCA provides that a shareholder of a Tennessee corporation may
inspect and copy books and records of the corporation during regular business
hours, if he or she gives the corporation written notice of his or her demand at
least five business days before the date of the inspection. In order to inspect
certain records, written demand must also be made in good faith and for a proper
purpose and must describe with reasonable particularity the purpose of the
request and the records the shareholder desires to inspect.
-49-
<PAGE> 59
CAPITAL. The DGCL similarly provides that a shareholder may inspect books
and records upon written demand under oath stating the purpose of the
inspection, if such purpose is reasonably related to such person's interest as a
shareholder.
DIVIDENDS
UPC. UPC's ability to pay dividends on UPC Capital Stock is governed by
Tennessee corporate law. Under Tennessee corporate law, dividends may be paid so
long as the corporation would be able to pay its debts as they become due in the
ordinary course of business and the corporation's total assets would not be less
than the sum of its total liabilities plus the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution to shareholders whose preferential
rights are superior to those receiving the distribution.
There are various statutory limitations on the ability of the UPC Banking
Subsidiaries to pay dividends to UPC. See "CERTAIN REGULATORY CONSIDERATIONS --
Payment of Dividends."
CAPITAL. The DGCL provides that, subject to any restrictions in the
corporation's certificate of incorporation, dividends may be declared from the
corporation's surplus, or, if there is no surplus, from its net profits for the
fiscal year in which the dividend is declared and the preceding fiscal year.
Dividends may not be declared, however, if the corporation's capital has been
diminished to an amount less than the aggregate amount of all capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Substantially all of the funds
available for the payment of dividends by Capital are derived from its
subsidiary depository institution. There are various statutory limitations on
the ability of Capital's subsidiary depository institution to pay dividends to
Capital.
-50-
<PAGE> 60
COMPARATIVE MARKET PRICES AND DIVIDENDS
UPC Common Stock is traded on the NYSE under the symbol "UPC," and
Capital Common Stock is traded on the Nasdaq under the symbol "CAPS." The
following table sets forth, for the indicated periods, the high and low closing
sale prices for the UPC Common Stock and Capital Common Stock as reported by
the NYSE and the Nasdaq respectively, and the cash dividends declared per share
of UPC Common Stock and Capital Common Stock for the indicated periods. The
stock prices do not include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
UPC CAPITAL
-------------------------------------------- --------------------------------------
Cash Cash
Price Range Dividends Price Range Dividends
----------------------- Declared Per ------------------- Declared Per
High Low Share High Low Share
------ ------ ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
1998
- -----------------------------------
First Quarter................... $67.31 $58.38 $.50 $24.25 $20.50 $.06
Second Quarter (through
June , 1998).............. .50 .06
-- --------- ---------
Total........................ $1.00 $.12
========= =========
1997
- -----------------------------------
First Quarter................... $47.75 $38.38 $.320 $14.75 $12.75 $.06
Second Quarter ................. 52.13 41.25 .375 18.75 12.75 .06
Third Quarter................... 56.50 49.25 .400 17.50 15.50 .06
Fourth Quarter.................. 67.88 57.00 .400 25.25 16.63 .06
--------- ---------
Total........................ $1.495 $.24
========= =========
1996
- -----------------------------------
First Quarter................... $31.75 $29.00 $.27 $9.50 $8.88 $.045
Second Quarter.................. 31.25 29.63 .27 9.75 8.88 .045
Third Quarter................... 36.25 28.63 .27 11.25 9.00 .045
Fourth Quarter.................. 41.38 34.63 .27 14.75 11.13 .06
--------- ---------
Total........................ $1.08 $.195
========= =========
</TABLE>
On June ___, 1998, the last sale prices of UPC Common Stock and Capital
Common Stock as reported on the NYSE and on Nasdaq respectively, were $_____
and $_____ per share, respectively. On November 24, 1997, the last business day
prior to public announcement of the Merger, the last sale prices of UPC Common
Stock and Capital Common Stock as reported by the NYSE and the Nasdaq were
$59.94 and $18.25 per share, respectively.
The holders of UPC Common Stock are entitled to receive dividends when
and if declared by the Board of Directors out of funds legally available
therefor. Although UPC currently intends to continue to pay quarterly cash
dividends on the UPC Common Stock, there can be no assurance that UPC's
dividend policy will remain unchanged after completion of the Merger. The
declaration and payment of dividends thereafter will depend upon business
conditions, operating results, capital and reserve requirements, and the UPC
Board's consideration of other relevant factors. The Agreement provides that
Capital may not declare and pay cash dividends, other than regular quarterly
cash dividends on the shares of Capital Common Stock in an amount not to exceed
$.06 per share. There is no assurance that Capital will pay any dividends at
any time, or if it does, the amount of dividends it would declare.
UPC and Capital are each legal entities separate and distinct from their
subsidiaries and their revenues depend in significant part on the payment of
dividends and management fees from their respective subsidiary depository
institutions. UPC's and Capital's subsidiary depository institutions are
subject to certain legal restrictions on the amount of dividends they are
permitted to pay. See "CERTAIN REGULATORY CONSIDERATIONS -- Payment of
Dividends."
- 51 -
<PAGE> 61
BUSINESS OF CAPITAL
GENERAL
Capital, a Delaware corporation, was formed in September 1993 to serve as
the holding company for Capital Bank upon the completion of Capital Bank's
conversion from the mutual to the stock form (the "Conversion"). Capital
received approval from the Office of Thrift Supervision (the "OTS") to acquire
all of the common stock of Capital Bank to be outstanding upon completion of
the Conversion. The Conversion was completed on December 28, 1993. All
references to Capital or Capital, unless otherwise indicated, at or before
December 28, 1993 refer to Capital Bank and its subsidiaries on a consolidated
basis.
Capital Bank is a federally chartered stock savings bank headquartered in
Jefferson City, Missouri. Capital Bank, through its wholly-owned subsidiary,
Capital Savings Financial Services, Inc. ("CSFS"), offers mutual funds,
annuities and brokerage services to its customers.
The principal business of Capital, which is conducted through its
principal operating subsidiary Capital Bank, consists of attracting retail
deposits from the general public and investing those funds primarily in one- to
four-family residential mortgage loans with an increasing emphasis on consumer
loans, including automobile and home equity loans. Capital also has small
amounts of commercial and multi-family real estate and residential construction
loans. See "-- Lending Activities." Capital purchases mortgage-backed
securities and invests in U.S. Government and agency obligations and other
permissible investments. See "-- Originations, Purchases, Sales and Servicing
of Loans and Mortgage-Backed Securities."
The executive offices of Capital are located at 425 Madison Street,
Jefferson City, Missouri 65101, and its telephone number at that address is
(573) 635-4151.
LENDING ACTIVITIES
GENERAL. Capital has been, and intends to continue to be, a
community-oriented financial corporation offering a variety of financial
services to meet the needs of the communities it serves. Capital attracts
deposits from the general public and uses such deposits, together with
borrowings and other funds, to originate primarily one- to four-family
residential mortgage loans, consumer loans and residential construction loans,
and to a much lesser extent multi-family and commercial real estate loans.
These loans are originated predominantly in Capital's primary market area.
Capital also purchases a limited amount of one- to four-family and commercial
real estate loans and loan participations from other lenders generally to
supplement loan production. At June 30, 1997, Capital's net loan portfolio
totaled $190.2 million.
Capital also purchases mortgage-backed securities and invests in U.S.
Government and agency obligations and other permissible investments. See "--
Originations, Purchases, Sales and Servicing of Loans and Mortgage-Backed
Securities."
Capital primarily originates fixed- and adjustable rate, one- to
four-family mortgage loans. Capital focuses on the origination of
adjustable-rate mortgage ("ARM") loans and short-term consumer and other loans
for retention in its portfolio. ARM and consumer loans are originated in order
to increase the percentage of loans with more frequent repricing or shorter
maturities, and in some cases higher yields, than fixed-rate, one- to
four-family mortgage loans.
While Capital's loan portfolio consists mainly of adjustable rate one- to
four-family loans and short-term consumer loans, it also originates fixed-rate
mortgage loans in response to customer demand. See "-- Lending Activities" and
"-- Loan Portfolio Composition." Capital's general policy is to originate one-
to four-family fixed-rate mortgages with terms up to 20 years for retention in
its portfolio. Fixed-rate mortgage loans originated with
- 52 -
<PAGE> 62
terms in excess of 20 years may be either sold without recourse in the
secondary market with servicing retained or retained in portfolio. Selling
loans in the secondary market permits Capital to generate fee income and to
reduce Capital's exposure to changes in interest rates. Capital originates
loans for sale pursuant to cash sale commitments at rates agreed to by the
Federal Home Loan Mortgage Corporation ("FHLMC") in order to reduce its
exposure to rising interest rates. See "-- Lending Activities" and "-- One- to
Four-Family Residential Mortgage Lending."
Real estate loans are considered and approved by Capital Bank's loan
committee comprised of officers of Capital Bank. Approval of at least two
committee members is required for all real estate loans. Consumer loan
applications are initially considered and approved at various levels of
authority, depending on the type, amount and loan to value ratio of the loan.
All mortgage loans in excess of $1.0 million require board approval.
The aggregate amount of loans that Capital Bank is permitted to make
under applicable federal regulations to any one borrower, including related
entities, or the aggregate amount that Capital Bank can invest in any one real
estate project is generally the greater of 15% of unimpaired capital and
surplus or $500,000. At June 30, 1997, the maximum amount which Capital Bank
could have lent to any one borrower and the borrower's related entities was
approximately $2.9 million. At June 30, 1997, Capital Bank did not have any
loans or series of loans with outstanding balances in excess of this amount. At
that date, Capital Bank's largest lending relationship totaled $1.3 million and
consisted of 14 loan participations secured by one- to four-family residential
properties located in the State of Missouri. Capital Bank had eight other
lending relationships to a single borrower or group of related borrowers at
June 30, 1997 which exceeded $500,000. At June 30, 1997, these loans were all
performing in accordance with their repayment terms.
- 53 -
<PAGE> 63
LOAN PORTFOLIO COMPOSITION. The following table shows the composition of
Capital's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowances for
losses) as of the dates indicated.
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------------
1993 1994 1995
------------------------ ------------------------ ------------------------
Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
One- to four-family .......... $122,608 93.03% $125,376 91.76% $137,088 89.18%
Commercial ................... 2,179 1.65 1,836 1.34 2,634 1.71
Multi-family ................. 1,117 .85 929 .68 1,618 1.05
Construction or development .. 814 .62 1,807 1.32 2,657 1.73
-------- --------- -------- --------- -------- ---------
Total real estate loans .... 126,718 96.15 129,948 95.10 143,997 93.70
-------- --------- -------- --------- -------- ---------
OTHER LOANS:
Consumer Loans:
Home equity/2nd mortgage ... 1,711 1.30 2,098 1.54 4,498 2.93
Automobile ................. 1,119 .85 2,016 1.48 3,067 2.00
Home improvement ........... 236 .18 640 .47 424 .28
Deposit account ............ 706 .54 756 .55 702 .46
Student .................... 274 .21 334 .24 422 .28
Unsecured .................. 245 .19 310 .23 270 .18
Other ...................... 786 .60 534 .39 339 .22
-------- --------- -------- --------- -------- ---------
Total consumer loans .... 5,077 3.85 6,688 4.90 9,722 6.33
-------- --------- -------- --------- -------- ---------
Total loans ............. 131,795 100.00% 136,636 100.00% 153,719 100.00%
========= ========= =========
LESS:
Loans in process ............. 512 1,155 1,195
Deferred fees and discounts .. 123 146 167
Allowance for losses ......... 425 454 514
-------- -------- --------
Total loans receivable, net $130,735 $134,881 $151,843
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------
1996 1997
------------------------ ------------------------
Amount Percent Amount Percent
-------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
REAL ESTATE LOANS:
One- to four-family .......... $146,476 86.71% $163,586 85.23%
Commercial ................... 5,619 3.33 5,993 3.12
Multi-family ................. 1,767 1.04 6,175 3.22
Construction or development .. 2,939 1.74 1,472 .77
-------- --------- -------- ---------
Total real estate loans .... 156,801 92.82 177,226 92.34%
-------- --------- -------- ---------
OTHER LOANS:
Consumer Loans:
Home equity/2nd mortgage ... 5,279 3.12 6,761 3.52
Automobile ................. 4,071 2.41 4,799 2.50
Home improvement ........... 496 .29 494 .26
Deposit account ............ 973 .58 917 .48
Student .................... 366 .22 326 .17
Unsecured .................. 441 .26 696 .36
Other ...................... 506 .30 718 .37
-------- --------- -------- ---------
Total consumer loans .... 12,132 7.18 14,711 7.66
-------- --------- -------- ---------
Total loans ............. 168,933 100.00% 191,937 100.00%
========= =========
LESS:
Loans in process ............. 1,485 801
Deferred fees and discounts .. 191 194
Allowance for losses ......... 634 739
-------- --------
Total loans receivable, net $166,623 $190,203
======== ========
</TABLE>
- 54 -
<PAGE> 64
The following table shows the composition of Capital's loan
portfolio by fixed and adjustable rate at the dates indicated.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------------------
1993 1994 1995
-------------------------- -------------------------- --------------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
FIXED-RATE LOANS:
Real Estate:
One- to four-family................ $40,749 30.92% $42,076 30.80% $40,454 26.31%
Commercial......................... 1,129 .86 877 .64 885 .58
Multi-family....................... 172 .13 110 .08 94 .06
Construction or development........ 814 .62 1,807 1.32 2,657 1.73
-------- ------- -------- ------- -------- -------
Total fixed-rate real estate
loans........................... 42,864 32.53 44,870 32.84 44,090 28.68
Consumer............................. 3,366 2.55 4,582 3.35 6,821 4.44
-------- ------- -------- ------- -------- -------
Total fixed-rate loans........... 46,230 35.08 49,452 36.19 50,911 33.12
-------- ------- -------- ------- -------- -------
ADJUSTABLE-RATE LOANS:
Real estate:
One- to four-family(1).............. 81,859 62.11 83,300 60.97 96,634 62.86
Commercial.......................... 1,050 .80 959 .70 1,749 1.14
Multi-family........................ 945 .72 819 .60 1,524 .99
-------- ------- -------- ------- -------- -------
Total adjustable-rate real
estate loans.................... 83,854 63.63 85,078 62.27 99,907 64.99
Consumer............................. 1,711 1.29 2,106 1.54 2,901 1.89
-------- ------- -------- ------- -------- -------
Total adjustable rate loans....... 85,565 64.92 87,184 63.81 102,808 66.88
-------- ------- -------- ------- -------- -------
Total loans....................... 131,795 100.00% 136,636 100.00% 153,719 100.00%
======= ======= =======
LESS:
Loans in process..................... 512 1,155 1,195
Deferred fees and discounts.......... 123 146 167
Allowance for losses................. 425 454 514
-------- -------- --------
Total loans receivable, net....... $130,735 $134,881 $151,843
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------
1996 1997
-------------------------- --------------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
FIXED-RATE LOANS:
Real Estate:
One- to four-family................. $41,628 24.64% $43,238 22.53%
Commercial.......................... 987 .58 2,464 1.28
Multi-family........................ 573 .34 3,633 1.89
Construction or development......... 2,939 1.74 1,472 .77
-------- ------- -------- -------
Total fixed-rate real estate
loans............................ 46,127 27.30 50,805 26.47
Consumer.............................. 8,998 5.33 11,011 5.74
-------- ------- -------- -------
Total fixed-rate loans............ 55,125 32.63 61,817 32.21
-------- ------- -------- -------
ADJUSTABLE-RATE LOANS:
Real estate:
One- to four-family(1)............... 104,848 62.06 120,349 62.70
Commercial........................... 4,632 2.74 3,529 1.84
Multi-family......................... 1,194 .71 2,542 1.32
-------- ------- -------- -------
Total adjustable-rate real
estate loans..................... 110,674 65.51 126,420 65.86
Consumer.............................. 3,134 1.86 3,700 1.93
-------- ------- -------- -------
Total adjustable rate loans........ 113,808 67.37 130,120 67.79
-------- ------- -------- -------
Total loans........................ 168,933 100.00% 191,937 100.00%
======= =======
LESS:
Loans in process...................... 1,485 801
Deferred fees and discounts........... 191 194
Allowance for losses.................. 634 739
-------- --------
Total loans receivable, net........ $166,623 $190,203
======== ========
</TABLE>
- -------------------
(1) Includes five- and seven-year ARM loans totaling $0, $0, $5.5 million,
$9.8 million, and $28.7 million at June 30, 1993, 1994, 1995, 1996, and
1997, respectively.
- 55 -
<PAGE> 65
The following table illustrates the interest rate sensitivity of
Capital's loan portfolio at June 30, 1997. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which
the contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
------------------------------------------------------------
Multi-Family and Construction or
One- to Four-Family Commercial Development Consumer Total
------------------- ------------------ ------------------ ------------------ ------------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
-------- --------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During
Periods Ending
June 30,
- ------------------
1998(1) .......... $ 233 7.13% $ 205 8.97% $ 446 8.17% $ 1,623 9.12% $ 2,507 8.76%
1999 ............. 331 7.69 21 9.23 -- -- 1,971 9.14 2,323 8.94
2000 ............. 719 7.64 8 8.70 -- -- 2,476 9.85 3,203 9.35
2001 and 2002 .... 3,070 7.96 392 8.36 -- -- 3,730 9.67 7,192 8.87
2003 to 2007 ..... 20,908 7.95 1,452 8.85 -- -- 4,144 9.87 26,503 8.30
2008 to 2012 ..... 36,668 8.00 4,027 8.55 -- -- 167 10.14 40,862 8.07
2013 and following 101,657 7.94 6,063 8.44 1,026 8.38 600 9.92 109,347 7.98
-------- -------- -------- -------- --------
Total ......... $163,586 7.95% $ 12,168 8.53% $ 1,472 8.32% $ 14,711 9.64% $191,937 8.12%
======== ======== ======== ======== ========
</TABLE>
- ------------------------
(1) Includes demand loans, loans having no stated maturity, and overdraft
loans.
- 56 -
<PAGE> 66
The total amount of loans due after June 30, 1998 which have
predetermined interest rates is $59.7 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $129.8
million.
ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LENDING. Residential loan
originations are generated by Capital's marketing efforts, its present
customers, walk-in customers and referrals from real estate agents and
builders. Capital focuses its lending efforts primarily on the origination of
loans secured by first mortgages on owner-occupied, one- to four-family
residences. At June 30, 1997, Capital's one- to four-family residential
mortgage loan portfolio totaled $163.6 million, or approximately 85.3% of
Capital's gross loan portfolio. Approximately 9.7% of Capital's one- to
four-family mortgage loan portfolio has been purchased, generally from other
financial institutions. See "-- Originations, Purchases, Sales and Servicing of
Loans and Mortgage-Backed Securities."
Capital currently offers fixed-rate and ARM loans. During the year ended
June 30, 1997, Capital originated $25.7 million of ARM loans secured by one- to
four-family residential real estate. During the same period, Capital originated
$11.9 million of fixed-rate real estate loans secured by one- to four-family
residential real estate. Substantially all Capital's one- to four-family
residential mortgage originations are in its primary market area. See "--
Originations, Purchases, Sales and Servicing of Loans and Mortgage-Backed
Securities."
Capital currently originates one- to four-family residential
mortgage loans with terms of up to 30 years in amounts up to 95% of the
appraised value of the security property. Capital generally requires that
private mortgage insurance be obtained in an amount sufficient to reduce
Capital's exposure to 80% or less of the loan-to-value level. Interest rates
charged on fixed-rate loans are competitively priced according to market
conditions. Residential loans generally do not include prepayment penalties.
Most of Capital's fixed-rate mortgage loans conform to secondary
market standards (i.e., Federal National Mortgage Association ("FNMA") and
FHLMC standards). Capital typically retains fixed-rate loans with terms of 20
years or less for its loan portfolio. Fixed-rate mortgage loans originated with
terms in excess of 20 years may be either sold without recourse in the
secondary market with servicing retained or retained in portfolio. Capital, at
times, retains fixed-rate loans with terms in excess of 20 years for its
portfolio. Capital's decision to retain such loans depends upon the current
interest rate environment and Capital's desired ratio of fixed-rate to
adjustable-rate loans as may be consistent with its asset liability objectives.
During fiscal 1997, Capital Bank originated $4.9 million of fixed-rate one- to
four-family residential loans with terms in excess of 20 years, all of which
were retained in portfolio.
Capital currently offers one, three, five and seven year ARM loans
with monthly principal and interest payments typically based on a 30 year
amortization schedule. These loans generally have a stated interest rate margin
over the yields on comparable U.S. Treasury securities. The three year ARM
loans adjust every three years. The five and seven year ARM loans are
fixed-rate loans for the initial stated term and then automatically convert
into one year ARM loans. These loans provide for periodic and lifetime caps
over the initial rate. As a consequence of using an initial fixed-rate and
caps, the interest rates on these loans may not be as rate sensitive as is
Capital's cost of funds. Capital's ARMs do not permit negative amortization of
principal and are not convertible into a fixed rate loan, but may be assumable
in the case of a qualified borrower. The ARM loans offered by Capital sometimes
provide for initial rates of interest below the rates which would prevail were
the index used for pricing applied initially. These loans are subject to
increased risk of delinquency or default as the higher, fully-indexed rate of
interest subsequently comes into effect; however, Capital generally qualifies
borrowers at the fully indexed rate. Capital has not experienced greater
delinquency rates on its ARM loans compared to its fixed-rate residential
loans.
In underwriting one- to four-family residential real estate loans,
Capital evaluates both the borrower's ability to make monthly payments and the
value of the property securing the loan. Properties securing real estate loans
made by Capital are appraised by independent fee appraisers approved by the
Board. Capital generally requires borrowers to obtain an attorney's title
opinion or title insurance, and fire and property insurance (including flood
insurance, if necessary) in an amount not less than the amount of the loan.
Real estate loans originated by
- 57 -
<PAGE> 67
Capital generally contain a "due on sale" clause allowing Capital to declare
the unpaid principal balance due and payable upon the sale of the security
property.
COMMERCIAL AND MULTI-FAMILY REAL ESTATE LENDING. Capital also engages in
a limited amount of commercial and multi-family real estate lending in its
primary market area and purchases a limited number of whole loan and
participation interests in loans primarily from other financial institutions.
At June 30, 1997, Capital had loans secured by commercial and multi-family real
estate totaling $6.0 million and $6.2 million, respectively, which in the
aggregate represented 6.3% of Capital's gross loan portfolio compared to 4.4%
of Capital's gross loan portfolio at June 30, 1996. Capital intends, subject to
market conditions, to continue to place additional emphasis on this type of
lending.
Capital's commercial and multi-family real estate loan portfolio is
secured primarily by small office buildings and apartment buildings. Commercial
and multi-family real estate loans generally have terms that do not exceed 25
years and a variety of rate adjustment features and other terms. Generally, the
loans are made in amounts up to 80% of the appraised value of the security
property. Adjustable rate commercial and multi-family real estate loans provide
for a margin over a designated index, which is generally the one year Treasury
Bill rate. In underwriting these loans, Capital currently analyzes the
financial condition of the borrower, the borrower's credit history, and the
reliability and predictability of the cash flow generated by the property
securing the loan. Capital generally requires personal guaranties of the
borrowers. Appraisals on properties securing commercial real estate loans
originated by Capital are performed by independent appraisers.
The largest multi-family real estate loan outstanding at June 30, 1997
was a $1.2 million loan participation secured by apartment buildings located
in the State of Missouri. At June 30, 1997, this loan was performing in
accordance with its terms.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of
principal in a limited number of loans and borrowers, the effect of general
economic conditions on income producing properties and the increased difficulty
of evaluating and monitoring these types of loans. Furthermore, the repayment
of loans secured by multi-family and commercial real estate is typically
dependent upon the successful operation of the related real estate project. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed, or a bankruptcy court modifies a lease term, or a major
tenant is unable to fulfill its lease obligations), the borrower's ability to
repay the loan may be impaired.
CONSTRUCTION LENDING. Capital engages in limited amounts of construction
lending to individuals for the construction of their residences as well as to
builders for the construction of single-family homes in Capital's primary
market area. At June 30, 1997, Capital had $1.5 million of gross construction
loans, of which approximately $1.3 million were to borrowers who indicated that
they intended to live in the residence upon completion of construction.
Construction loans to individuals for their residences are structured to
be converted to permanent loans at the end of the construction phase which
typically runs from six months to one year. These construction loans have rates
and terms which match one- to four-family loans then offered by Capital, except
that during the construction phase the borrower pays interest only. The maximum
loan-to-value ratio of owner occupied single family construction loans is
typically 80%, and in a very limited number of situations 90%. Residential
construction loans are generally underwritten pursuant to the same guidelines
used for originating permanent one- to four-family residential loans.
Construction loans are obtained primarily from builder references and
individuals who have previously borrowed from Capital, as well as from
referrals from existing customers. The application process includes a
submission to Capital of the plans and costs of the project to be constructed.
These items are used as a basis to determine the appraised value of the subject
property. Loans are based on the lesser of current appraised value or the cost
of construction (land plus building).
- 58 -
<PAGE> 68
CONSUMER LENDING. Capital offers a variety of secured consumer loans,
including automobile, home equity, home improvement, student loans, and loans
secured by savings deposits. In addition, Capital offers unsecured consumer
loans, including an overdraft checking line-of-credit. Capital currently
originates substantially all of its consumer loans in its primary market area.
Capital originates consumer loans on a direct basis where Capital extends
credit directly to the borrower. Almost all consumer loans are made on a
fixed-rate basis, except for home equity loans, which are tied to third party
indices. Management considers consumer lending to be an important component of
its business strategy and has been placing increasing emphasis on such lending.
In addition, management believes that offering consumer loan products helps
expand and create stronger ties to its existing customer base.
At June 30, 1997, Capital's consumer loan portfolio totaled $14.7
million, or 7.7% of its gross loan portfolio. At June 30, 1997, 73.1% of
consumer loans were short- and intermediate-term, fixed-rate loans and 26.9%
were adjustable rate loans.
The largest component of Capital's consumer portfolio consists of home
equity and home improvement loans. Home equity and home improvement loans
secured by second mortgages, together with loans secured by all prior liens,
are generally limited to 85% or less of the appraised value of the property
securing the loan. Generally, such loans have a maximum term of up to 10 years.
As of June 30, 1997, home equity and home improvement loans totaled to $7.3
million or 3.8% of Capital's gross loan portfolio.
Automobile loans totaled $4.8 million or 2.5% of Capital's gross loan
portfolio at June 30, 1997. Automobile loans typically are made for up to 60
months for new vehicles, and up to 48 months for used vehicles. Loans secured
by automobiles are generally originated for 90% of the lesser of the retail
sales price or NADA Official Used Car Guide's Retail Price of the automobile
securing the loan. The dollar volume of new and used vehicle lending has
generally been about the same over the past several years.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The underwriting
standards employed by Capital for consumer loans include an application, a
determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. Although creditworthiness of the applicant is a primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans which are unsecured
or are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be affected by adverse personal
circumstances. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans. At June 30, 1997, substantially all of Capital's
consumer loans were performing in accordance with their terms. See "--
Non-Performing Assets and Classified Assets." There can be no assurances,
however, that delinquencies will not occur in the future.
ORIGINATIONS, PURCHASES, SALES AND SERVICING OF LOANS AND MORTGAGE-BACKED
SECURITIES
Capital originated $51.4 million of loans during fiscal 1997, compared to
$60.8 million and $44.5 million in fiscal 1996 and 1995, respectively.
management attributes the higher originations during 1997 and 1996 to increased
marketing efforts and increased demand in Capital's primary lending area. The
higher loan originations during fiscal 1996 were somewhat offset by a higher
level of repayments during that period. In fiscal 1997, $34.7 million of loans
were repaid, compared to $41.7 million and $26.7 million in fiscal 1996 and
1995, respectively. In periods of economic uncertainty, Capital's ability to
originate large dollar volumes of real estate loans may be substantially
reduced or restricted, with a resultant decrease in related loan fee income and
operating earnings.
- 59 -
<PAGE> 69
Capital also sells whole real estate loans without recourse to the FHLMC.
Sales of whole loans generally are beneficial to Capital since these sales may
generate income at the time of sale, produce future servicing income, provide
funds for additional lending and other investments and increase liquidity.
Capital sold whole loans in aggregate amounts of $3.5 million and $12.3 million
during the years ended June 30, 1995 and 1996, respectively. No loans were sold
during fiscal 1997 as a result of management's decision to hold higher yielding
long term loans during the period. See "Asset\Liability Management" in the
Annual Report.
When loans are sold, Capital typically retains the responsibility for
servicing the loans. Capital receives a servicing fee for performing these
services. Capital serviced mortgage loans for others amounting to $41.9
million, $47.1 million and $41.0 million at June 30, 1995, 1996 and 1997,
respectively.
During fiscal 1995, 1996 and 1997, Capital purchased $2.7 million, $8.3
million, and $6.0 million of loans and loan participations. Capital's portfolio
of purchased whole loans and loan participations secured by one- to four-family
residences totaled $15.8 million at June 30, 1997. Approximately $12.9 million
and $2.2 million of such loans are secured by properties located in Missouri
and Texas, respectively, with the remainder of such loans secured by properties
located throughout the United States.
Capital also has a portfolio of fixed-rate and adjustable-rate
mortgage-backed securities. At June 30, 1997, mortgage-backed and related
securities totaled $23.4 million, or 11.0% of Capital's total loan and
mortgage-backed and related securities portfolio. See "-- Mortgage-Backed
Securities."
- 60 -
<PAGE> 70
The following table shows the loan origination, purchase, sale and
repayment activities of Capital for the periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -----------
(In thousands)
<S> <C> <C> <C>
ORIGINATIONS BY TYPE:
Adjustable rate:
Real estate - one- to four-family....................................... $24,624 $26,275 $25,675
Commercial........................................................... 157 867 575
Multi-family......................................................... 802 225 1,117
Non-real estate - consumer................................................ -- -- --
------------- ------------- -----------
Total adjustable-rate............................................... 25,583 27,367 27,367
------------- ------------- -----------
Fixed rate:
Real estate - one- to four-family...................................... 8,613 21,541 11,872
Commercial.......................................................... 134 303 97
Multi-family........................................................ -- 86 1,513
Construction or development......................................... 4,342 4,720 1,761
Non-real estate - consumer................................................ 5,809 6,766 8,768
------------- ------------- -----------
Total fixed-rate.................................................... 18,898 33,416 24,011
------------- ------------- -----------
Total loans originated.............................................. 44,481 60,783 51,378
------------- ------------- -----------
PURCHASES:
Real estate - one- to four-family......................................... 1,656 5,773 4,153
Commercial............................................................. 1,012 2,494 600
Multi-family........................................................... -- -- 1,200
Mortgage-backed securities................................................ 8,331 14,610 1,357
------------- ------------- -----------
Total purchases..................................................... 10,999 22,877 7,310
------------- ------------- -----------
SALES AND REPAYMENTS:
Real estate - one-to four-family sales.................................... 3,466 12,287 --
Loans and mortgage-backed securities principal repayments 29,080 46,802 40,680
------------- ------------- -----------
Total reductions.................................................... 32,526 59,089 40,680
------------- ------------- -----------
Increase (decrease) in other items, net................................... (61) (314) 681
------------- ------------- -----------
Net increase (decrease)............................................. $22,893 $24,257 $18,689
============= ============= ===========
</TABLE>
NON-PERFORMING ASSETS AND CLASSIFIED ASSETS
Generally, when a borrower fails to make a required payment on real
estate secured loans and consumer loans Capital institutes collection
procedures by mailing a computer generated delinquency notice. The customer is
contacted again, by notice or telephone, when the delinquency is not promptly
cured. In most cases, delinquencies are cured promptly; however, if a loan
secured by real estate or other collateral has been delinquent for more than 60
days, a final letter is sent demanding payment and the customer is requested to
make arrangements to bring the loan current. At 90 days past due, a thirty day
foreclosure notice is sent, and if the loan is 120 days overdue, unless
satisfactory arrangements have been made, immediate repossession or foreclosure
procedures will commence.
- 61 -
<PAGE> 71
The following table sets forth Capital's loan delinquencies by type, by
amount and by percentage of type at June 30, 1997.
<TABLE>
<CAPTION>
Loans Delinquent for:
------------------------------------------------------------------------
60-89 Days 90 Days and Over
--------------------------------- -----------------------------------
Percent Percent
of Loan of Loan
Number Amount Category Number Amount Category
------- --------- ------------- ----------- --------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family.............. 21 $1,040 .64% 9 $627 .38%
Commercial and multi-
family real estate........... -- -- -- 1 46 .38
Consumer......................... 5 39 .27 3 15 .10
------- --------- ------------- ----------- --------- -------------
Total......................... 26 $1,079 .57% 13 $688 .36%
======= ========= ============= =========== ========= =============
<CAPTION>
Total Delinquent
Loans
--------------------------------------
Percent
of Loan
Number Amount Category
----------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
One- to four-family.............. 30 $1,667 1.02%
Commercial and multi-
family real estate........... 1 46 .38
Consumer......................... 8 54 .37
----------- ---------- -------------
Total......................... 39 $1,767 .93%
=========== ========== =============
</TABLE>
The table below sets forth the amounts and categories of non-performing
assets in Capital's loan portfolio. Loans are placed on non-accrual status when
the collection of principal and/or interest become doubtful. Foreclosed assets
include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ----------- ---------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NON-ACCRUING LOANS:
One- to four-family...................................... $ 61 $ 34 $ 66 $ 252 $ 328
---------- ----------- ---------- ------------- -----------
Total................................................ 61 34 66 252 328
---------- ----------- ---------- ------------- -----------
ACCRUING LOANS DELINQUENT MORE THAN 90 DAYS:
One- to four-family...................................... 101 65 59 159 299
Commercial and multi-family real estate................. -- -- -- 48 46
Consumer................................................. 8 -- -- 4 15
---------- ----------- ---------- ------------- -----------
Total................................................ 109 65 59 211 360
---------- ----------- ---------- ------------- -----------
FORECLOSED ASSETS:
One-to four-family....................................... 62 107 93 27 55
Construction............................................. 46 14 14 14 14
Consumer................................................. -- -- -- 3 --
---------- ----------- ---------- ------------- -----------
Total................................................ 108 121 107 44 69
---------- ----------- ---------- ------------- -----------
Troubled debt restructurings............................. 1,657 1,433 -- -- --
---------- ----------- ---------- ------------- -----------
Total non-performing assets.............................. $1,935 $1,653 $232 $507 $757
========== =========== ========== ============= ===========
Total non-performing assets as a percentage of
total assets............................................ 1.19% .97% .12% .23% .31%
========== =========== ========== ============= ===========
Total assets................................................ $163,060 $170,235 $186,677 $217,954 $242,518
========== =========== ========== ============= ===========
</TABLE>
For the year ended June 30, 1997 gross interest income which would have
been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $57,000. The amount that was included in
interest income on such loans totaled $47,000.
- 62 -
<PAGE> 72
As of June 30, 1997, except as discussed below under "Other Loans of
Concern", there were no other loans not included in the table above where known
information about the possible credit problems of borrowers caused management
to have doubts as to the ability of the borrower to comply with present loan
repayment terms and which may result in disclosure of such loans in the future.
OTHER LOANS OF CONCERN. In addition to the non-performing assets set
forth in the table above, as of June 30, 1997, there was an aggregate of
$1,079,000 in net book value of loans (21 loans aggregating $1,040,000 secured
by single family residences and 5 loans aggregating $39,000 secured by consumer
property) with respect to which known information about the possible credit
problems of the borrowers have caused management to have doubts as to the
ability of the borrowers to comply with present loan repayment terms and which
may result in the future inclusion of such items in the non-performing asset
categories. These loans have been considered in management's determination of
the adequacy of Capital's allowance for loan losses.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, Capital Bank regularly
reviews the loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. On the basis of
management's review of its assets, at June 30, 1997, Capital Bank had
classified a total of $708,000 of its assets as substandard, $46,000 as
doubtful and none as loss.
At June 30, 1997, total classified assets (including real estate owned),
totaled $754,000, or 3.5% of Capital Bank's capital, or .31% of Capital Bank's
total assets.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of its
loan activity, including those loans which are being specifically monitored by
management. Such evaluation, which includes a review of loans for which full
collectibility may not be reasonably assured, considers among other matters,
the loan classifications discussed above, the estimated fair value of the
underlying collateral, economic conditions, historical loan loss experience,
and other factors that warrant recognition in providing for an adequate loan
loss allowance.
Real estate properties acquired through foreclosure are recorded at the
lower of cost or fair value. If fair value at the date of foreclosure is lower
than the balance of the related loan, the difference will be charged-off to the
allowance for loan losses at the time of transfer. Valuations are periodically
updated by management and if the value declines, a specific provision for
losses on such property is established by a charge to operations.
Although management believes that it uses the best information available
to determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to Capital's allowances will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. In addition, federal regulatory agencies, as an integral part of the
examination process periodically reviews Capital's allowance for loan losses.
Such agencies may require Capital to recognize additions to the allowance level
upon their judgment of the information available to them at the time of their
examination. At June 30, 1997, Capital had a total allowance for loan losses of
$739,000, representing 107.4% of total non-performing loans and 97.6% of
non-performing assets. See Note 3 of the Notes to Consolidated Financial
Statements included in this Proxy Statement.
- 63 -
<PAGE> 73
The following table sets forth an analysis of Capital's allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1993 1994 1995 1996 1997
----------- --------- ---------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.............................. $409 $425 $454 $514 $634
CHARGE-OFFS:
Consumer................................................. 10 -- -- -- 17
One- to four-family...................................... 24 11 -- -- --
Multi-family............................................. -- -- -- -- --
----------- --------- ---------- --------- -----------
Total charge-offs........................................... 34 11 -- -- 17
----------- --------- ---------- --------- -----------
RECOVERIES:
Consumer................................................. 3 -- -- -- 2
----------- --------- ---------- --------- -----------
Total recoveries............................................ 3 -- -- -- 2
----------- --------- ---------- --------- -----------
Net charge-offs............................................. 31 11 -- -- 15
Provisions charged to income................................ 47 40 60 120 120
----------- --------- ---------- --------- -----------
Balance at end of period.................................... $425 $454 $514 $634 $739
=========== ========= ========== ========= ===========
Ratio of net charge-offs during the period to
average non-performing assets............................ .02% .01% --% --% .01%
=========== ========= ========== ========= ===========
Ratio of net charge-offs during the period to
average non-performing assets............................ 1.21% .63% --% --% 2.69%
=========== ========= ========== ========= ===========
</TABLE>
The distribution of Capital's allowance for loan losses at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
1993 1994 1995
----------------------- ----------------------- ---------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Total Total Total
Amount Loans Amount Loans Amount Loans
--------- ------------ ---------- ----------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family..... $352 93.03% $366 91.76% $377 89.18%
Multi-family............ 16 .85 16 .68 26 1.05
Commercial real estate.. 16 1.65 16 1.34 26 1.71
Consumer................ 41 3.85 56 4.90 85 6.32
Unallocated............. -- .62 -- 1.32 -- 1.74
--------- ------------ ---------- ----------- --------- ---------
Total................ $425 100.00% $454 100.00% $514 100.00%
========= ============ ========== =========== ========= =========
<CAPTION>
1996 1997
---------------------- -------------------
Percent of Percent of
Loans in Loans in
Each Each
Category to Category to
Total Total
Amount Loans Amount Loans
-------- ------------ -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family..... $409 86.71% $461 85.23%
Multi-family............ 55 1.05 65 3.22
Commercial real estate.. 55 3.33 65 3.12
Consumer................ 115 7.18 148 7.66
Unallocated............. -- 1.74 -- .77
-------- ------------ -------- ---------
Total................ $634 100.00% $739 100.00%
======== ============ ======== =========
</TABLE>
- 64 -
<PAGE> 74
INVESTMENT ACTIVITIES
Capital Bank must maintain minimum levels of investments that qualify as
liquid assets under OTS regulations. Historically, Capital Bank has generally
maintained its liquid assets above the minimum requirements imposed by the OTS
regulations and at a level believed adequate to meet requirements of normal
daily activities, repayment of maturing debt and potential deposit outflows. As
of June 30, 1997, Capital Bank's liquidity ratio (liquid assets as a percentage
of net withdrawable savings deposits and current borrowings) was 7.1%.
Generally, the investment policy of Capital is to invest funds among
various categories of investments and maturities based upon Capital's need for
liquidity, to achieve the proper balance between its desire to minimize risk
and maximize yield, to provide collateral for borrowings, and to fulfill
asset/liability management policies.
INVESTMENT SECURITIES. At June 30, 1997, Capital's interest-bearing
deposits in other financial institutions totaled $4.5 million or 1.8% of its
total assets, and investment securities (including a $3.0 million investment in
the common stock of the FHLB of Des Moines) totaled $16.7 million or 6.9% of
its total assets. It is Capital's general policy to purchase U.S. Government
securities and federal agency obligations, state and local government
obligations, commercial paper, short-term corporate debt securities and
overnight federal funds. Capital also has invested in mutual funds consisting
primarily of U.S. Government securities and federal agency obligations. At June
30, 1997, the weighted average term to maturity or repricing of the investment
securities portfolio (excluding the FHLB stock and other marketable securities)
was 5.69 years.
The following table sets forth the composition of Capital's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------------
1995 1996 1997
--------------------------- ------------------------ ------------------------
Carrying Percent of Carrying Percent of Carrying Percent of
Value Total Value Total Value Total
------------ ------------- ---------- ------------ --------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Investment Securities:
U.S. government securities................. $ 5,853 57.15% $ 799 4.98% $ -- -- %
Federal agency obligations.................. 2,499 24.40 12,968 80.82 12,475 74.63
Equity securities (1)....................... 32 .31 179 1.12 1,215 7.27
------------ ------------- ---------- ---------- --------- ----------
Subtotal................................. 8,384 81.86 13,946 86.92 13,690 81.90
FHLB stock.................................. 1,857 18.14 2,100 13.08 3,025 18.10
------------ ------------- ---------- ---------- --------- ----------
Total investment securities and
FHLB stock............................. $10,241 100.00% $16,046 100.00% $16,715 100.00%
============ ============= ========== ========== ========= ==========
Average remaining life of
investment securities...................... 1 year 6 years 6 years
--------------------------- ------------------------ ------------------------
Other Interest-Earning Assets:
Interest-bearing deposits with banks........ $269 100.00% $309 100.00% $4,468 100.00%
------------ ------------- ---------- ---------- --------- ----------
Total..................................... $269 100.00% $309 100.00% $4,468 100.00%
============ ============= ========== ========== ========= ==========
Average remaining life or term to
repricing of investment securities
and other interest-earning assets,
excluding FHLB stock......................... 1.28 years 5.26 years 5.69 years
--------------------------- ------------------------ ------------------------
</TABLE>
- -----------------
(1) At June 30, 1995, equity securities consisted primarily of an equity
investment in a mutual fund which contained primarily U.S. Government
securities and agency obligations. At June 30, 1996 and 1997, equity
securities consisted primarily of investments in other thrift holding
companies.
- 65 -
<PAGE> 75
The composition and maturities of Capital's investment securities
portfolio, excluding FHLB of Des Moines stock, are indicated in the following
table.
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------------------------------------------
1 Year or Over 1 to Over 5 to 10 Over 10 Total Investment
Less 5 Years Years Years Securities
----------- ----------- ------------ ------------ ---------------------------
Carrying Carrying Carrying Carrying Amortized Market
Value Value Value Value Cost Value
----------- ----------- ------------ ------------ ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations.............. $ 497 $4,987 $6,991 $ -- $12,444 $12,494
Equity securities....................... 1,215 -- -- -- 1,047 1,215
----------- ----------- ------------ ------------ ------------ -----------
Total investment securities......... $1,712 $4,987 $6,991 $ -- $13,491 $13,709
=========== =========== ============ ============ ============ ===========
Weighted average yield.................. 1.38% 6.95% 7.75% --% 7.00% 7.00%
</TABLE>
Except for obligations of state and local governments, Capital's
investment securities portfolio at June 30, 1997, contained neither tax-exempt
securities nor securities of any issuer with an aggregate book value in excess
of 10% of Capital's retained earnings, excluding those issued by the United
States Government, or its agencies.
MORTGAGE-BACKED SECURITIES. Capital generally has a portfolio of
mortgage-backed securities which it holds for investment. Such mortgage-backed
securities can serve as collateral for borrowings and, through repayments, as a
source of liquidity. For information regarding the carrying and market values
of Capital's mortgage-backed securities portfolio, see Note 2 of the Notes to
Consolidated Financial Statements included in this Proxy Statement. Under
Capital Bank's risk-based capital requirement, mortgage-backed securities have
a risk weight of 20% (or 0% in the case of GNMA securities) in contrast to the
50% risk weight carried by residential loans. See "-- Regulation."
The following table sets forth the carrying value of Capital's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------
1995 1996 1997
----------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
ISSUERS:
Federal Home Loan Mortgage Corporation............ $13,703 $17,797 $14,375
Federal National Mortgage Association............. 1,166 3,555 4,078
Government National Mortgage Association.......... 3,994 6,987 4,996
----------- ----------- ------------
Total......................................... $18,863 $28,339 $23,449
=========== =========== ============
</TABLE>
- 66 -
<PAGE> 76
The following table sets forth the contractual maturities of Capital's
mortgage-backed securities at June 30, 1997. Not considered in the preparation
of the table below is the effect of prepayments, periodic principal repayments
and the adjustable-rate nature of these instruments.
<TABLE>
<CAPTION>
Due in
---------------------------------------------------------------------------
June 30, 1997
1 Year or After After After Balance
Less 1 to 5 Years 5 to 10 Years 10 Years Outstanding
---------- ------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation....... $ 0 $2,177 $1,419 $10,779 $14,375
Federal National Mortgage Association........ 0 0 0 4,078 4,078
Government National Mortgage Association..... 0 0 1,009 3,987 4,996
---------- ------------- -------------- --------- --------------
Total.................................... $ 0 $2,177 $2,428 $18,844 $23,449
========== ============= ============== ========= ==============
Weighted average yield....................... 0% 6.90% 8.33% 7.23% 7.31%
</TABLE>
Capital's investment and mortgage-backed securities portfolios are
managed in accordance with a written investment policy adopted by the Board of
Directors of Capital Bank (the "Capital Bank Board'") which is implemented by
members of Capital Bank's Investment Committee. The Investment Committee is
comprised of President Schepers and Executive Vice President Wankum. The OTS
has issued guidelines regarding management oversight and accounting treatment
for securities, including investment securities, loans, mortgage-backed
securities and derivative securities. The guidelines require thrift
institutions to reduce the carrying value of securities to the lesser of cost
or market value unless it can be demonstrated that a class of securities is
intended to be held to maturity. As of June 30, 1997, Capital held $37.1
million of mortgage-backed and investment securities, of which $28.1 million
were available for sale and the remaining balance Capital intends to hold until
maturity.
SOURCES OF FUNDS
GENERAL. Capital's principal sources of funds are deposits, borrowings,
payment of principal and interest on loans and mortgage-backed securities,
interest earned on or maturation of investment securities and short-term
investments, and funds provided from operations.
Borrowings, including FHLB advances and reverse repurchase agreements,
have been used at times to compensate for seasonal reductions in deposits or
deposit inflows at less than projected levels, may be used on a longer-term
basis to support expanded lending activities, and may also be used to purchase
assets with similar repricing or maturity features.
DEPOSITS. Capital offers a variety of deposit accounts having a wide
range of interest rates and terms. Capital's deposits consist of statement,
passbook and money market savings accounts, regular checking accounts, and
certificate accounts currently ranging in terms from 91 days to 60 months.
Capital only solicits deposits from its market area and does not use brokers to
obtain deposits. Capital relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition.
The variety of deposit accounts offered by Capital has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. Capital has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious.
Capital endeavors to manage the pricing of its deposits in keeping with its
asset/liability management, liquidity and profitability objectives. Based on
its experience, Capital believes that its statement, passbook and money market
savings accounts and regular checking accounts are relatively stable sources of
deposits. However, the ability of Capital to attract and
- 67 -
<PAGE> 77
maintain certificates of deposit and the rates paid on these deposits has
been and will continue to be significantly affected by market conditions.
The following table sets forth the savings flows at Capital during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------
1995 1996 1997
------------- -------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Opening balance................................. $143,053 $145,688 $152,345
Deposits........................................ 95,983 107,376 162,784
Withdrawals..................................... (97,358) (105,733) (149,768)
Interest credited............................... 4,010 5,014 5,678
------------- -------------- ---------------
Ending balance.................................. $145,688 $152,345 $171,039
============= ============== ===============
Net increase (decrease)......................... $ 2,635 $ 6,657 $ 18,694
============= ============== ===============
Percent increase (decrease)..................... 1.84% 4.57% 12.27%
============= ============== ===============
</TABLE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by Capital for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ----------------------- --------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
----------- ------------- -------- ------------- ---------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
TRANSACTION AND SAVINGS DEPOSITS(1):
Savings accounts (2.71%).............. $ 16,957 11.64% $ 16,928 11.11% $ 17,808 10.41%
Checking accounts (1.55%)............. 10,113 6.94 11,804 7.75 17,719 10.36
Money market accounts (3.97%)......... 7,229 4.96 7,299 4.79 11,438 6.69
----------- ------------- -------- ------------- ---------- --------------
Total non-certificates............. 34,299 23.54 36,031 23.65 46,965 27.46
----------- ------------- -------- ------------- ---------- --------------
CERTIFICATES:
0.00 - 3.99%.......................... 712 .49 219 .14 76 .04
4.00 - 5.99%.......................... 87,435 60.02 89,432 58.71 103,976 60.79
6.00 - 7.99%.......................... 23,002 15.79 26,636 17.48 20,022 11.71
8.00 - 9.99%.......................... 240 .16 27 .02 0 0.00
----------- ------------- -------- ------------- ---------- --------------
Total certificates................ 111,389 76.46 116,314 76.35 124,074 72.54
----------- ------------- -------- ------------- ---------- --------------
Total deposits.................... $145,688 100.00% $152,345 100.00% $171,039 100.00%
=========== ============= ======== ============= ========== ==============
</TABLE>
- ----------------------------
(1) Rates shown are at June 30, 1997.
- 68 -
<PAGE> 78
The following table shows rate and maturity information for Capital's
certificates of deposit as of June 30, 1997.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00- 8.00- Percent of
3.99% 5.99% 7.99% 9.99% Total Total
----------- ---------- --------- ---------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS MATURING IN
QUARTER ENDING:
September 30, 1997.................... $25 $ 28,465 $5,391 $0 $ 33,881 27.31%
December 31, 1997..................... 51 20,161 3,858 0 24,070 19.40
March 31, 1998........................ 0 16,552 2,412 0 18,964 15.28
June 30, 1998......................... 0 14,413 1,693 0 16,106 12.98
September 30, 1998.................... 0 7,788 1,076 0 8,864 7.14
December 31, 1998..................... 0 4,029 731 0 4,760 3.84
March 31, 1999........................ 0 2,882 130 0 3,012 2.43
June 30, 1999......................... 0 2,452 290 0 2,742 2.21
September 30, 1999.................... 0 1,141 547 0 1,688 1.36
December 31, 1999..................... 0 1,576 633 0 2,209 1.78
March 31, 2000........................ 0 998 621 0 1,619 1.30
June 30, 2000......................... 0 898 941 0 1,839 1.48
Thereafter............................ 0 2,621 1,699 0 4,320 3.48%
----------- ------------ ----------- ---------- --------- ------------
Total.......................... $76 $103,976 $20,022 $0 $124,074 100.00%
=========== ============ ============ ========== ========= ============
Percent of total............... 0.06% 83.80% 16.14% 0.00%
=========== ============ ============ ==========
</TABLE>
The following table indicates the amount of Capital's certificates of
deposit and other deposits by time remaining until maturity as of June 30,
1997.
<TABLE>
<CAPTION>
(Maturity)
--------------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
------------ ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than
$100,000................................. $31,226 $20,816 $29,062 $29,450 $110,554
Certificates of deposit of $100,000
or more (1).............................. 2,112 3,406 6,044 1,958 13,520
------------ ----------- ----------- ------------ --------------
Total certificates of deposit........ $33,338 $24,222 $35,106 $31,408 $124,074
============ =========== =========== ============ ==============
</TABLE>
- -----------------
(1) Deposits from governmental and other public entities totaled $6.9 million
at June 30, 1997.
BORROWINGS. Although deposits are Capital's primary source of funds,
Capital's policy has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when
Capital desires additional capacity to fund loan demand. Capital's borrowings
historically have consisted of advances from the FHLB of Des Moines. Such
advances can be made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. At June 30, 1997,
Capital had $46.5 million of advances.
From time to time, Capital has entered into reverse repurchase
agreements. These agreements are accounted for as borrowings by Capital and are
secured by certain of Capital's investment and mortgage-backed securities. The
lender takes possession of the securities during the period that the reverse
repurchase agreement is outstanding. The terms of the agreements have typically
ranged from 30 days to a maximum of 90 days. The
- 69 -
<PAGE> 79
proceeds of these transactions are used to meet cash flow needs of Capital. At
June 30, 1997, Capital had no repurchase agreements outstanding.
The following table sets forth the maximum month-end balance and average
balance of borrowings, consisting solely of FHLB advances, for the periods
indicated. See Note 8 of the Notes to Consolidated Financial Statements
included in this Proxy Statement as for additional information on borrowed
funds.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
1995 1996 1997
--------- ----------- ---------
(In thousands)
<S> <C> <C> <C>
MAXIMUM BALANCE:
FHLB advances........................................... $18,500 $42,000 $53,000
AVERAGE BALANCE:
FHLB advances........................................... 11,513 22,656 49,125
</TABLE>
The following table sets forth certain information as to Capital's
borrowings, consisting of solely FHLB advances, at the dates indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------
1995 1996 1997
--------- ----------- ---------
(In thousands)
<S> <C> <C> <C>
FHLB advances............................................ $18,500 $42,000 $46,500
========= =========== =========
Weighted average interest rate of FHLB
advances.............................................. 6.50% 5.65% 5.68%
</TABLE>
REGULATION
Capital Bank is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States Government. Accordingly, Capital Bank is subject to broad federal
regulation and oversight extending to all its operations. Capital Bank is a
member of the FHLB of Des Moines and is subject to certain limited regulation
by the Federal Reserve. As the savings and loan holding company of Capital
Bank, Capital Bancorp, Inc. also is subject to federal regulation and
oversight. The purpose of the regulation of Capital and other holding companies
is to protect subsidiary savings associations. Capital Bank is a member of the
Savings Association Insurance Fund ("SAIF"), which together with Capital Bank
Insurance Fund (the "BIF") are the two deposit insurance funds administered by
the FDIC, and the deposits of Capital Bank are insured by the FDIC. As a
result, the FDIC has certain regulatory and examination authority over Capital.
COMPETITION
Capital faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other commercial banks, savings associations,
mortgage brokers and credit unions making loans secured by real estate located
in Capital's market area. Commercial banks, credit unions and finance companies
provide vigorous competition in consumer lending. Capital competes for real
estate and other loans principally on the basis of the quality of services it
provides to borrowers, interest rates and loan fees it charges, and the types
of loans it originates.
Capital attracts all of its deposits through its branch and limited
service offices, primarily from the communities in which those offices are
located; therefore, competition for those deposits is principally from other
- 70 -
<PAGE> 80
commercial banks, savings associations, credit unions and brokerage firms
located in the same communities. Capital competes for these deposits by
offering a variety of deposit accounts at competitive rates, convenient
business hours and branch locations with interbranch deposit and withdrawal
privileges.
Capital primarily serves all or a portion of Boone, Callaway, Camden,
Cole, Crawford, Franklin, Gasconade, Maries, Miller, Moniteau, Morgan, Osage,
Phelps and Pulaski counties in Missouri. As of June 30, 1997, there were 35
commercial banks, 7 savings institutions, other than Capital, and 15 credit
unions which compete for deposits and loans in Capital's primary market area.
PROPERTY
Capital conducts its business at its main office and two supermarket
branches in Jefferson City, Missouri, and five other locations in its primary
market area. Capital owns its main office and four of its branch offices; the
remaining three branch offices and the limited service agency office are
leased. The total net book value of Capital's premises and equipment (including
land, building and leasehold improvements and furniture, fixtures and
equipment) at June 30, 1997 was $2.2 million. See Note 6 of Notes to
Consolidated Financial Statements included in this Proxy Statement.
Capital will continue to expand and improve its current facilities as
needed. During April 1997, Capital Bank opened its second supermarket branch
facility in Jefferson City, Missouri. Management believes that these
supermarket branch offices are an effective way to service its customers due to
their size, efficiency and convenient high traffic locations.
LEGAL PROCEEDINGS
Capital is involved, from time to time, as plaintiff or defendant in
various legal actions arising in the normal course of their businesses. While
the ultimate outcome of these proceedings cannot be predicted with certainty,
it is the opinion of management, after consultation with counsel representing
Capital in the proceedings, that the resolution of these proceedings should not
have a material effect on Capital's results of operations.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CAPITAL
Security ownership information with respect to all persons known to
Capital to be the beneficial owners of five percent (5%) or more of the
outstanding shares of Capital Common Stock and all directors and executive
officers of Capital is shown in the following table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT OF
BENEFICIAL OWNERS OWNED(1) CLASS
- ------------------------------------------------------- ---------------------------- ------------------------------------
<S> <C> <C>
Capital Savings Bancorp, Inc. (2)
Employee Stock Ownership Plan
425 Madison Street
Jefferson City, Missouri 65101 190,756 10.09%
Investors of America,
Limited Partnership (3)
135 North Meramec
Clayton, Missouri 63124 234,596 12.40
Joseph E. Forck, Director and
Senior Vice President (4)(5) 33,390 1.75
</TABLE>
- 71 -
<PAGE> 81
<TABLE>
<S> <C> <C>
Ralph J. Kalberloh, Director (4) 29,047 1.52
Larry V. Schepers, Chairman,
President and Chief Executive
Officer (4)(6) 138,280 7.03
Frank A. Sloan, Director (4) 37,018 1.94
Arthur F. Wankum, Director,
Executive Vice President and
Chief Financial Officer 65,988 3.44
Wayne R. Walquist, Director (4)(8) 32,018 1.68
Directors and executive officers
of Capital Savings and the Bank
as a group (8 persons) (9) 377,172 18.20
</TABLE>
- ----------------------------
(1) The nature of beneficial ownership for shares reported in this column is
sole voting and investment power, except as otherwise noted in these
footnotes. Included in the shares beneficially owned by the named
individuals are options to purchase shares of Common Stock as follows:
Mr. Forck - 14,230 shares; Mr. Schepers - 76,860 shares; Mr. Sloan -
14,230 shares; Mr. Wankum - 25,960 shares; Mr. Kalberloh - 14,230 shares;
and Mr. Walquist - 14,230 shares. All shares reported as beneficially
owned have been adjusted for the two for one stock split paid in the form
of a 100% stock dividend by the Company on November 22, 1996.
(2) The amount reported represents shares held by the Employee Stock
Ownership Plan ("ESOP"), 100,147 shares of which were allocated to, or
purchased on behalf of, the accounts of participants. First Bankers Trust
Company, N.A., of Quincy, Illinois, as the trustee of the ESOP, may be
deemed to beneficially own the shares held by the ESOP which have not
been allocated to the accounts of participants. Pursuant to the terms of
the ESOP, participants in the ESOP have the right to direct the voting of
shares allocated to, or purchased on behalf of, their accounts.
(3) As reported by First Securities America, Inc. ("FSAI"), the general
partner of Investors of America, Limited Partnership ("Investors"), on
Form 3 filed with the Securities and Exchange Commission (the "SEC")
during June 1996. FSAI disclaims beneficial ownership of the Common Stock
owned by Investors, except to the extent of FSAI's pecuniary interest in
Investor. On June 18, 1996, Dierberg Four, L.P. ("DFLP"), the previous
record owners of the Common Stock, merged with and into Investors. DFLP,
pursuant to Amendment No. 1 to its Schedule 13D dated May 12, 1994 and
filed with the SEC, had reported sole voting and investment power with
respect to all shares of Common Stock reported thereunder.
(4) The address for each of these individuals is 425 Madison, Jefferson City,
Missouri 65101.
(5) Includes 2,046 shares as to which Mr. Forck has reported shared
ownership.
(6) Includes 12,702 shares as to which Mr. Schepers reported shared
ownership.
(7) Includes 6,526 shares as to which Mr. Wankum has reported shared
ownership.
(8) Includes 14,224 shares as to which Mr. Walquist has reported shared
ownership.
- 72 -
<PAGE> 82
(9) Includes shares held directly, as well as, jointly with family members or
held by trusts, with respect to which shares the listed individuals or
group members may be deemed to have sole or shared voting and investment
power. Included in the shares reported as beneficially owned by all
directors and executive officers are options to purchase 180,662 shares
of Common Stock.
CAPITAL'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following narrative discussion and tabular data provides an analysis
of major factors and trends regarding the consolidated financial condition of
Capital for the three and nine month periods ended March 31, 1998 and 1997 and
for each of the years ended June 30, 1997, 1996 and 1995. This discussion
should be read in conjunction with the audited consolidated financial
statements of Capital, and the notes thereto, as of and for the year ended June
30, 1997, 1996 and 1995, and the unaudited consolidated financial statements of
Capital and the notes thereto, as of and for the three and nine months ended
March 31, 1998 and 1997, included in this Proxy Statement.
OVERVIEW
Capital is a Delaware corporation organized on September 22, 1993 for the
purpose of becoming the holding company of Capital Bank. The principal business
of Capital consists primarily of attracting deposits from the general public
and using such deposits to originate mortgage loans secured by one- to
four-family residences and, to a lesser extent, one- to four-family residential
construction, multi-family and commercial real estate loans and consumer loans.
Capital also uses these funds to purchase loans secured by one- to four-family
residences and, to a lesser extent, multifamily and nonresidential properties.
Capital also purchases mortgage-backed securities, U.S. government and federal
agency obligations and other permissible securities.
Capital's results of operations are primarily dependent upon the
difference (or "spread") between the average yield earned on loans,
mortgage-backed securities and investments and the average rate paid on
deposits and borrowings, as well as the relative amounts of such assets and
liabilities. The interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. Capital, like other thrift institutions, is subject to interest-rate
risk to the degree that its interest-earning assets mature or reprice at
different times, or on a different basis, than its interest-bearing
liabilities.
Capital's results of operation are also affected by, among other things,
provision for loan losses, loan servicing income, fee income and other service
charges, subsidiary income, operating expenses and income taxes. Capital's
operating expenses principally consist of employee compensation and benefits,
occupancy expenses, federal deposit insurance premiums and other general and
administrative expenses.
Capital is significantly affected by prevailing economic conditions
including federal monetary and fiscal policies, as well as by federal
regulation of financial institutions. Deposit balances are influenced by a
number of factors including interest rates paid on competing personal
investments and the level of personal income and savings within the
institution's market area. Lending activities are influenced by consumer demand
for housing as well as competition from other lending institutions. The primary
sources of funds for lending activities include deposits, loan payments,
borrowings and funds provided from operations.
CAPITAL'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1998 AND
1997
RESULTS OF OPERATIONS
GENERAL. Capital's net income increased $266,000, or 48.1% to $819,000
for the three months ended March 31, 1998 compared to net income of $553,000
for the same period in 1997. Net income for the nine months
- 73 -
<PAGE> 83
ended March 31, 1998 increased $1.1 million from $965,000. The increases in net
income for both periods were due to increases in net interest income and
noninterest income. The net income for the nine month period ended March 31,
1997 was reduced due to the payment of the one-time SAIF special assessment of
$592,000, after tax, made on September 30, 1996.
INTEREST INCOME. Interest income increased $173,000, or 3.9%, to $4.6
million for the three months and $767,000, or 5.8%, to $13.9 million for the
nine months ended March 31, 1998 from $4.4 million and $13.2 million for the
same periods, respectively, in 1997. The increases in interest income were due
primarily to an increase in the volume of loans. Interest income on mortgage
loans receivable increased $169,000, or 5.0%, and $872,000, or 8.8%, for the
three and nine months ended March 31, 1998, respectively. Interest from
mortgage-backed securities decreased $111,000, or 25.3%, for the three months
and 307,000 or 22.4% for the nine months ended March 31, 1998. The decrease was
primarily due to a $5.7 million decrease in Capital's balance of
mortgage-backed securities to $19.2 million at March 31, 1998 from $24.9
million at March 31, 1997.
INTEREST EXPENSE. Interest expense decreased $20,000, or 0.8%, for the
three months ended March 31, 1998, due primarily to the reduction of the
balance of borrowed funds for the period. Interest expense for the nine months
ended March 31, 1998 increased $207,000 over the same period of the prior year.
The 2.7% increase for the nine month period was primarily the result of an
increase in the level of deposits from the previous period. Average deposits
for the nine months ended March 31, 1998 was $170.8 million compared with
$159.3 million for the same period ended March 31, 1997.
NET INTEREST INCOME. Net interest income, after provision for loan
losses, for the three and nine months ended March 31, 1998 increased $193,000
and $559,000, respectively, over the same periods of the prior year. This
represents increases of 10.6% and 10.4%, respectively, and is primarily
attributed to an increase in loans and an increase in Capital's net interest
margin. Net interest margin (interest income less interest expense, expressed
as a percentage of average interest-earning assets) increased to 3.57% for the
three months and 3.47% for the nine months ended March 31, 1998 from 3.23% and
3.27%, respectively, for the same periods in 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses is a result of
management's periodic analysis of the adequacy of the allowance for loan
losses. The provision for loan losses was $30,000 for the three months and
$90,000 for the nine months ended March 31, 1998 and 1997. At March 31, 1998
Capital's allowance for loan losses totaled $811,000, or .43% of the total loan
portfolio and 106.6% of total non-performing loans.
Management establishes an allowance for loan losses based on an analysis
of risk factors in the loan portfolio. This analysis includes the evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio, estimated fair value of
underlying collateral, loan commitments outstanding, delinquencies, and other
factors. Because of Capital's extremely low loan loss experience during its
history, management also considers the loan loss experience of similar
portfolios in comparable lending markets. Accordingly, the calculation of the
adequacy of the allowance for loan losses is not based solely on the level of
non-performing assets.
Management will continue to monitor the allowance for loan losses and
make future additions to the allowance through the provision for loan losses as
economic conditions and loan portfolio quality dictate. Although Capital
maintains its allowance for loan losses at a level which it considers to be
adequate to provide for losses, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, the determination as to
the amount of its allowance for loan losses is subject to review by Capital
Bank's regulators, as part of their examination process, which may result in
the establishment of an additional allowance based upon their judgment of the
information available to them at the time of their examination.
NONINTEREST INCOME. Noninterest income, consisting primarily of gains on
sale of equity securities, bank service charges and fees and loan servicing
income increased by $396,000, or 111.5%, to $751,000 for the three months ended
March 31, 1998. Noninterest income increased $821,000, or 94.9% to $1.7 million
for the nine months ended March 31, 1998. These increases were primarily
attributed to gains on sale of equity securities of
- 74 -
<PAGE> 84
$414,000 and $558,000 for the three and nine month periods, respectively. In
addition, checking account fee income increased $70,000, or 43.0%, for the
three months and $298,000, or 66.5%, for the nine months ended March 31, 1998
compared to the same respective periods in the prior year.
NONINTEREST EXPENSE. Noninterest expense consists primarily of
compensation and benefits, occupancy and equipment, federal insurance premiums,
and data processing service bureau charges. Noninterest expense for the three
months ended March 31, 1998 increased $182,000, or 14.4% and decreased
$388,000, or 8.3%, for the nine months ended March 31, 1998 compared to the
same periods, respectively, in 1997. However, exclusive of the one-time SAIF
assessment, non-interest expense for the nine months would have increased by
$571,000, or 15.4%. The increases were primarily attributed to increases in the
costs of personnel, occupancy, and technology enhancements and the costs
associated with the aggressive marketing of the checking account program.
Capital Bank has reviewed computer applications with its outside data
processor and other vendors to ensure operational and financial systems are not
adversely affected by Year 2000 software failures. All major customer
applications are processed by Capital Bank's data processor. The processor and
other vendors have begun to modify existing programs to make them Year 2000
compliant. Management of Capital Bank does not anticipate any additional
expense related to this issue at this time. Any Year 2000 compliance failures
could result in additional expense to Capital Bank.
INCOME TAX. The provision for income taxes increased $141,000 and
$685,000 for the three and nine month periods ended March 31, 1998,
respectively, over the same periods in 1997 due to higher pre-tax income. The
increase in provision for income taxes in the nine months ended March 31, 1998
related primarily to the one-time SAIF assessment in the nine months ended
March 31, 1997.
CHANGES IN FINANCIAL CONDITION
Total assets decreased $10.7 million, or 4.4%, to $231.8 million at March
31, 1998 from $242.5 million at June 30, 1997. Securities held-to-maturity,
consisting primarily of callable agency securities, decreased $6.0 million or
66.6% to $3.0 million from $9.0 million at June 30, 1997 due to securities
being called prior to maturity. Securities available-for-sale decreased $3.2
million, or 11.4%, to $24.9 million. Loans receivable decreased $3.0 million,
or 1.6%, to $187.2 million at March 31, 1998 from $190.2 million at June 30,
1997.
Total liabilities decreased $12.8 million, or 5.8%, to $208.4 million
at March 31, 1998 from $221.2 million at June 30, 1997. Borrowed funds
decreased $12.5 million, or 26.9%, during the same period to $34.0 million from
$46.5 million. Deposits remained stable at $171.0 million at March 31, 1998.
Stockholder's equity increased $2.2 million, or 10.1%, to $23.5
million at March 31, 1998 from $21.3 million at June 30, 1997. The increase was
primarily a result of net income of $2.0 million for themonths ended March 31,
1998.
INTEREST RATE SENSITIVITY
Capital Bank has employed various strategies intended to minimize the
adverse effect of interest rate risk on future operations of Capital Bank and
Capital by attempting to match the interest rate sensitivity of its assets and
liabilities and by expanding its activities, such as checking account services,
financial services and other noninterest income areas, which are not directly
dependent on interest rate spreads. Capital Bank's strategies are intended to
stabilize net interest income for the long-term by protecting its interest rate
spread against changes in interest rates.
The Board of Directors of Capital Bank has appointed an Asset/Liability
Committee. It is the responsibility of this committee to manage the interest
rate sensitivity of Capital Bank's balance sheet in order to minimize large
fluctuations in the net income of Capital Bank. Capital Bank utilizes ARM
loans, adjustable rate mortgage-backed securities and consumer loans to provide
repricing opportunities more closely matched within the time frames in which
its deposits are repriced. The committee is charged with the responsibility to
manage interest
- 75 -
<PAGE> 85
rate risk while remaining sensitive to the Board's policy that credit risk not
be substituted for interest rate risk. As a result of these efforts,
approximately 65% of Capital Bank's mortgage loan and mortgage-backed security
portfolio as of March 31, 1998, consisted of ARMs and adjustable rate
mortgage-backed securities, and approximately 9.1% of Capital Bank's total loan
portfolio consisted of consumer loans.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measurement of Capital's ability to raise cash when needed
without an adverse impact on current or future earnings. Capital's most liquid
assets are cash, cash due from banks, interest-earning deposits and U.S.
Treasury Securities with maturities of two years and less. The levels of these
assets are dependent on Capital's investing, operating, and deposit activities
during any given period. At March 31, 1998, cash, cash due from banks and
interest-earning deposits, totaled $5.5 million.
Capital Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. Liquid assets consist of cash, cash due from banks,
interest-earning deposits and short- and intermediate-term U.S. Government
securities. This requirement, which periodically varies depending upon economic
conditions and deposit flows, is based upon a percentage of deposits and short
term borrowing. The current required liquidity ratio is 4%. Capital Bank has
historically maintained a level of liquid assets in excess of this regulatory
requirement. Capital Bank's liquidity ratio was 5.81% at March 31, 1998.
Liquidity management for Capital Bank is both a daily and long term function of
Capital Bank's management strategy. In the event that Capital Bank requires
funds beyond its ability to generate them internally, additional sources of
funds are available through the use of FHLB advances and reverse repurchase
agreements.
Capital's primary source of funds are deposits, proceeds from maturing
investment securities, and principal and interest payments on loans. While
maturing investment securities and the repayment of loans are relatively
predictable sources of funds, deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition. From
time to time, funds are borrowed from the FHLB of Des Moines as an additional
source of funds.
The primary investment activity of Capital is the origination of mortgage
loans. During the nine months ended March 31, 1998 and 1997, Capital originated
mortgage loans in the aggregate amount of $39.0 million and $30.0 million,
respectively. A more limited investment activity of Capital is the investment
of funds in U.S. Treasury securities, certificates of deposit with other
financial institutions, mortgage-backed securities and FHLB overnight funds.
During periods when Capital's loan demand is limited, Capital may purchase
loans for investment and purchase short-term investment securities to obtain a
higher yield than available in interest-earning deposits.
At March 31, 1998, Capital had outstanding loan commitments to originate
$7.5 million of loans, including $5.6 million of undisbursed home equity lines
of credit. Capital believes that it will have sufficient funds available to
meet all of these commitments. At March 31, 1998, certificates of deposits
scheduled to mature in one year or less totaled $85.7 million. Management
believes based on its experience to date, that a significant portion of these
funds will remain with Capital.
At March 31, 1998, Capital Bank exceeded each of the three regulatory
capital ratio requirements. Capital Bank's tangible, core and risk-based
capital ratios were 8.76%, 8.76%, and 17.81%, respectively. These regulatory
capital ratio requirements at March 31, 1998 were 1.5%, 3.0%, and 8.0%,
respectively.
- 76 -
<PAGE> 86
CAPITAL'S MANAGEMENT DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
GENERAL. Capital's net income decreased $310,000, or 16.7%, to $1.6
million for the year ended June 30, 1997 from $1.9 million for the year ended
June 30, 1996. Exclusive of the one-time SAIF assessment of $959,000 and the
related income tax effect, net income for fiscal 1997 would have approximated
$2.2 million, or an increase of $290,000 from the year ended June 30, 1996.
Capital had an increase in net interest income and non-interest income
partially offset by an increase in non-interest expense.
NET INTEREST INCOME. Net interest income before the provision for loan
losses totaled $7.4 million for fiscal 1997 compared to $6.6 million for fiscal
1996, representing an increase of 12.4%. The increase was due primarily to an
increase in the average balance of interest-earning assets. The average net
interest rate spread increased to 2.94% for the year ended June 30, 1997 from
2.85% for the year ended June 30, 1996. This .09% increase was attributed to
assets repricing at an increased rate as a result of generally higher market
interest rates.
Interest income increased $2.7 million to $17.7 million for the year
ended June 30, 1997 from $15.0 million for the year ended June 30, 1996. The
increase in interest income was primarily attributed to a $32.4 million, or
16.8%, increase in average interest-earning assets, primarily loans receivable.
Interest expense increased $2.0 million, or 22.7%, to $10.4 million for
the year ended June 30, 1997 from $8.4 million for the year ended June 30,
1996. The increase was due to a $39.0 million increase in the average balance
of interest-bearing liabilities, primarily FHLB advances. The average rate paid
on interest-bearing liabilities remained at 4.93% during fiscal years 1996 and
1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $120,000
for the years ended June 30,1997 and 1996. The allowance for loan losses
increased to $739,000, or .39% of total loans at June 30, 1997, compared to
$634,000 or .38% of total loans at June 30, 1996. The increase in the allowance
for loan losses was primarily reflective of the $23.6 million or 14.2% increase
in Capital's loan portfolio.
Capital maintains allowances for loan losses based on management's
analysis of its loan portfolio, the amount of non-performing assets, and
general economic conditions. Capital continues to monitor and adjust its
allowance for loan losses as management's analysis of its loan portfolio and
economic conditions dictate. Future additions to Capital's allowance for loan
losses and any change in the related ratio of the allowance for loan losses to
non-performing loans are dependent upon the economy, changes in real estate
values and interest rates. In addition, federal regulators may require
additional reserves as a result of their examination of Capital. The allowance
for loan losses reflects what Capital currently believes is an adequate level
of reserves, although there can be no assurance that future losses will not
exceed the estimated amounts, thereby adversely affecting future results of
operations. See "Use of Estimates" under Note 1 of the Notes to Consolidated
Financial Statements herein.
Capital's total nonperforming assets (which include non-accrual loans,
accruing loans more than 90 days delinquent, and real estate owned) increased
by $253,000 to $760,000, or .31% of total assets, at June 30, 1997 from
$507,000, or .23% of total assets, at June 30, 1996. At June 30, 1997, Capital
Bank's allowance for loan losses to non-performing loans was 107.4% as compared
to 136.9% at June 30, 1996.
NONINTEREST INCOME. Noninterest income increased $406,000 or 49.0%, to
$1.2 million for the year ended June 30, 1997 from $829,000 for the year ended
June 30, 1996. Noninterest income consists primarily of bank service charges
and fees, loan servicing income, income from Capital Bank's financial services
subsidiary, and net gain (loss) on the sales of securities. The increase in
noninterest income during fiscal 1997 was due to increases in bank service
charges, and from the gain on sale of securities, offset by a decrease in the
commission
- 77 -
<PAGE> 87
income of Capital Bank's financial services subsidiary. Bank service
charges increased $431,000 for the year ended June 30, 1997 to $691,000 from
$260,000 for the previous year. The increase was attributable to the increase
in number of checking accounts added in the past year. Capital's management
intends to continue marketing of the checking account program.
NONINTEREST EXPENSE. Noninterest expense increased $1.7 million to $5.9
million for the year ended June 30, 1997 from $4.2 million for the year ended
June 30, 1996. Excluding the SAIF assessment of $959,000, non-interest expense
increased $730,000, or 17.3% to $5.0 million when compared to the prior year.
See Note 16 of the Notes to Consolidated Financial Statements herein. The
majority of the increase was attributable to an increase in compensation and
benefits of $364,000 which included the cost of employees hired in connection
with the opening of a supermarket branch during April 1997. An increase in
office occupancy, advertising, data processing and other non-interest expenses
were due in part to the marketing of the checking account promotion and the
opening of a new supermarket branch facility.
PROVISION FOR INCOME TAXES. Income tax expenses decreased by $161,000
to $1.0 million for the year ended June 30, 1997 from $1.2 million for the
year ended June 30, 1996. The decrease was due to the decrease in taxable
income.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995
GENERAL. Capital's net income increased by $78,000 or 4.4% to $1.9
million for the year ended June 30, 1996 from $1.8 million for the year ended
June 30, 1995. The increase was due to increases in net interest income and
noninterest income, offset by increases in noninterest expense and the
provision for income taxes.
NET INTEREST INCOME. Net interest income before provision for loan
losses increased by $377,000 or 6.1%, to $6.6 million for the year ended June
30, 1996 from $6.2 million for the year ended June 30, 1995. The increase was
due primarily to an increase in the average balance of interest-earning assets.
The average net interest spread declined, however, from 2.96% for the fiscal
year ended June 30, 1995 to 2.85% for the period ended June 30, 1996. The
decline was attributable to deposits and borrowings repricing upward at a
greater rate than interest-earning assets as a result of general market
increases in interest rates.
Interest income increased $2.3 million, or 17.7%, to $15.0 million for
the year ended June 30, 1996 compared to $12.7 million for the year ended June
30, 1995. The increase in interest income was primarily attributable to a $16.0
million or 9.1% increase in average interest-earning assets due to the growth
in the one- to four-family mortgage loans, commercial loans, consumer loans,
and the mortgage-backed securities portfolio.
Interest expense increased $1.9 million or 28.7%, to $8.4 million for
the year ended June 30, 1996 from $6.6 million for the year ended June 30,
1995. The increase was primarily due to the average balance of interest-bearing
liabilities increasing $16.8 million or 10.9% from $154.5 million to $171.4
million and, to a lesser extent, a 68 basis point increase in the average cost
of funds. The $16.8 million increase was primarily the result of an increase in
the balance of FHLB advances and certificate accounts. Interest expense on
deposits increased $1.2 million while interest expense on borrowed funds
increased $638,000.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $120,000
for the year ended June 30, 1996, as compared to $60,000 in 1995. The
provisions increased allowance for loan losses to $634,000 or .38% of total
loans at June 30, 1996, compared to $514,000 or .34% of total loans at June 30,
1995.
Capital's total nonperforming assets increased by $275,000 to $507,000
or .23% of total assets at June 30, 1996 from $232,000 or .12% at June 30,
1995. The net loan portfolio increased by $14.8 million during the same period.
NONINTEREST INCOME. Noninterest income increased $49,000 or 6.3%, to
$829,000 for the period ended June 30, 1996 from $780,000 for the year ended
June 30, 1995. The increase in noninterest income during fiscal
- 78 -
<PAGE> 88
1996 was due to increases in income from real estate owned held for sale, gain
on sale of securities and service charges, offset by a decrease in the earnings
of Capital Bank's financial services subsidiary.
NONINTEREST EXPENSE. Noninterest expense increased $165,000 to $4.2
million for the fiscal year ended June 30, 1996 from $4.1 million for the
fiscal year ended June 30, 1995. The increase in noninterest expense was due
primarily to an increase in occupancy and equipment expenses and an increase in
advertising expenses, partially offset by a decrease in compensation and
benefits. Office occupancy and equipment expenses increased $91,000 to $511,000
for the year ended June 30, 1996 from $420,000 for the year ended June 30, 1995
due, in part, to relocation and expansion of the Rolla, Missouri facility and
relocation of the Jefferson City mall facility to a supermarket facility.
PROVISION FOR INCOME TAXES. Income tax expense increased by $122,000 to
$1.2 million for the fiscal year ended June 30, 1996 from $1.1 million for the
fiscal year ended June 30, 1995. The increase was due to the increase in
taxable income and Capital's effective tax rate in fiscal 1996. Capital's
effective tax rate increased to 38.8% in the year ended June 30, 1996 from
37.2% for the fiscal year ended June 30, 1995.
- 79 -
<PAGE> 89
AVERAGE BALANCES, INTEREST RATES AND YIELDS. The following table
presents for the periods indicated the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
total dollar amount of interest expense on average interest-bearing liabilities
and the resultant rates. No tax equivalent adjustments were made. Non-accruing
loans have been included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------
1995 1996
--------------------------------------- ----------------------------------------
Average Interest Average Interest
Out-Standing Earned/ Yield/ Out-Standing Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------------- ------------ ---------- ------------- ----------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable (1)............... $143,429 $10,807 7.53% $157,222 $12,715 8.09%
Mortgage-backed securities......... 16,471 1,103 6.70 22,905 1,602 6.99
Investment securities.............. 13,344 603 4.52 8,344 419 5.02
FHLB stock......................... 1,857 144 7.75 1,921 136 7.08
Other.............................. 1,595 80 5.02 2,347 124 5.28
------------- ------------ ------------- -----------
Total interest-earning
assets (1)................. $176,696 12,737 7.21% $192,739 14,996 7.78%
============= ------------ ============= -----------
INTEREST-BEARING LIABILITIES:
Demand and checking
deposits........................ $ 18,270 426 2.33% $ 17,799 381 2.14%
Savings deposits................... 17,336 495 2.86 16,146 465 2.88
Certificate accounts............... 107,415 4,937 4.60 114,769 6,257 5.45
FHLB advances...................... 11,513 704 3.84 22,656 1,342 5.92
------------- ------------ ------------- -----------
Total interest-bearing
liabilities.................. $154,534 6,562 4.25% $171,370 8,445 4.93%
============= ------------ ============= -----------
Net interest income................ $ 6,175 $ 6,551
============ ===========
Net interest rate spread........... 2.96% 2.85%
========== ============
Net earning assets................. $ 22,162 $ 21,369
============= =============
Net yield on average interest-
earning assets................... 3.49% 3.40%
========== ============
Average interest-earning
assets to average interest-
bearing liabilities.............. 1.14x 1.12x
============ ===========
<CAPTION>
Year Ended June 30,
-------------------------------------------
1997
-----------------------------------------
Average Interest
Out-Standing Earned/ Yield/
Balance Paid Rate
------------ ------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable (1)............... $181,057 $14,719 8.13%
Mortgage-backed securities......... 26,166 1,784 6.82
Investment securities.............. 13,229 927 7.01
FHLB stock......................... 2,765 198 7.16
Other.............................. 1,962 99 5.05
------------ -------------
Total interest-earning
assets (1)................. $225,179 17,727 7.87%
============ -------------
INTEREST-BEARING LIABILITIES:
Demand and checking
deposits........................ $ 24,362 561 2.30%
Savings deposits................... 17,048 458 2.69
Certificate accounts............... 119,802 6,576 5.49
FHLB advances...................... 49,125 2,770 5.64
------------ -------------
Total interest-bearing
liabilities.................. $210,337 10,365 4.93%
============ -------------
Net interest income................ $ 7,362
=============
Net interest rate spread........... 2.94%
=========
Net earning assets................. $ 14,842
============
Net yield on average interest-
earning assets................... 3.27%
=========
Average interest-earning
assets to average interest-
bearing liabilities.............. 1.07x
=============
</TABLE>
- 80 -
<PAGE> 90
RATE/VOLUME ANALYSIS. The following table presents the dollar amount of
changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It distinguishes
between the increase related to higher outstanding balances and that due to the
levels and volatility of interest rates. For each category of interest-earning
assets and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (i.e., changes in volume multiplied by
old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old
volume). For purposes of this table, changes attributable to both rate and
volume which cannot be segregated have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------
1995 vs. 1996 1996 vs. 1997
---------------------------------------- --------------------------------------
Increase Increase
(Decrease) Total (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------------ ---------- ------------ ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable..................... $1,115 $793 $1,908 $1,938 $ 66 $2,004
Mortgage-backed securities........... 450 49 499 222 (40) 182
Investment securities................ (264) 75 (189) 403 167 570
Certificates of deposit.............. -- (3) (3) -- -- --
Other................................ 40 4 44 (19) (6) (25)
------------ ---------- ------------ ----------- ----------- ------------
Total interest-earning assets..... $1,341 $918 $2,259 $2,544 $ 187 $2,731
============ ========== ============ =========== =========== ============
INTEREST-BEARING LIABILITIES:
Demand and checking deposits......... $ (10) $(35) $ (45) $ 151 $ 29 $ 180
Savings deposits..................... (34) 4 (30) 24 (31) (7)
Certificate accounts................. 401 919 1,320 276 43 319
FHLB advances........................ 660 (22) 638 1,493 (65) 1,428
------------ ---------- ------------ ----------- ----------- ------------
Total interest-bearing
liabilities................... $1,017 $866 $1,883 $1,944 $ (24) $1,920
============ ========== ============ =========== =========== ============
Net interest income..................... $ 376 $ 811
============ ============
</TABLE>
- 81 -
<PAGE> 91
INTEREST RATE SPREAD. Capital's results of operations are determined
primarily by net interest income and, to a lesser extent, fee income,
miscellaneous income and operating expenses. Net interest income is determined
by the interest rate spread between the yields earned on its interest-earning
assets and the rates paid on interest-bearing liabilities and by the relative
amounts of interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average yield earned and
rate paid on Capital's interest-earning assets and interest-bearing
liabilities.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
WEIGHTED AVERAGE YIELD ON:
Loans receivable........................................................ 7.66% 8.02% 8.12%
Mortgage-backed securities.............................................. 6.50 7.18 6.83
Investment securities................................................... 5.59 7.10 6.64
Other interest-earning assets........................................... 5.62 4.92 5.17
Combined weighted average yield on interest-earning
assets........................................................... 7.43 7.84 7.83
WEIGHED AVERAGE RATE PAID ON:
Savings deposits........................................................ 2.75 2.79 2.70
Demand and checking deposits............................................ 2.17 2.14 2.55
Certificates............................................................ 5.24 5.48 5.57
Borrowings.............................................................. 6.50 5.65 5.68
Combined weighted average rate paid on interest-
bearing liabilities............................................. 4.75 4.93 4.95
Spread..................................................................... 2.68 2.91 2.88
</TABLE>
FINANCIAL CONDITION
Capital's total assets increased $24.5 million, or 11.2%, to $242.5
million at June 30, 1997 from $218.0 million at June 30, 1996. The increase was
primarily attributable to a $23.6 million increase in loans receivable offset
by a $4.9 million decrease in mortgage-backed securities. The asset growth was
funded through an increase in deposits of $18.7 million and an increase in
advances from the FHLB of Des Moines of $4.5 million.
Net loans receivable increased $23.6 million, or 14.2%, to $190.2
million at June 30, 1997 from $166.6 million at June 30, 1996. Loan growth was
primarily the result of increased originations, which were due to an increase
in marketing efforts and increase in demand in Capital's primary lending
market. In addition, Capital purchased approximately $6.0 million of loans
secured by properties in the state of Missouri. During fiscal 1997, Capital
originated and purchased $41.7 million of one- to four-family residential
mortgage loans as compared to $53.6 million of such mortgage loans during
fiscal 1996.
Deposits increased $18.7 million, or 12.3%, to $171.0 million at
June 30, 1997 from $152.3 million at June 30, 1996. This increase was
comprised of $7.8 million in time deposits, $5.0 million in savings deposits
and $5.9 million in demand deposits.
Advances from the FHLB increased $4.5 million, or 10.7%, to $46.5
million at June 30, 1997 from $42.0 million at June 30, 1996. The advances have
terms of up to five years at both variable and fixed interest rates and were
primarily used to finance growth in loans receivable. At June 30, 1997 the
average cost of advances was .11% higher than the weighted average cost of
Capital's certificates of deposit.
INTEREST RATE SENSITIVITY
ASSET/LIABILITY MANAGEMENT. The goal of Capital's asset/liability
management strategy is to maximize and stabilize net interest income for the
long term while protecting its interest rate spread against significant changes
in interest rates. Capital has employed various strategies intended to minimize
the adverse effect of
- 82 -
<PAGE> 92
interest rate risk on future operations by attempting to match the interest
rate sensitivity of its assets and liabilities and by expanding its activities
which are not directly dependent on interest rate spreads.
In managing its asset/liability mix, Capital, at times, depending on the
relationship between long-and short-term interest rates, market conditions and
consumer preference, may place somewhat greater emphasis on maximizing its net
interest margin than on strictly matching the interest rate sensitivity of its
assets and liabilities. Capital's management believes that the increased net
income which may result from an acceptable mismatch in the actual maturity or
repricing of its assets and liability portfolios can, during periods of
declining or stable interest rates, provide sufficient returns to justify the
increased exposure to sudden and unexpected increases in interest rates which
may result from such a mismatch. Capital has established limits, which may
change from time to time, on the level of acceptable interest-rate risk. There
can be no assurances, however, that in the event of an adverse change in
interest rates Capital's efforts to limit interest rate risk will be
successful.
The primary elements of Capital's asset/liability strategy include (i)
retaining all adjustable-rate, and a limited amount of fixed-rate loans for
portfolio depending upon the current interest rate environment, (ii) purchasing
fixed-rate mortgage-backed securities with short- to intermediate-term
effective lives and adjustable-rate mortgage-backed securities and (iii)
emphasizing the solicitation of savings, checking and longer term deposits. In
this regard, Capital focuses its lending efforts toward offering competitively
priced adjustable-rate and fixed-rate loan products. Capital's mortgage lending
strategy has been to retain all one-, three- and five-year adjustable-rate
loans and retain fixed-rate loans of 20 years or less in term. In addition,
depending upon Capital's desired ratio of fixed-rate to adjustable-rate loans,
consistent with its asset liability objectives, Capital retains or sells in the
secondary market all the remaining fixed rate loans with servicing retained,
without recourse. There were no loans held for sale as of June 30, 1997.
Generally, the investment policy of Capital is to invest funds among
various categories of investments and maturities based upon Capital's need for
liquidity, to achieve the proper balance between its desire to minimize risk
and maximize yield, to provide collateral for borrowings, and to fulfill
Capital's asset/liability management policies. Investments generally include
U.S. government, federal agency and mortgage-backed securities.
Capital's cost of funds responds to changes in interest rates due to the
relatively short-term nature of its deposit portfolio. Consequently, the
results of operations are influenced by the levels of short-term interest
rates. Capital offers a range of maturities on its deposit products at
competitive rates and monitors the maturities on an ongoing basis.
Capital emphasizes and promotes its statement savings, money market and
checking accounts and, subject to market conditions, certificates of deposit
with maturities of six months through five years, principally from its primary
market area. Capital has continued its aggressive marketing campaign for
checking accounts during the fiscal year 1997 and as a result has added 6,000
new accounts and $5.9 million in deposits. The passbook, statement savings and
checking accounts tend to be less susceptible to rapid changes in interest
rates than certificates of deposits.
NET PORTFOLIO VALUE. Management utilizes a report provided by the OTS as
one of the analytical tools to ascertain the interest rate sensitivity of
Capital Bank's portfolio and therefore the effects of fluctuating interest
rates on net interest income. The OTS provides a Net Portfolio Value ("NPV")
approach to the quantification of interest rate risk. This approach calculates
the difference between the present value of expected cash flows from assets and
the present value of expected cash flows from liabilities, as well as cash
flows from off-balance sheet contracts.
Under OTS regulations, an institution's "normal" level of interest rate
risk in the event of an assumed change in interest rates is a decrease in the
institution's NPV in an amount not exceeding 2% of the present value of its
assets. Thrift institutions with greater than "normal" interest rate exposure
must take a deduction from their total capital available to meet their risk
based capital requirement. The amount of that deduction is one-half of the
difference between (a) the institution's actual calculated exposure to a 200
basis point interest rate increase or decrease (whichever results in the
greater pro forma decrease in NPV) and (b) its "normal" level of exposure which
is 2% of the present value of its assets. The regulation, however, will not
become effective until the OTS evaluates
- 83 -
<PAGE> 93
the process by which savings associations may appeal an interest rate risk
deduction determination. It is uncertain as to when this evaluation may be
completed. Capital Bank due to its asset size and level of risk-based capital
is exempt from this requirement. Notwithstanding the foregoing, utilizing this
measuring concept, as of June 30, 1997, a change in interest rates of positive
200 basis points would have resulted in a 2.08% decrease (as a percentage of
the net present value of Capital Bank's assets) in Capital Bank's NPV while a
change in interest rates of negative 200 basis points would have resulted in a
.31% increase (as a percentage of the net present value of Capital Bank's
assets) in Capital Bank's NPV. Accordingly, a deduction to risk-based capital
would have been required as of June 30, 1997 if the regulation applied to
Capital Bank. However, even if such deduction was applied, Capital Bank would
still be considered "well capitalized" under current regulatory guidelines.
Presented below, as of June 30, 1997, is an analysis of Capital Bank's
interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up
and down 400 basis points in accordance with OTS regulations. As illustrated in
the table, NPV is more sensitive to rising rates than declining rates. This
occurs principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments. When rates
decline, Capital Bank generally does not experience a significant rise in
market value for these loans because borrowers presumably prepay the higher
interest rate loans.
<TABLE>
<CAPTION>
Net Portfolio Value
- ---------------------------------------------------------------------------------------------------------------------
Change in
Interest Rates Estimated NPV as Amount of Percentage
(Basic Points) Estimated NPV Percentage of Assets Change Change
- --------------------- ------------------- --------------------------- ----------------- -----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+400 $13,496 5.88% $(14,335) (52)%
+300 17,826 7.58 (10,005) (36)
+200 21,849 9.09 (5,982) (21)
+100 25,278 10.31 (2,553) (9)
-- 27,831 11.17 -- --
-100 29,020 11.52 1,189 4
-200 29,082 11.47 1,251 4
-300 29,531 11.56 1,700 6
-400 30,652 11.87 2,821 10
</TABLE>
Capital's management reviews the OTS measurements on a quarterly basis.
In addition to monitoring selected measures on NPV, Capital's management also
monitors effects on net interest income resulting from increases or decreases
in rates. This measure is used in conjunction with NPV measures to identify
excessive interest rate risk.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing tables. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
mortgage loans, have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. Further, in the event of a
change in interest rates, prepayments and early withdrawal levels would likely
deviate significantly from those assumed in calculating the tables. Finally,
the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase.
LIQUIDITY AND CAPITAL RESOURCES
Capital's principal sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities), sales or
maturities of investment securities, mortgage-backed securities and short-term
investments and operations. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan repayments
are more influenced by interest rates, general economic
- 84 -
<PAGE> 94
conditions and competition. Capital has been selective with regard to deposit
rates on certain savings products and, when necessary, has supplemented
deposits with longer term and/or less expensive alternative sources of funds,
such as FHLB advances.
Federal regulations historically have required Capital Bank to maintain
minimum levels of liquid assets. The required percentage has varied from time
to time based upon economic conditions and savings flows and is currently 4% of
net withdrawable savings deposits plus borrowings payable on demand or in one
year or less, during the preceding calendar month. Liquid assets for purposes
of this ratio include cash, certain time deposits, U.S. Government, government
agency and corporate securities and other obligations generally having
remaining maturities of less than five years. Capital Bank has historically
maintained its liquidity ratio at levels in excess of those required. At June
30, 1997, Capital Bank's liquidity ratio was 7.1%.
Capital's primary sources of funds consist of deposits, and amortization
of principal and interest payments on loans and mortgage-backed securities.
Other potential sources of funds available to Capital include borrowings from
the FHLB of Des Moines and reverse repurchase agreements. Capital uses its
liquid resources principally to meet on-going commitments, to fund maturing
certificates of deposit and deposit withdrawals, to invest, to fund existing
and future loan commitments, to maintain liquidity and to meet operating
expenses. Capital anticipates that it will have sufficient funds available to
meet current loan commitments. At June 30, 1997 Capital had outstanding
commitments to extend credit totaling $6.7 million (including $4.7 million in
available lines of credit). Capital's management believes that loan repayments
and other sources of funds will be adequate to meet Capital's foreseeable
liquidity needs.
The primary investing activity of Capital is the origination of loans
and, when loan demand is down, the purchase of mortgage-backed securities.
During the years ended June 30, 1995, 1996 and 1997 Capital originated and
purchased loans totaling $47.1 million, $69.1 million, and $57.3 million,
respectively. Purchases of loans totaled $2.7 million, $8.3 million and $6.0
million in fiscal years 1995, 1996 and 1997, respectively. To supplement
adjustable-rate loan products, adjustable-rate mortgage-backed securities are
utilized from time to time as a secondary investing activity. Purchases of
mortgage-backed securities during the years ended June 30, 1995, 1996 and 1997
totaled $8.3 million, $14.6 million and $1.4 million, respectively.
The primary source of funding for Capital is deposits. For the year
ended June 30, 1997 Capital had a net increase of $18.7 million as compared to
a net increase of $6.7 million for fiscal 1996 and a net increase of $2.6
million for fiscal 1995. Capital's management attributes the substantial
increase in deposits to Capital's aggressive marketing campaign. Another source
of funds is borrowing from the FHLB. At June 30, 1997 Capital had $46.5 million
of FHLB advances.
Liquidity management is both a daily and long-term responsibility of
Capital's management. Capital adjusts its investments in liquid assets based
upon management's assessment of (i) expected loan demand, (ii) the projected
amount of loans held for sale by Capital (iii) expected deposit flows, (iv)
yields available on interest-earning deposits, and (v) the objective of its
asset/liability management program. Excess liquidity is invested generally in
interest-earning overnight deposits and other short-term government and agency
obligations. If Capital requires funds beyond its ability to generate them
internally, it has significant borrowing capacity with the FHLB.
Certificates of deposit scheduled to mature in one year or less at June
30, 1997 totaled approximately $93.0 million, or 54.4% of Capital's total
deposits, reflecting consumer preference for short-term investments as a result
of the relatively low interest rate environment. Based on the levels of
retention of such deposits in the recent past, management believes that a
significant portion of such deposits will remain with Capital.
At June 30, 1997, shareholders' equity was $21.3 million, or 8.8% of
assets. Capital has acquired a total of 273,589 shares of its outstanding
common stock through its previously announced stock repurchase plans. During
the year ended June 30, 1997, 15,800 shares were issued pursuant to Capital's
Recognition and Retention Plan . At June 30, 1997, Capital held 257,789 common
shares in treasury.
- 85 -
<PAGE> 95
REGULATORY CAPITAL
Federally insured savings institutions are required to maintain a
minimum level of regulatory capital. The OTS has established capital standards,
including a tangible capital requirement, a leverage ratio (or core capital)
requirement and a risk-based capital requirement applicable to such savings
institutions. These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The OTS is authorized to
impose capital requirements in excess of these standards on individual
institutions on a case-by-case basis.
At June 30, 1997 Capital Bank had tangible and core capital of $19.0
million and $19.0 million, or 7.9% and 7.9% of adjusted total assets,
respectively, which were approximately $15.4 million and $11.8 million above
the minimum requirements of 1.5% and 3.0%, respectively, of the adjusted total
assets in effect on that date. On June 30, 1997 Capital Bank had risk-based
capital of $19.8 million (including $19.0 million in core capital), or 16.6% of
risk-weighted assets of $119.1 million. This amount was $10.3 million above the
8.0% requirement in effect on that date. Under current regulatory guidelines
Capital Bank was classified as well-capitalized.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of Capital's operations. Unlike most
industrial companies, however, nearly all the assets and liabilities of Capital
are monetary in nature. As a result, interest rates have a greater impact on
Capital's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock. This statement simplifies the standards for computing EPS previously
found in APB Opinion No. 15 "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. This Statement became effective for financial statements
for both interim and annual periods ending after December 15, 1997 and has been
made a part of the interim reports filed December 31, 1997 and March 31, 1998.
In June 1997 the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
This Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required statements.
- 86 -
<PAGE> 96
BUSINESS OF UPC
GENERAL
UPC, a Tennessee corporation, is a bank holding company registered with
the Federal Reserve under the BHC Act. As of March 31, 1998, UPC had total
consolidated assets of approximately $18.4 billion, total consolidated loans of
approximately $12.7 billion, total consolidated deposits of approximately $13.6
billion, and total consolidated shareholders' equity of approximately $1.8
billion.
UPC conducts its business activities through its principal bank
subsidiary, the $15.7 billion asset Union Planters Bank, founded in 1869,
headquartered in Memphis, Tennessee, with branches in Alabama, Arkansas,
Kentucky, Louisiana, Mississippi, Missouri, and Tennessee. UPC also had, as of
March 31, 1998, six other financial institution subsidiaries, the largest of
which being Union Planters Bank of Florida, Miami, Florida, which had total
consolidated assets as of March 31, 1998 of approximately $2.2 billion. UPC
undertook a corporate reorganization plan in the fourth quarter of 1997, the
primary purpose of which was to consolidate substantially all of its bank
subsidiaries into UPBNA. It is likely that UPC will continue to consolidate its
various bank subsidiaries into UPBNA in the future, to the extent allowed by
law. Through the UPC Banking Subsidiaries, UPC provides a diversified range of
financial services in the communities in which it operates and maintains
approximately 518 banking offices and 676 ATMs. UPC's total deposits at March
31, 1998 are allocable by state to its banking offices (before consolidating
adjustments) approximately as follows: $6.7 billion in Tennessee; $2.9 billion
in Mississippi; $1.3 billion in Florida; $1.2 billion in Missouri; $596 million
in Arkansas; $598 million in Louisiana; $412 million in Alabama; and $103
million in Kentucky.
Acquisitions have been, and are expected to continue to be, an important
part of the expansion of UPC's business. UPC completed three acquisitions in
1995, seven in 1996, and seven in 1997, and two in 1998, adding approximately
$1.3 billion in total assets in 1995, $4.2 billion in 1996, $3.6 billion in
1997, and $520 million in 1998. UPC is currently a party to definitive
agreements to acquire ten financial institutions, not including Capital, and to
the agreement relating to the CalFed Bank Purchase, all of which had aggregate
total assets of approximately $12.9 billion at March 31, 1998. For information
with respect to these acquisitions see "-- Recent Developments."
UPC expects to continue to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial institutions and other entities engaged in lines of
business permissible for banks and bank holding companies. Future acquisitions
may entail the payment by UPC of consideration in excess of the book value of
the underlying net assets acquired, may result in the issuance of additional
shares of UPC capital stock or the incurring of additional indebtedness by UPC,
and could have a dilutive effect on the earnings or book value per share of UPC
Common Stock. Moreover, significant charges against earnings are sometimes
required incidental to acquisitions. For a discussion of UPC's acquisition
program, including a discussion of the significant charges UPC has incurred
over the past three fiscal years incidental to acquisitions, see the caption
"Acquisitions" (on page 10) in UPC's Annual Report to Shareholders and Note 2
to UPC's audited consolidated financial statements for the years ended December
31, 1997, 1996, and 1995 (on pages 49 and 50) contained in such Annual Report
to Shareholders. UPC's Annual Report to Shareholders is included as Exhibit 13
to the UPC 1997 Form 10-K and Exhibit 13 is incorporated by reference herein to
the extent indicated herein.
The principal executive offices of UPC are located at 7130 Goodlett Farms
Parkway, Memphis, Tennessee 38018, and its telephone number at such address is
(901) 580-6000. Additional information with respect to UPC and its subsidiaries
is included in documents incorporated by reference in this Proxy Statement. See
"AVAILABLE INFORMATION" and "DOCUMENTS INCORPORATED BY REFERENCE."
- 87 -
<PAGE> 97
RECENT DEVELOPMENTS
RECENTLY COMPLETED ACQUISITIONS. Since December 31, 1997, UPC has
completed the acquisitions of two institutions (the "Recently Completed
Acquisitions").
<TABLE>
<CAPTION>
Asset Size
Institution (In millions) Type of Consideration
- -------------------------------------------------------- -------------------- ---------------------------------------
<S> <C> <C>
Sho-Me Financial Corp, Mt. Vernon, Missouri,
and its subsidiary, 1st Savings Bank, f.s.b., 1,153,459 shares
Mt. Vernon, Missouri. $ 374 of UPC Common Stock
Security Bancshares, Inc., Des Arc, Arkansas and 146
its subsidiaries, Farmers & Merchants Bank,
Des Arc, Arkansas and Merchants & Farmers 490,858 shares
Bank, West Helena, Arkansas. of UPC Common Stock
--------------------
TOTAL $ 520
====================
</TABLE>
OTHER PENDING ACQUISITIONS. UPC has entered into definitive agreements to
acquire the following financial institutions in addition to Capital
(collectively, the "Other Pending Acquisitions" and, together with the Recently
Completed Acquisitions, the "Other Acquisitions") which UPC's management
considers probable of consummation and which are expected to close in 1998. The
largest of the Other Pending Acquisitions is UPC's proposed acquisition of
Magna. Magna acquired Charter Financial, Inc., and its subsidiary, Charter
Bank, S.B. on May 1, 1998 (referred to as the "Charter Acquisition") . Charter
is located in Sparta, Illinois and at the time of the Charter Acquisition had
total assets of approximately $406 million. For purposes of this Proxy
Statement, including the pro forma financial information included herein, the
term "Other Pending Acquisitions" includes the Charter Acquisition.
<TABLE>
<CAPTION>
Asset Size Projected
Institution (In millions)(1) Type of Consideration(2) Closing Date
- -------------------------------------- ------------------ ----------------------------------------- --------------------------
<S> <C> <C> <C>
Magna Group, Inc., St. Louis, Missouri
and its subsidiary, including Magna Approximately 36,716,861 shares of UPC
Bank, National Association.(3) $7,657 Common Stock and $39,620 in cash Second Quarter 1998
Peoples First Corporation, Paducah,
Kentucky and its subsidiaries,
including Peoples First National Bank, Approximately 6,338,000 shares of UPC Second Quarter 1998
Paducah, Kentucky. 1,493 Common Stock
Purchase of 24 branches and assumption
of $1.5 billion of deposit liabilities
$20,000 of California Federal Bank in
Florida ("CalFed Branch Purchase"). 1,465 $110 million deposit premium in case Third Quarter 1998
AMBANC Corp., Vincennes, Indiana, and
its subsidiaries, AmBank Illinois,
N.A., AmBank Indiana, N.A., and American Approximately 3,398,000 shares of UPC
National Realty Corp. 734 Common Stock Third Quarter 1998
Merchants Bancshares, Inc., Houston,
Texas, and its subsidiary, Merchants Approximately 2,000,000 shares
Bank, Houston, Texas. 552 of UPC Common Stock Second Quarter 1998
Approximately 1,655,000 shares Third Quarter
Transflorida Bank, Boca Raton, Florida. 318 of UPC Common stock 1998
</TABLE>
- 88 -
<PAGE> 98
<TABLE>
<S> <C> <C> <C>
CB & T, Inc., McMinnville, Tennessee, Approximately 1,450,000 shares of UPC Second Quarter
and its subsidiary, City Bank & Trust 271 Common Stock 1998
Company, McMinnville, Tennessee.
First National Bancshares of Wetumpka,
Inc., Wetumpka, Alabama, and its
subsidiary, First National Bank, Approximately 836,000 shares of UPC Second Quarter
Wetumpka, Alabama. 217 Common Stock 1998
Alvin Bancshares, Inc., Alvin, Texas,
and its subsidiary, Alvin State Bank, Approximately 425,000 shares of UPC Fourth Quarter
Alvin, Texas. 121 Common Stock 1998
First Community Bancshares, Inc.,
Middleton, TN, and its subsidiary,
Bank of Middleton, Middleton, Approximately 129,000 shares of UPC Second Quarter
Tennessee. 41 Common Stock 1998
Duck Hill Bank, Duck Hill, Approximately 42,000 shares of UPC Common Third Quarter
Mississippi. 20 Stock 1998
----------
TOTAL $12,889
==========
</TABLE>
- ------------------------------------
(1) Approximate total assets at March 31 , 1998.
(2) Assumes no adjustment to shares pursuant to exchange ratio adjustment
mechanisms.
(3) Includes the pro-forma impact of the Charter Acquisition.
EARNINGS CONSIDERATIONS RELATED TO THE MERGER AND THE OTHER PENDING
ACQUISITIONS. It is expected that either UPC or the institutions to be acquired
in connection with the Merger and the Other Pending acquisitions will incur
charges arising from such acquisitions and from the assimilation of those
institutions into the UPC organization. Most of the charges are expected to
relate to the Magna and Peoples Acquisitions. Anticipated charges would
normally arise from matters such as, but not limited to: (i) legal, accounting,
financial advisory and consulting fees; (ii) payment of contractual benefits
triggered by a change of control, early retirement and involuntary separation
and related benefit; (iii) costs associated with elimination of duplicate
facilities and branch consolidations; (iv) data processing charges; (v)
cancellation of vendor contract; and (vi) other contingencies and similar costs
which normally arise from the consolidation of operational activities.
For a discussion of the significant charges UPC has incurred over the
past three years incidental to its acquisition program, see the caption
"Acquisitions" (on page 10) in UPC's Annual Report to Shareholders. UPC's
Annual Report to Shareholders is included as Exhibit 13 to UPC's 1997 Form 10-K
and Exhibit 13 is incorporated by reference herein to the extent indicated
herein. See "Documents Incorporated By Reference."
The Merger and the Other Pending Acquisitions (with the exception of the
Charter Acquisition which was, and the Duck Hill Bank Acquisition and the
CalFed Branch Purchase which are expected to be, accounted for as a purchase)
are expected to be accounted for as pooling of interests. UPC currently
estimates incurring aggregate charges in the range of $100 million to $115
million (approximately $91 million related to Magna) before taxes in connection
with the consummation of the Merger and the Other Pending Acquisitions. On an
after tax basis, these charges are estimated in the range of $75 million to $85
million (approximately $61 million related to Magna). To the extent that UPC's
recognition of these acquisition-related charges is contingent upon
consummation of a particular transaction, those charges would be recognized in
the period in which such transaction closes.
The range of anticipated charges to be incurred in connection with
consummating the Merger and the Other Pending Acquisitions is a preliminary
estimate of the significant charges which may, in the aggregate, be required
and should be viewed accordingly. The charges are reflected in the pro forma
consolidated balance sheet.
- 89 -
<PAGE> 99
Moreover, this range has been based on the due diligence that has been
performed to date in connection with the Merger and the Other Pending
Acquisitions and the range may be subject to change and the actual charges
incurred may be higher or lower than what is currently contemplated, once those
institutions are assimilated from an operational perspective and various
contingencies are either satisfied or eliminated. Furthermore, the range of
anticipated charges will change if additional entities are acquired. UPC
regularly evaluates the potential acquisition of, and holds discussions with,
various potential acquisition candidates. As a general rule, UPC will publicly
announce such acquisitions only after a definitive agreement has been reached,
and only then if UPC considers the acquisition to be of such a size as to be a
significant acquisition. Since the range of anticipated acquisition related
charges is likely to change with additional acquisitions, and since UPC
regularly engages in acquisitions, such range could change, and Capital's
shareholders should view such information accordingly.
For information with respect to the pro forma effect of the Other
Acquisition on the historical financial statements of UPC, see "PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION."
- 90 -
<PAGE> 100
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed consolidated
financial statements including a balance sheet as of March 31, 1998, and
statements of earnings for the three months ended March 31, 1998 and the years
ended December 31, 1997, 1996, and 1995. These statements present on a pro
forma basis historical results for (i) UPC for all periods, (ii) UPC and Magna
for all periods, (iii) UPC, Capital, and the Other Acquisitions as of and for
the three months ended March 31, 1998 and the year ended December 31, 1997, and
(iv) UPC, Magna, Peoples, AMBANC, and Merchants for the years ended December
31, 1996 and 1995 (see "BUSINESS OF UPC -- Recent Developments -- Other Pending
Acquisitions").
The Merger and all but four of the Other Acquisitions are expected to be
accounted for using the pooling-of-interests method of accounting. The pro
forma information as of March 31, 1998 and for the three months ended March 31,
1998, and the year ended December 31, 1997, reflect the acquisition of Capital,
Magna, and the Other Acquisitions as of January 1, 1997. The pro forma
information for the years ended December 31, 1996 and 1995, reflect only the
acquisition of Magna, Peoples, AMBANC, and Merchants, because Capital and the
Other Acquisitions (other than Magna, Peoples, AMBANC, and Merchants) are not
individually or in the aggregate, considered material to UPC from a financial
statement presentation standpoint. Furthermore, the pro forma impact of the
CalFed Branch Purchase on the pro forma statement of earnings for the periods
presented has been excluded due to the lack of information available for
operation of the branches on a historical basis. Pro forma financial
information are presented for information purposes only and are not necessarily
indicative of the results of operations or combined financial position that
would have resulted had the Merger or the Other Acquisitions been consummated
at the dates or during the periods indicated, nor are they necessarily
indicative of future results of operations or combined financial position. The
pro forma balance sheet reflects preliminary estimates by UPC of acquisition-
related charges to be incurred in connection with consummation of the Merger
and Other Acquisitions; however, the statement of earnings does not reflect
these changes. For additional information with respect to the estimated charges
UPC anticipates it would incur in connection with the Merger and the Other
Acquisitions, see "BUSINESS OF UPC -- Recent Developments." For a discussion of
UPC's acquisition program, including a discussion of the significant charges
UPC has incurred incidental to acquisitions over the past three fiscal years,
see the caption "Acquisitions" (on page 10) in UPC's 1997 Annual Report to
Shareholders and Note 2 to UPC's audited consolidated financial statements for
the years ended December 31, 1997, 1996, and 1995 (on pages 49 and 50)
contained in such UPC 1997 Annual Report to Shareholders. UPC's 1997 Annual
Report to Shareholders is included as Exhibit 13 to UPC's 1997 Form 10-K, and
Exhibit 13 is incorporated by reference herein to the extent indicated herein.
See "DOCUMENTS INCORPORATED BY REFERENCE."
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the consolidated historical financial
statements of UPC and Capital which are incorporated by reference or included
herein. Pro forma results are not necessarily indicative of future operating
results. See "DOCUMENTS INCORPORATED BY REFERENCE."
- 91 -
<PAGE> 101
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
UPC, MAGNA,
UPC CAPITAL,
PRO FORMA AND AND OTHER
UPC MAGNA ADJUSTMENTS MAGNA ACQUISITIONS
-------------- ------------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks................................ $660,528 $220,317 880,845 $1,008,839
Interest-bearing deposits at financial institutions.... 20,425 - - 20,425 49,640
Federal funds sold and securities purchased under
agreements to resell................................ 309,415 95,126 404,541 545,801
Trading account assets................................. 163,698 - - 163,698 163,698
Loans held for resale.................................. 253,021 - - 253,021 259,017
Investment securities, at fair value................... 3,287,664 2,239,113 5,526,777 7,812,071
Loans.................................................. 12,754,653 4,379,021 17,133,674 20,272,013
Less: Unearned income.............................. (26,994) (93) (27,087) (34,152)
Allowance for losses on loans............. (223,837) (59,928) (283,765) (320,107)
-------------- ------------- -------------- ------------- -------------
Net loans.......................................... 12,503,822 4,319,000 16,822,822 19,917,754
Premises and equipment................................. 338,799 117,253 456,052 534,387
Accrued interest receivable............................ 196,595 46,523 243,118 279,665
FHA/VA claims receivable............................... 138,626 138,626 138,626
Mortgage servicing rights.............................. 98,089 1,237 99,326 99,832
Goodwill and other intangibles......................... 78,927 120,951 199,878 375,339
Other assets........................................... 364,005 91,098 29,060 (b) 484,163 519,252
-------------- ------------- -------------- ------------- -------------
Total assets....................................... $ 18,413,614 $ 7,250,618 $ 29,060 $ 25,693,292 $ 31,703,921
============== ============= ============== ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing ................................ $ 2,290,776 $ 641,300 $ 2,932,076 $ 3,781,318
Certificates of deposit of $100,000 and over........ 1,417,728 932,141 2,349,869 2,854,920
Other interest-bearing ............................. 9,872,723 3,973,247 13,845,970 17,696,215
-------------- ------------- -------------- ------------- -------------
Total deposits................................. 13,581,227 5,546,688 - - 19,127,915 24,332,453
- -
Short-term borrowings.................................. 442,051 891,706 1,333,757 1,365,605
Short and Medium-term bank notes....................... 135,000 135,000 139,743
Federal Home Loan Bank advances........................ 846,291 106,370 952,661 1,215,073
Other long-term debt................................... 1,022,644 9,513 1,032,157 1,037,766
Accrued interest, expenses and taxes................... 182,422 76,604 90,511 (b) 349,537 406,185
Other liabilities...................................... 394,537 8,759 403,296 410,918
-------------- ------------- -------------- ------------- -------------
Total liabilities.............................. 16,604,172 6,639,640 90,511 23,334,323 28,907,743
-------------- ------------- -------------- ------------- -------------
Shareholders' equity
Convertible preferred stock......................... 36,972 40 37,012 37,012
Common stock........................................ 419,326 68,075 89,631 (a) 577,032 662,544
272,157 343,601 (150,257)(a) 457,905 580,938
Additional paid-in capital.......................... (7,596)(b)
Retained earnings................................... 1,060,029 267,982 (61,451)(b) 1,266,560 1,489,763
Treasury stock...................................... - - (60,626) 60,626 (a) - - - -
Unearned compensation............................... (9,550) (7,596) 7,596 (b) (9,550) (10,021)
Net unrealized gain on available for sale securities 30,508 (498) 30,010 35,942
-------------- ------------- -------------- ------------- -------------
Total shareholder' equity............................ 1,809,442 610,978 (61,451) 2,358,969 2,796,178
-------------- ------------- -------------- ------------- -------------
Total liabilities and shareholders' equity..... $18,413,614 $7,250,618 $29,060 $25,693,292 $31,703,921
============== ============= ============== ============= =============
</TABLE>
(a) Issuance of shares to acquire Magna (32,563,752 Magna shares outstanding
times an exchange ratio of .9686 equals 31,541,250 shares of UPC Common Stock
to be issued).
(b) Acquisition related charges -- see "Business of UPC -- Recent
Developments -- Earnings Considerations related to the Merger and the Other
Pending Acquisitions."
- 92 -
<PAGE> 102
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
UPC PC, MAGNA, CAPITAL,
AND AND OTHER
UPC MAGNA ACQUISITIONS
-------------- ----------------- -----------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans....................................... $292,160 $388,325 $465,341
Interest on investment securities
Taxable....................................................... 41,475 69,870 83,000
Tax-exempt.................................................... 7,066 10,836 13,777
Interest on deposits at financial institutions................... 424 470 735
Interest on federal funds sold and securities purchased under
agreements to resell........................................... 2,710 4,837 6,387
Interest on trading account assets............................... 3,020 3,020 3,020
Interest on loans held for resale................................ 2,280 2,280 2,383
-------------- ----------------- -----------------
Total interest income........................................ 349,135 479,638 574,643
-------------- ----------------- -----------------
Interest expense
Interest on deposits............................................. 124,085 179,549 221,207
Interest on short-term borrowings................................ 6,016 17,237 21,987
Interest on long-term debt....................................... 28,327 29,936 30,779
-------------- ----------------- -----------------
Total interest expense........................................ 158,428 226,722 273,973
-------------- ----------------- -----------------
Net interest income........................................... 190,707 252,916 300,670
Provision for losses on loans....................................... 17,909 21,459 24,775
-------------- ----------------- -----------------
Net interest income after provision for losses on loans....... 172,798 231,457 275,895
Noninterest income
Service charges on deposit accounts.............................. 25,746 32,074 36,435
Mortgage servicing income........................................ 16,191 16,453 16,890
Bank card income................................................. 7,498 9,426 9,641
Factoring commissions............................................ 7,304 7,304 7,304
Trust service income............................................. 2,407 5,723 6,381
Profits and commissions from trading activities.................. 1,847 1,848 1,848
Investment securities gains...................................... 5,215 5,811 6,552
Other income..................................................... 29,510 41,058 43,559
-------------- ----------------- -----------------
Total noninterest income.................................... 95,718 119,697 128,610
-------------- ----------------- -----------------
Noninterest expense
Salaries and employee benefits................................... 73,230 96,595 113,940
Net occupancy expense............................................ 10,644 15,473 18,137
Equipment expense................................................ 10,997 13,694 16,052
Other expense.................................................... 58,753 77,892 90,669
-------------- ----------------- -----------------
Total noninterest expense..................................... 153,624 203,654 238,798
-------------- ----------------- -----------------
Earnings before income taxes.................................. 114,892 147,500 165,707
Applicable income taxes............................................. 40,320 52,417 59,139
-------------- ----------------- -----------------
Net earnings $ 74,572 95,083 106,568
============== ================= =================
Earnings per common share
Basic............................................................ $ 0.89 $ 0.82 $ 0.80
Diluted.......................................................... 0.86 0.79 0.78
Weighted average shares outstanding (in thousands)
Basic............................................................ 83,379 114,868 131,931
Diluted.......................................................... 86,974 120,157 137,409
</TABLE>
- 93 -
<PAGE> 103
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
UPC UPC, MAGNA, CAPITAL,
AND AND OTHER
UPC MAGNA ACQUISITIONS
---------------- --------------- -------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income
Interest and fees on loans....................................... $ 1,165,925 $1,536,829 $ 1,839,742
Interest on investment securities
Taxable....................................................... 187,221 290,351 343,598
Tax-exempt.................................................... 29,032 40,516 52,133
Interest on deposits at financial institutions................... 2,627 2,627 3,179
Interest on federal funds sold and securities purchased under
agreements to resell........................................... 9,114 13,760 18,554
Interest on trading account assets............................... 14,956 14,956 14,956
Interest on loans held for resale................................ 7,819 7,819 7,982
---------------- --------------- -------------------
Total interest income........................................ 1,416,694 1,906,858 2,280,144
---------------- --------------- -------------------
Interest expense
Interest on deposits............................................. 494,517 698,778 860,526
Interest on short-term borrowings................................ 41,280 81,980 104,620
Interest on long-term debt....................................... 110,512 116,687 120,184
---------------- --------------- -------------------
Total interest expense........................................ 646,309 897,445 1,085,330
---------------- --------------- -------------------
Net interest income........................................... 770,385 1,009,413 1,194,814
Provision for losses on loans....................................... 113,633 142,580 154,163
---------------- --------------- -------------------
Net interest income after provision for losses on loans....... 656,752 866,833 1,040,651
Noninterest income
Service charges on deposit accounts.............................. 107,248 133,352 151,454
Mortgage servicing income........................................ 57,265 57,265 58,051
Bank card income................................................. 31,317 38,544 39,239
Factoring commissions............................................ 30,140 30,140 30,140
Trust service income............................................. 9,020 21,663 24,355
Profits and commissions from trading activities.................. 7,295 7,295 7,295
Investment securities gains...................................... 2,104 4,688 5,481
Other income..................................................... 117,221 139,945 153,075
---------------- --------------- -------------------
Total noninterest income.................................... 361,610 432,892 469,090
---------------- --------------- -------------------
Noninterest expense
Salaries and employee benefits................................... 284,648 372,959 440,212
Net occupancy expense............................................ 44,813 64,140 73,676
Equipment expense................................................ 43,812 53,579 62,466
Other expense.................................................... 324,431 379,663 430,225
---------------- --------------- -------------------
Total noninterest expense..................................... 697,704 870,341 1,006,579
---------------- --------------- -------------------
Earnings before income taxes.................................. 320,658 429,384 503,162
Applicable income taxes............................................. 111,897 147,948 173,787
---------------- --------------- -------------------
Net earnings $ 208,761 $281,436 $329,375
================ =============== ====================
Earnings per common share
Basic............................................................ $ 2.54 $ 2.48 $ 2.52
Diluted.......................................................... 2.45 2.40 2.45
Weighted average shares outstanding (in thousands)
Basic............................................................ 80,336 111,418 128,555
Diluted.......................................................... 85,195 117,884 135,180
</TABLE>
- 94 -
<PAGE> 104
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UPC
AND PEOPLES, AMBANC, AND
UPC MAGNA MERCHANTS
-------------- ------------ --------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income
Interest and fees on loans.............................................. $1,095,148 $1,380,299 $1,535,342
Interest on investment securities
Taxable.............................................................. 247,716 340,745 372,233
Tax-exempt........................................................... 30,839 37,980 45,560
Interest on deposits at financial institutions.......................... 1,593 1,593 1,910
Interest on federal funds sold and securities purchased under
agreements to resell.................................................. 16,948 19,462 21,664
Interest on trading account assets...................................... 13,895 13,895 13,895
Interest on loans held for resale....................................... 6,852 6,852 7,241
-------------- ------------ --------------------
Total interest income............................................... 1,412,991 1,800,826 1,997,845
-------------- ------------ --------------------
Interest expense
Interest on deposits.................................................... 512,668 670,856 755,680
Interest on short-term borrowings....................................... 64,689 93,501 100,543
Interest on long-term debt.............................................. 90,782 97,530 97,680
-------------- ------------ --------------------
Total interest expense............................................... 668,139 861,887 953,903
-------------- ------------ --------------------
Net interest income.................................................. 744,852 938,939 1,043,942
Provision for losses on loans.............................................. 68,948 79,228 84,198
-------------- ------------ --------------------
Net interest income after provision for losses on loans.............. 675,904 859,711 959,744
Noninterest income
Service charges on deposit accounts..................................... 107,535 130,978 141,119
Mortgage servicing income............................................... 63,003 63,003 63,003
Bank card income........................................................ 24,975 30,988 31,636
Factoring commissions................................................... 26,066 26,066 26,066
Trust service income.................................................... 10,130 19,512 21,496
Profits and commissions from trading activities......................... 5,765 5,765 5,765
Investment securities gains............................................. 4,099 4,916 4,942
Other income............................................................ 78,929 89,632 94,739
-------------- ------------ --------------------
Total noninterest income........................................... 320,502 370,860 388,766
-------------- ------------ --------------------
Noninterest expense
Salaries and employee benefits.......................................... 282,726 351,868 388,972
Net occupancy expense................................................... 47,215 65,195 70,142
Equipment expense....................................................... 44,418 53,149 60,704
Other expense........................................................... 357,458 399,991 422,915
-------------- ------------ --------------------
Total noninterest expense............................................ 731,817 870,203 942,733
-------------- ------------ --------------------
Earnings before income taxes......................................... 264,589 360,368 405,777
Applicable income taxes.................................................... 93,115 125,755 139,649
-------------- ------------ --------------------
Net earnings $ 171,474 $ 234,613 $ 266,128
============== ============ ====================
Earnings per common share
Basic................................................................... $ 2.13 $ 2.18 $ 2.24
Diluted................................................................. 2.05 2.11 2.17
Weighted average shares outstanding (in thousands)
Basic................................................................... 77,240 104,539 115,726
Diluted................................................................. 83,542 112,425 123,714
</TABLE>
- 95 -
<PAGE> 105
UNION PLANTERS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
UPC UPC, MAGNA ,
AND PEOPLES,
UPC MAGNA AMBANC, AND MERCHANTS
-------------- -------------- ---------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income
Interest and fees on loans.............................................. $ 986,230 $1,252,376 $1,388,252
Interest on investment securities
Taxable.............................................................. 202,890 274,743 304,771
Tax-exempt........................................................... 32,400 39,666 47,200
Interest on deposits at financial institutions.......................... 5,284 5,284 6,153
Interest on federal funds sold and securities purchased under
agreements to resell.................................................. 19,965 21,868 24,547
Interest on trading account assets...................................... 14,191 14,191 14,191
Interest on loans held for resale....................................... 4,858 4,858 5,184
-------------- -------------- ---------------------
Total interest income............................................... 1,265,818 1,612,986 1,790,298
-------------- -------------- ---------------------
Interest expense
Interest on deposits.................................................... 478,641 616,666 695,224
Interest on short-term borrowings....................................... 44,492 64,725 70,706
Interest on long-term debt.............................................. 73,234 79,293 79,674
-------------- -------------- ---------------------
Total interest expense............................................... 596,367 760,684 845,604
-------------- -------------- ---------------------
Net interest income.................................................. 669,451 852,302 944,694
Provision for losses on loans.............................................. 33,917 43,909 47,393
-------------- -------------- ---------------------
Net interest income after provision for losses on loans.............. 635,534 808,393 897,301
Noninterest income
Service charges on deposit accounts..................................... 102,932 125,419 134,243
Mortgage servicing income............................................... 55,903 55,903 55,903
Bank card income........................................................ 20,758 26,559 27,124
Factoring commissions................................................... 19,519 19,519 19,519
Trust service income.................................................... 8,326 16,964 18,786
Profits and commissions from trading activities......................... 12,362 12,362 12,362
Investment securities gains............................................. 1,433 1,789 2,008
Other income............................................................ 72,477 83,058 87,381
-------------- -------------- ---------------------
Total noninterest income........................................... 293,710 341,573 357,326
-------------- -------------- ---------------------
Noninterest expense
Salaries and employee benefits.......................................... 264,663 337,656 371,136
Net occupancy expense................................................... 44,061 61,738 66,224
Equipment expense....................................................... 42,251 51,218 57,289
Other expense........................................................... 256,214 302,794 324,295
-------------- -------------- ---------------------
Total noninterest expense............................................ 607,189 753,406 818,944
-------------- -------------- ---------------------
Earnings before income taxes......................................... 322,055 396,560 435,683
Applicable income taxes.................................................... 110,799 134,082 145,486
-------------- -------------- ---------------------
Net earnings $ 211,256 $ 262,478 $ 290,197
============== ============== =====================
Earnings per common share
Basic................................................................... $ 2.79 $ 2.56 $ 2.56
Diluted................................................................. 2.66 2.46 2.46
Weighted average shares outstanding (in thousands)
Basic................................................................... 72,512 99,346 110,196
Diluted................................................................. 78,798 106,632 117,604
</TABLE>
- 96 -
<PAGE> 106
CERTAIN REGULATORY CONSIDERATIONS
The following discussion sets forth certain of the material elements of
the regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to UPC. A more complete
discussion is included in the UPC 1997 Form 10-K. Information relating to
Capital is included herein under "BUSINESS OF CAPITAL -- Regulation" and in the
Capital 1997 Form 10-K. See "AVAILABLE INFORMATION" and "DOCUMENTS INCORPORATED
BY REFERENCE."
GENERAL
UPC is a bank holding company registered with the Federal Reserve under
the BHC Act. As such, UPC and its non-bank subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy which is discussed below, and consideration of convenience and needs
issues includes the parties' performance under the Community Reinvestment Act
of 1977.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Banking Act"), which became effective in September 1995, repealed
the prior statutory restrictions on interstate acquisitions of banks by bank
holding companies, such that UPC and any other bank holding company located in
Tennessee may now acquire a bank located in any other state, and any bank
holding company located outside Tennessee may lawfully acquire any
Tennessee-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage limitations, aging requirements, and
other restrictions. The Interstate Banking Act also generally provides that,
after June 1, 1997, national and state-chartered banks may branch interstate
through acquisitions of banks in other states. By adopting legislation prior to
that date, a state has the ability either to "opt in" and accelerate the date
after which interstate branching is permissible or "opt out" and prohibit
interstate branching altogether. None of the states in which the banking
subsidiaries of UPC are currently located or intends to be located through an
Other Pending Acquisition (other than Texas, which elected to opt-out pursuant
to legislation that expires September 2, 1999), has either moved up the date
after which interstate branching will be permissible or "opted out." UPC
utilized the provisions of the Interstate Banking Act at the end of 1997 to
merge substantially all of UPC's Banking Subsidiaries with and into UPBNA. As a
result of such consolidation, UPBNA is now a multi-state national bank with
branches in Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Missouri, and
Tennessee.
The BHC Act generally prohibits UPC from engaging in activities other
than banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be a proper incident thereto. In determining whether a particular activity
is permissible, the Federal Reserve must consider whether the performance of
such an activity reasonably can be expected to produce benefits to the public,
such as greater convenience, increased competition, or
- 97 -
<PAGE> 107
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. For example, factoring accounts
receivable, acquiring or servicing loans, leasing personal property, conducting
discount securities brokerage activities, performing certain data processing
services, acting as agent or broker in selling credit life insurance and
certain other types of insurance in connection with credit transactions, and
performing certain insurance underwriting activities all have been determined
by the Federal Reserve to be permissible activities of bank holding companies.
The BHC Act does not place territorial limitations on permissible nonbanking
activities of bank holding companies. Despite prior approval, the Federal
Reserve has the power to order a holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
Each of the UPC Banking Subsidiaries is a member of the Federal Deposit
Insurance Corporation ("FDIC"), and as such, its deposits are insured by the
FDIC to the extent provided by law. Each such subsidiary is also subject to
numerous state and federal statutes and regulations that affect is business,
activities, and operations, and each is supervised and examined by one or more
state or federal bank regulatory agencies.
The regulatory agencies having supervisory jurisdiction over the
respective subsidiary institutions of UPC and Capital (the FDIC and the
applicable state authority in the case of state-chartered nonmember banks, the
OTS in the case of federally chartered thrift institutions, the Federal Reserve
in the case of state-chartered member banks, and the Office of the Comptroller
of the Currency ("OCC") in the case of national banks) regularly examine the
operations of such institutions and have authority to approve or disapprove
mergers, consolidations, the establishment of branches, and similar corporate
actions. The federal and state banking regulators also have the power to
prevent the continuance or development of unsafe or unsound banking practices
or other violations of law.
PAYMENT OF DIVIDENDS
UPC is a legal entity separate and distinct from its banking and other
subsidiaries. The principal sources of cash flow of UPC, including cash flow to
pay dividends to its shareholders, are dividends from its subsidiary depository
institutions. There are statutory and regulatory limitations on the payment of
dividends by these subsidiary depository institutions to UPC and Capital, as
well as by UPC and Capital to their shareholders.
As to the payment of dividends, each of UPC's state-chartered banking
subsidiaries is subject to the respective laws and regulations of the state in
which such bank is located, and to the regulations of the bank's primary
federal regulator. UPBNA is subject to the regulations of the OCC.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such agency
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt
Corrective Action." Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
At March 31, 1998, under dividend restrictions imposed under federal and
state laws, the UPC Banking Subsidiaries, without obtaining governmental
approvals, could declare aggregate dividends to UPC of approximately $172.4
million.
The payment of dividends by UPC and the UPC Banking Subsidiaries may also
be affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
- 98 -
<PAGE> 108
CAPITAL ADEQUACY
UPC and the UPC Banking Subsidiaries are required to comply with the
capital adequacy standards established by the Federal Reserve in the case of
UPC, and the appropriate federal banking regulator in the case of each of the
UPC Banking Subsidiaries. There are two basic measures of capital adequacy for
bank holding companies and their subsidiary depository institutions that have
been promulgated by the Federal Reserve and each of the federal bank regulatory
agencies: a risk-based measure and a leverage measure. All applicable capital
standards must be satisfied for a bank holding company to be considered in
compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among depository
institutions and bank holding companies, to account for off-balance-sheet
exposure, and to minimize disincentives for holding liquid assets. Assets and
off-balance-sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio ("Total Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of Total Capital must be composed of common equity, undivided profits,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
At March 31, 1998, UPC's consolidated Total Capital Ratio and its Tier 1
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
20.71% and 15.66%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for bank holding companies that
meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. UPC's Leverage Ratio at March 31, 1998, was 10.72%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
Each of the UPC Banking Subsidiaries is subject to risk-based and
leverage capital requirements adopted by its federal banking regulatory which
are substantially similar to those adopted by the Federal Reserve for bank
holding companies. Each of the UPC Banking Subsidiaries was in compliance with
applicable minimum capital requirements as of March , 1998. Neither UPC nor any
of the UPC Banking Subsidiaries has been advised by any federal banking agency
of any specific minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank or thrift to a
variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"-- Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve, the FDIC, and the OCC have,
pursuant to FDICIA, proposed an amendment to the risk-based capital standards
that would calculate the change in an institution's net economic value
attributable to increases and decreases in market interest rates and would
require banks with excessive interest rate risk exposure to hold additional
amounts of capital against such
- 99 -
<PAGE> 109
exposures. The OTS has already included an interest-rate risk component in its
risk-based capital guidelines for savings associations that it regulates.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, UPC is expected to act as a source of
financial strength for, and to commit resources to support, each of the UPC
Banking Subsidiaries. This support may be required at times when, absent such
Federal Reserve policy, UPC may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness
of such banks. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a banking subsidiary will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act (the "FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. The FDIC's claim for damages is superior to claims of
shareholders of the insured depository institution or its holding company, but
is subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The UPC Banking Subsidiaries are subject to these
cross-guarantee provisions. As a result, any loss suffered by the FDIC in
respect of any of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking or thrift affiliates, and a potential loss of
UPC's respective investments in such other subsidiary depository institutions.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital
level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Total Capital Ratio of 10% or
greater, a Tier 1 Capital Ratio of 6.0% or greater, and a Leverage Ratio of
5.0% or greater and (ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a Total Capital Ratio of 8.0% or greater, a Tier 1 Capital
Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered
to be adequately capitalized. A depository institution that has a Total Capital
Ratio of less than 8.0%, a Tier 1 Capital Ratio of less than 4.0%, or a
Leverage Ratio of less than 4.0% is considered to be undercapitalized. A
depository institution that has a Total Capital Ratio of less than 6.0%, a Tier
1 Capital Ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is
considered to be significantly undercapitalized, and an institution that has a
tangible equity capital to assets ratio equal to or less than 2.0% is deemed to
be critically undercapitalized. For purposes of the regulation, the term
"tangible equity" includes core capital elements counted as Tier 1 Capital for
purposes of the risk-based capital standards, plus the amount of outstanding
cumulative perpetual preferred stock (including related surplus), minus all
intangible assets with certain exceptions. A depository institution may be
deemed to be in a capitalization category that is lower than is indicated by
its actual capital position if it receives an unsatisfactory examination
rating.
- 100 -
<PAGE> 110
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meet its capital restoration plan, subject to certain
limitations. The obligation of a controlling bank holding company under FDICIA
to fund a capital restoration plan is limited to the lesser of 5.0% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region;" (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior officer, the agency must comply with certain
procedural requirements, including the opportunity for an appeal in which the
director or officer will have the burden of proving his or her value to the
institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer.
At April 30, 1998, all of the UPC Banking Subsidiaries had the requisite
capital levels to qualify as well capitalized. An institution's capital
category is determined solely for the purposes of applying the prompt
corrective action law and it may not constitute an accurate representation of
an institution's overall financial condition or prospects.
DESCRIPTION OF UPC CAPITAL STOCK
UPC's Charter currently authorizes the issuance of 300,000,000 shares of
UPC Common Stock and 10,000,000 shares of UPC Preferred Stock. As of April 30,
1998, 84,893,432 shares of UPC Common Stock were outstanding and approximately
7,947,518 shares were earmarked for issuance with currently outstanding UPC
options, UPC's dividend reinvestment plan, and with respect to conversion
rights of currently outstanding UPC Series E Preferred stock (defined below).
In addition, as of April 30, 1998, 1,179,343 shares of the Series E Preferred
Stock were outstanding. As of April 30, 1998, none of UPC's 750,000 authorized
shares of Series A Preferred Stock were issued and outstanding nor is
management aware of the existence of circumstances from which it may be
inferred that such issuance is imminent. THE CAPITAL STOCK OF UPC DOES NOT
REPRESENT OR CONSTITUTE A DEPOSIT ACCOUNT AND IS NOT INSURED BY THE FDIC, THE
BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY
GOVERNMENTAL AGENCY.
- 101 -
<PAGE> 111
UPC COMMON STOCK
GENERAL. Shares of UPC Common Stock may be issued at such time or times
and for such consideration (not less than the par value thereof) as the UPC
Board may deem advisable, subject to such limitations as may be set forth in
the laws of the State of Tennessee, the UPC Charter or Bylaws, or the rules of
the NYSE. UPBNA, a subsidiary of UPC, is the Registrar, Transfer Agent and
Dividend Disbursing Agent for shares of UPC Common Stock. Its address is Union
Planters Bank, National Association, Corporate Trust Department, 6200 Poplar
Avenue, Third Floor, Memphis, Tennessee 38119. Its mailing address is P.O. Box
387, Memphis, Tennessee 38147.
DIVIDENDS. Subject to the preferential dividend rights applicable to
outstanding shares of the UPC Preferred Stock and subject to applicable
requirements, if any, with respect to the setting aside of sums for purchase,
retirement, or sinking funds, if any, for all outstanding UPC Preferred Stock,
the holders of the UPC Common Stock are entitled to receive, to the extent
permitted by law, only such dividends as may be declared from time to time by
the UPC Board.
UPC has the right to, and may from time to time, enter into borrowing
arrangements or issue other debt instruments, the provisions of which may
contain restrictions on payment of dividends and other distributions on UPC
Common Stock and UPC Preferred Stock. In December, 1996, UPC caused to be
issued $200,000,000 in aggregate liquidation amount of 8.20% Capital Trust Pass
- - through Securities ("UPC Capital Securities") through a Delaware trust
subsidiary. Pursuant to the terms of the governing instruments, UPC would be
prohibited from paying dividends on any Capital Stock if all quarterly payments
on the UPC Capital Securities had not been paid in full. The UPC Capital
Securities mature in 2026 and may be redeemed under certain circumstances prior
to maturity.
LIQUIDATION RIGHTS. In the event of the voluntary or involuntary
liquidation, dissolution, distribution of assets, or winding-up of UPC, after
distribution in full of the preferential amounts required to be distributed to
the holders of UPC Preferred Stock, holders of UPC Common Stock will be
entitled to receive all of the remaining assets of UPC, of whatever kind,
available for distribution to shareholders ratably in proportion to the number
of shares of UPC Common Stock held. The UPC Board may distribute in kind to the
holders of UPC Common Stock such remaining assets of UPC or may sell, transfer,
or otherwise dispose of all or any part of such remaining assets to any other
person or entity and receive payment therefor in cash, stock, or obligations of
such other person or entity, and may sell all or any part of the consideration
so received and distribute any balance thereof in kind to holders of UPC Common
Stock. Neither the merger or consolidation of UPC into or with any other
corporation, nor the merger of any other corporation into UPC, nor any purchase
or redemption of shares of stock of UPC of any class, shall be deemed to be a
dissolution, liquidation, or winding-up of UPC for purposes of this paragraph.
Because UPC is a holding company, its right and the rights of its
creditors and shareholders, including the holders of UPC Preferred Stock and
UPC Common Stock, to participate in the distribution of assets of a subsidiary
on its liquidation or recapitalization may be subject to prior claims of such
subsidiary's creditors except to the extent that UPC itself may be a creditor
having recognized claims against such subsidiary.
For a further description of UPC Common Stock, see "EFFECT OF THE MERGER
ON RIGHTS OF SHAREHOLDERS."
UPC PREFERRED STOCK
SERIES A PREFERRED STOCK. UPC's Charter provides for the issuance of up
to 750,000 shares (subject to adjustment by action of the UPC Board) of Series
A Preferred Stock under certain circumstances involving a potential change in
control of UPC. None of such shares are outstanding and management is aware of
no facts suggesting that issuance of such shares may be imminent. The Series A
Preferred Stock is described in more detail in UPC's Registration Statement on
Form 8-A, dated January 19, 1989, and filed February 1, 1989 (SEC File No.
0-6919) which is incorporated by reference herein.
- 102 -
<PAGE> 112
SERIES E PREFERRED STOCK. As of April 30, 1998, 1,179,343 shares of
Series E Preferred Stock were outstanding. All shares of Series E Preferred
Stock have a stated value of $25.00 per share. Dividends are payable at the
rate of $0.50 per share per quarter and are cumulative. The Series E Preferred
Stock is convertible at the rate of 1.25 shares of UPC Common Stock for each
share of Series E Preferred Stock. The Series E Preferred Stock is not subject
to any sinking fund provisions and has no preemptive rights. Such shares have a
liquidation preference of $25.00 per share plus unpaid dividends accrued
thereon and, at UPC's option and with the prior approval of the Federal
Reserve, are subject to redemption by UPC at any time at a redemption price of
$25.00 per share plus any unpaid dividends accrued thereon. Holders of Series E
Preferred Stock have no voting rights except as required by law and in certain
other limited circumstances. See "CERTAIN REGULATORY CONSIDERATIONS -- Payment
of Dividends."
SHAREHOLDER PROPOSALS
UPC expects to hold its next annual meeting of shareholders after the
Merger in April 1999. Under SEC rules, proposals of UPC shareholders intended
to be presented at that meeting must be received by UPC at its principal
executive offices no later than the date specified in UPC's 1998 Annual Meeting
proxy statement. In the event the Merger is not consummated, proposals of
Capital shareholders intended to be presented at the 1999 annual meeting of
shareholders of Capital needed to be received by Capital at its principal
executive offices no later than May 26, 1998.
EXPERTS
The consolidated financial statements of UPC and subsidiaries
incorporated in this Proxy Statement by reference to the UPC Annual Report on
Form 10-K for the year ended December 31, 1997, have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements included in this Proxy Statement
have been audited by Williams-Keepers LLP, independent auditors, as stated in
its report, which is included herein, and have been so included in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
OPINIONS
The legality of the shares of UPC Common Stock to be issued in the
Merger will be passed upon by E. James House, Jr., Secretary and Manager of
the Legal Department of UPC. E. James House, Jr. is an officer of, and
receives compensation from UPC.
Certain tax consequences of the transaction have been passed upon by
Alston & Bird LLP, Washington, D.C.
- 103 -
<PAGE> 113
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
CAPITAL SAVINGS BANCORP, INC.
<TABLE>
<S> <C>
Independent Accountants' Report F-2
Consolidated Statements of Financial Condition as of
June 30, 1996 and 1997 F-3
Consolidated Statements of Income for the Years Ended
June 30, 1995, 1996 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1995, 1996 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1996 and 1997 F-6
Notes to Consolidated Financial Statements F-9
Consolidated Statements of Financial Condition as of
March 31, 1998 (unaudited) and June 30, 1997 F-28
Consolidated Statements of Income for the Three and Nine Months Ended
March 31, 1997 (unaudited) and March 31, 1998 (unaudited) F-29
Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1997 (unaudited) and March 31, 1998 (unaudited) F-30
Notes to Consolidated Financial Statements (unaudited) F-32
</TABLE>
F-1
<PAGE> 114
[WILLIAMS KEEPERS LLP LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of
Capital Savings Bancorp, Inc. and Subsidiary
We have audited the accompanying consolidated statements of financial condition
of Capital Savings Bancorp, Inc. (Company) and subsidiary as of June 30, 1996
and 1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the consolidated financial
position of Capital Savings Bancorp, Inc., and subsidiary as of June 30, 1996
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for compensation expense for the employee
stock ownership plan in 1995 and for impaired loans in 1996.
/s/ Williams Keepers LLP
August 1, 1997, except for Note 18 as to which the date is June 1, 1998
F-2
<PAGE> 115
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
Cash and due from depository institutions $ 2,973,489 $ 7,953,414
Securities available-for-sale (Note 2) 30,306,297 28,154,190
Securities held-to-maturity (Note 2) 11,979,383 8,984,323
Stock in Federal Home Loan Bank (Note 2) 2,100,000 3,025,000
Loans receivable, net (Note 3) 166,623,231 190,202,685
Accrued interest receivable (Note 4) 1,401,109 1,465,221
Real estate owned held-for-sale, net (Note 5) 31,554 68,898
Premises and equipment, net (Note 6) 1,990,741 2,231,146
Other assets 547,931 433,019
-------------- --------------
Total assets $ 217,953,735 $ 242,517,896
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 7) $ 152,344,791 $ 171,038,959
Borrowed funds (Note 8) 42,000,000 46,500,000
Advances from borrowers for taxes and insurance 1,420,059 1,335,474
Accrued expenses and other liabilities 1,359,913 1,352,868
Income taxes payable (Note 9) 348,046 950,407
-------------- --------------
Total liabilities 197,472,809 221,177,708
-------------- --------------
Stockholders' equity
Common stock, $.01 par value:
Authorized, 5,200,000 shares; 1,211,593 and 2,149,597 shares
issued, respectively 12,116 21,496
Additional paid-in-capital 11,728,171 11,910,849
Retained earnings, restricted (Notes 10, 15) 12,983,429 14,122,506
-------------- --------------
24,723,716 26,054,851
Deferred compensation - Recognition and Retention Plan (RRP) (Note 11) (31,110) (171,176)
Deferred compensation - Employee Stock Ownership
Plan (ESOP) (Note 11) (583,259) (461,805)
Treasury stock (Note 12) (3,550,170) (4,271,136)
Unrealized (loss) gain on securities available-for-sale, net of deferred
taxes (Note 2) (78,251) 189,454
-------------- --------------
Total stockholders' equity 20,480,926 21,340,188
-------------- --------------
Total liabilities and stockholders' equity $ 217,953,735 $ 242,517,896
============== ==============
</TABLE>
The notes to financial statements are an integral part of these statements.
F-3
<PAGE> 116
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable:
Mortgage loans $ 10,090,912 $ 11,705,699 $ 13,441,561
Consumer and other loans 716,301 1,009,967 1,278,322
Investment securities 743,628 554,688 1,124,587
Mortgage-backed securities 1,102,694 1,602,268 1,784,025
Other interest - earning assets 82,982 123,668 98,557
------------- ------------- -------------
Total interest income 12,736,517 14,996,290 17,727,052
------------- ------------- -------------
INTEREST EXPENSE
Deposits 5,858,009 7,103,060 7,594,956
Borrowed funds 703,686 1,341,871 2,769,628
------------- ------------- -------------
Total interest expense 6,561,695 8,444,931 10,364,584
------------- ------------- -------------
Net interest income 6,174,822 6,551,359 7,362,468
PROVISION FOR LOAN LOSSES (Note 3) 60,000 120,000 120,000
------------- ------------- -------------
Net interest income after provision for loan losses 6,114,822 6,431,359 7,242,468
------------- ------------- -------------
NON-INTEREST INCOME
Bank service charges and fees 181,461 260,145 691,158
Commission income 446,214 286,767 190,677
Loan servicing fees 177,320 188,391 196,933
Net (loss) gain on the sale of securities (Note 2) (67,178) 23,971 83,422
Other (Note 13) 42,112 69,362 72,707
------------- ------------- -------------
Total non-interest income 779,929 828,636 1,234,897
------------- ------------- -------------
NON-INTEREST EXPENSE
Compensation and benefits 2,097,333 2,078,560 2,442,125
Occupancy and equipment 420,053 511,253 575,530
Federal insurance premiums (Note 16) 332,508 340,994 1,166,656
Other (Note 13) 1,207,546 1,292,098 1,727,071
------------- ------------- -------------
Total non-interest expense 4,057,440 4,222,905 5,911,382
------------- ------------- -------------
Income before provision for income taxes 2,837,311 3,037,090 2,565,983
PROVISION FOR INCOME TAXES (Note 9) 1,055,772 1,177,403 1,016,047
------------- ------------- -------------
Net income $ 1,781,539 $ 1,859,687 $ 1,549,936
============= ============= =============
Basic earnings per share (Note 18) $ 0.85 $ 0.96 $ 0.86
============= ============= =============
Diluted earnings per share (Note 18) $ 0.78 $ 0.87 $ 0.77
============= ============= =============
</TABLE>
The notes to financial statements are an integral part of these statements.
F-4
<PAGE> 117
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Common
Stock Deferred Deferred
---------------------------- Additional Retained Compensation Compensation
Shares Amount Paid-in Capital Earnings RRP ESOP
------------- ------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,211,593 $ 12,116 $ 11,564,124 $ 9,979,100 $ (209,676) $ (850,425)
Compensation expense
recognized for RRP - - - - 134,742 -
Compensation expense
recognized for ESOP - - 59,757 - - 136,794
Acquisition of treasury stock - - - - - -
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes - - - - - -
Dividends - - - (309,556) - -
Net income - - - 1,781,539 - -
------------- ------------- ------------- ------------- ------------- -------------
Balance, June 30, 1995 1,211,593 12,116 11,623,881 11,451,083 (74,934) (713,631)
Compensation expense
recognized for RRP - - - - 43,824 -
Compensation expense
recognized for ESOP - - 104,290 - - 130,372
Acquisition of treasury stock - - - - - -
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes - - - - - -
Dividends - - - (327,341) - -
Net income - - - 1,859,687 - -
------------- ------------- ------------- ------------- ------------- -------------
Balance, June 30, 1996 1,211,593 12,116 11,728,171 12,983,429 (31,110) (583,259)
</TABLE>
<TABLE>
<CAPTION>
Unrealized
(Loss) Gain
on Securities
Available-for-
Treasury Stock Sale, Net Total
-------------- -------------- -------------
<S> <C> <C> <C>
Balance, June 30, 1994 $ (811,906) $ (79,435) $ 19,603,898
Compensation expense
recognized for RRP - - 134,742
Compensation expense
recognized for ESOP - - 196,551
Acquisition of treasury stock (1,770,004) - (1,770,004)
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes - 59,857 59,857
Dividends - - (309,556)
Net income - - 1,781,539
------------- ------------- -------------
Balance, June 30, 1995 (2,581,910) (19,578) 19,697,027
Compensation expense
recognized for RRP - - 43,824
Compensation expense
recognized for ESOP - - 234,662
Acquisition of treasury stock (968,260) - (968,260)
Net change in unrealized loss
on securities available-for-
sale, net of deferred taxes - (58,673) (58,673)
Dividends - - (327,341)
Net income - - 1,859,687
------------- ------------- -------------
Balance, June 30, 1996 (3,550,170) (78,251) 20,480,926
</TABLE>
(CONTINUED)
F-5
<PAGE> 118
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
Common
Stock Deferred Deferred
---------------------------- Additional Retained Compensation Compensation
Shares Amount Paid-in Capital Earnings RRP ESOP
------------- ------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Treasury stock issued
for RRP - - (7,205) - (212,352) -
Compensation expense
recognized for RRP - - - - 72,286 -
Compensation expense
recognized for ESOP - - 189,883 - - 121,454
Acquisition of treasury stock - - - - - -
Stock split effected in the
form of a stock dividend 938,004 9,380 - (9,380) - -
Net change in unrealized
(loss) gain on securities
available-for-sale, net of
deferred taxes - - - - - -
Dividends - - - (401,479) - -
Net income - - - 1,549,936 - -
------------- ------------- ------------- ------------- ------------- -------------
Balance, June 30, 1997 2,149,597 $ 21,496 $ 11,910,849 $ 14,122,506 $ (171,176) $ (461,805)
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Unrealized
(Loss) Gain
on Securities
Available-for-
Treasury Stock Sale, Net Total
-------------- -------------- -------------
<S> <C> <C> <C>
Treasury stock issued
for RRP 219,557 - -
Compensation expense
recognized for RRP - - 72,286
Compensation expense
recognized for ESOP - - 311,337
Acquisition of treasury stock (940,523) - (940,523)
Stock split effected in the
form of a stock dividend - - -
Net change in unrealized
(loss) gain on securities
available-for-sale, net of
deferred taxes - 267,705 267,705
Dividends - - (401,479)
Net income - - 1,549,936
------------- ------------- -------------
Balance, June 30, 1997 $ (4,271,136) $ 189,454 $ 21,340,188
============= ============= =============
</TABLE>
The notes to financial statements are an integral part of these statements.
F-6
<PAGE> 119
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,781,539 $ 1,859,687 $ 1,549,936
Adjustments to reconcile net income to net cash provided by
operating activities:
Federal Home Loan Bank stock dividends - (37,400) -
Amortization of deferred loan origination fees (37,203) (75,244) (49,203)
Amortization of premiums and accretion of discounts on
securities held-to-maturity and
securities available-for-sale (129,475) (63,790) 57,393
Depreciation 223,565 260,692 312,489
Provision for loan losses 60,000 120,000 120,000
Gain on sale of real estate owned held-for-sale - (32,701) (1,150)
Loss (gain) on sale of securities 67,178 (23,971) (83,422)
Gain on sale of premises and equipment - - (13,057)
Compensation expense - RRP 134,742 43,824 72,286
Compensation expense - ESOP 196,551 234,662 311,337
Loans receivable originated for sale to
Federal Home Loan Mortgage Corporation (FHLMC) (3,466,010) (12,286,702) -
Proceeds from loans receivable originated for sale
to FHLMC 3,466,010 12,286,702 -
Adjustments for (increases) decreases in operating assets and
increases (decreases) in operating liabilities:
Accrued interest and other assets (554,920) (396,826) 50,800
Accrued expenses and other liabilities 356,377 359,018 (7,045)
Income taxes payable (46,067) 145,296 433,922
------------- ------------- -------------
Net cash provided by operating activities 2,052,287 2,393,247 2,754,286
------------- ------------- -------------
INVESTING ACTIVITIES
(Loan origination) and principal payment on loans
receivable, net (16,984,728) (14,946,200) (23,746,650)
Purchases of:
Securities available-for-sale (1,992,713) (16,609,565) (4,618,784)
Securities held-to-maturity (9,441,218) (14,357,959) (3,604,940)
Proceeds from maturity of:
Securities available-for-sale 9,783 11,412,394 6,758,227
Securities held-to-maturity 3,625,387 3,484,601 6,600,000
Sales of securities available-for-sale 6,996,162 1,023,971 474,837
Purchase of Federal Home Loan Bank stock - (205,600) (925,000)
Decrease in certificates of deposit, net 1,290,000 - -
Proceeds from sale of real estate owned held-for-sale 13,686 217,193 60,205
Purchase of premises and equipment (232,284) (907,483) (583,896)
Proceeds from sale of premises and equipment - - 44,059
------------- ------------- -------------
Net cash (used) by investing activities (16,715,925) (30,888,648) (19,541,942)
------------- ------------- -------------
</TABLE>
F-7
<PAGE> 120
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED JUNE 30, 1995, 1996, AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increases in deposits 2,634,203 6,656,705 18,694,168
Net increases in borrowed funds 13,300,000 23,500,000 4,500,000
Net increase (decrease) in advances from borrowers for
taxes and insurance 76,248 (131,510) (84,585)
Acquisition of treasury stock (1,770,004) (968,260) (940,523)
Dividends (309,556) (327,341) (401,479)
------------- ------------- -------------
Net cash provided by financing activities 13,930,891 28,729,594 21,767,581
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (732,747) 234,193 4,979,925
Cash and cash equivalents, beginning of year 3,472,043 2,739,296 2,973,489
------------- ------------- -------------
Cash and cash equivalents, end of year $ 2,739,296 $ 2,973,489 $ 7,953,414
============= ============= =============
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $ 6,316,101 $ 8,307,454 $ 10,362,053
Income taxes $ 1,044,645 $ 1,105,931 $ 582,125
Non-cash transactions:
Transfers from loans receivable to real estate owned
held for sale $ - $ 121,003 $ 96,399
Treasury stock issued as deferred
compensation - RRP $ - $ - $ 219,557
Par value of common stock issued due to stock split $ - $ - $ 9,380
Transfer from securities held-to-maturity to securities
available-for-sale $ - $ 20,288,431 $ -
</TABLE>
F-8
<PAGE> 121
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Capital Savings Bancorp, Inc. (Company) is a Delaware
corporation incorporated on September 22, 1993, for the purpose of becoming the
holding company of Capital Savings Bank, FSB (Bank). The Bank was formerly known
as Capital Savings and Loan Association, prior to its conversion from a
state-chartered mutual savings association to a federally-chartered stock
savings bank. On December 28, 1993, the Bank converted from a mutual to a stock
form of ownership, and the Company completed its initial public offering with
one-half of the net proceeds used to acquire all of the issued and outstanding
capital stock of the Bank.
The Bank provides a variety of financial services to individuals and corporate
customers through its home office in Jefferson City, Missouri and its various
branch locations in the central Missouri area. The Bank's primary deposit
products are interest-bearing checking and savings accounts and certificates of
deposit. Its primary lending products are one- to four- family residential and
consumer loans.
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of Capital Savings Bancorp, Inc., and its wholly owned
subsidiary Capital Savings Bank, FSB, and the Bank's wholly owned subsidiary
Capital Savings Financial Services, Inc. All significant intercompany
transactions and balances are eliminated in the consolidation.
Regulation: The Bank is subject to examination and regulation by the Office of
Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC).
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans. In connection
with the determination of the allowances for losses on loans, management obtains
independent appraisals for significant properties.
A majority of the Bank's loan portfolio consists of one- to four- family
residential and consumer loans in the Central Missouri area. The Central
Missouri economy is dependent upon state government, light manufacturing,
agriculture, education, medical, insurance and retail. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's portfolio is susceptible
to changes in local market conditions.
While management uses available information to recognize losses on loans, future
changes to the allowance may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for losses on
loans. Such agencies may require the Bank to make changes to the allowance based
on their judgments about information available to them at the time of their
examination.
Cash and Cash Equivalents: Cash and cash equivalents are defined as those
amounts in the consolidated statements of financial condition caption "Cash and
due from depository institutions." Cash and cash equivalents include cash and
other highly liquid instruments having an original maturity of three months or
less. For purposes of the consolidated statements of cash flows, the Company
does not include liquid debt instruments or certificates of deposit as cash
equivalents. Cash and due from depository institutions include interest-bearing
accounts totaling approximately $309,000 and $4,468,000 at June 30, 1996 and
1997, respectively.
F-9
<PAGE> 122
Investment in Securities: Investments in debt and equity securities are
classified as follows:
- - Trading Securities. Investment securities held principally for resale
in the near term and mortgage-backed securities held for sale in
conjunction with the Company's mortgage banking activities are
classified as trading securities and recorded at their fair values.
Unrealized gains and losses on trading securities are included in other
income. There were no trading securities held at June 30, 1996 or 1997.
- - Securities held-to-maturity. Investment securities for which the
Company has the positive intent and ability to hold to maturity are
reported at cost, adjusted for amortization of premiums and accretion
of discounts which are recognized in interest income using the interest
method over the period to maturity.
- - Securities available-for-sale. Securities available for sale consist of
investment securities not classified as trading securities or as
securities held-to-maturity, and are recorded at fair value. Unrealized
holding gains and losses, net of tax, on securities available-for-sale
are reported as a net amount in a separate component of stockholders'
equity until realized.
Any declines in the fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses. Gains and
losses on the sale of securities are determined using the
specific-identification method.
Loans Receivable: Loans receivable that management has the intent and ability to
hold until maturity or pay-off are reported at their outstanding principal
balances adjusted for any charge-offs, the allowance for loan losses, any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased loans.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan. Discounts and
premiums on purchased loans are amortized to income using the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Commitment fees and costs relating to commitments, the likelihood
of exercise of which is remote, are recognized over the commitment period on a
straight-line basis. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.
Uncollectible interest on loans is charged off or an allowance is established
based on management's periodic evaluation. The allowance is established by a
charge to interest income equal to all interest previously accrued and
outstanding. Income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments is back to normal, in which case
the loan is returned to accrual status.
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management utilizes a systematic, documented
approach in determining the appropriate level of the allowance for loan losses.
Management's approach, which provides for general and specific allowances, is
based, among other factors, on the Bank's past loan loss and collection
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
On July 1, 1995 the Bank adopted SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures (an amendment of SFAS No. 114).
The adoption of these statements did not have a material effect on the Bank's
financial condition or operating results for 1996. These pronouncements consider
a loan to be impaired when it is probable a creditor will be unable to collect
all amounts due-both principal and interest-according to the contractual terms
of the loan agreement. Such pronouncements also require that impaired loans be
measured based on the present value of expected future cash flows or at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. If the value computed is less than the recorded value
of the loan, a valuation allowance is recorded for the difference. The entire
change in valuation allowance is reported as a component of the provision for
loan losses expense.
F-10
<PAGE> 123
Management applies its normal loan review procedures in determining when a loan
is impaired. Management considers impaired loans to be all loans classified as
substandard, doubtful, or loss except for smaller balance homogeneous loans
which are collectively evaluated for impairment. Impaired loans are charged off
when deemed to be uncollectible by management.
Management has elected to continue to use its existing nonaccrual methods for
recognizing interest income on impaired loans.
Real Estate Owned Held-for-Sale: Real estate properties acquired through, or in
lieu of, loan foreclosure and held-for-sale are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in gain or loss on foreclosed real estate.
Premises and Equipment: Land is carried at cost. Buildings and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation and
amortization. Buildings and furniture, fixtures and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets.
The costs of leasehold improvements are amortized using the straight-line method
over the terms of the related leases.
Employee Stock Ownership Plan: Stock acquired for the Company's ESOP is recorded
as deferred compensation, which is a reduction to stockholders' equity. ESOP
shares are considered uncommitted until such time the shares are released
(committed) to the ESOP trustee for distribution to the plan's participants. As
the committed shares are released, compensation expense is recognized for the
then fair value of the stock and deferred compensation for the committed shares
is reduced by the amount of the shares' acquisition cost. Any difference between
the acquisition cost and the then fair value is credited or charged to
additional paid-in capital. Dividends paid on uncommitted ESOP shares are
recognized as compensation expense, and dividends paid on allocated shares are
recognized as a reduction of retained earnings.
Only committed shares are considered outstanding for earnings per share
calculations.
Income Taxes: Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Advertising: The Company expenses the production costs of advertising as
incurred.
F-11
<PAGE> 124
2. INVESTMENT SECURITIES
The amortized cost and fair values of investment securities at June 30 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
1996 Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Held-to-Maturity $ 11,979,383 $ - $ 103,364 $ 11,876,019
============= ============ ============ =============
Available-for-Sale
U.S. government and federal
agencies $ 1,800,000 $ 600 $ 12,869 $ 1,787,731
Mortgage-backed securities 28,454,657 152,984 268,201 28,339,440
Equity securities 179,126 - - 179,126
------------- ------------ ------------ -------------
$ 30,433,783 $ 153,584 $ 281,070 $ 30,306,297
============= ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1997 Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Held-to-Maturity
U.S. government and federal
agency $ 8,984,323 $ 26,849 $ 7,652 $ 9,003,520
============= ============ ============ =============
Available-for-Sale
U.S. government and federal
agencies $ 3,460,094 $ 33,617 $ 3,220 $ 3,490,491
Mortgage-backed securities 23,338,732 233,406 123,368 23,448,770
Equity securities 1,046,706 168,233 10 1,214,929
------------- ------------ ------------ -------------
$ 27,845,532 $ 435,256 $ 126,598 $ 28,154,190
============= ============ ============ =============
</TABLE>
On December 28, 1995, pursuant to a transfer grace period allowed by Financial
Accounting Standards Board, the Bank transferred securities held-to-maturity
with a book value of $20,288,431 to the securities available-for-sale
classification. Such transfer resulted in an increase of $171,614 in the
unrealized gain on securities available-for-sale reported as a separate
component of equity.
Gross realized gains and losses on sales of securities available-for-sale for
the year ended June 30 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Gross realized gains $ 3,261 $ 28,876 $ 83,422
Gross realized losses (70,439) (4,905) -
------------------------ ------------------------ ------------------------
Net realized (losses) gains $ (67,178) $ 23,971 $ 83,422
======================== ======================== ========================
Gross unrealized gains $ 153,584 $ 435,256
Gross unrealized losses (281,070) (126,598)
------------------------ ------------------------
Net unrealized (losses) gains (127,486) 308,658
Deferred tax asset (liability) (Note 9) 49,235 (119,204)
------------------------ ------------------------
Unrealized (loss) gain on securities
available-for-sale, net of deferred
taxes $ (78,251) $ 189,454
======================== ========================
</TABLE>
F-12
<PAGE> 125
The amortized cost and fair value of investment securities held-to-maturity and
available-for-sale at June 30, 1997, by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because securities
may be called or prepaid with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities held-to-maturity Securities available-for-sale
Amounts maturing in: Amortized Cost Fair Value Amortized Cost Fair Value
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
One year or less $ - $ - $ 500,000 $ 496,781
After one through five years 4,987,110 4,991,830 - -
After five through ten years 3,997,213 4,011,690 2,960,094 2,993,711
------------------------ ------------------------ ------------------------ ------------------------
8,984,323 9,003,520 3,460,094 3,490,492
Mortgage-backed securities - - 23,338,732 23,448,769
Other stock, at cost - - 1,046,706 1,214,929
------------------------ ------------------------ ------------------------ ------------------------
$ 8,984,323 $ 9,003,520 $ 27,845,532 $ 28,154,190
======================== ======================== ======================== ========================
</TABLE>
The investment in FHLB stock of $2,100,000 and $3,025,000 at June 30, 1996 and
1997, respectively, is recorded at cost, considered a restricted asset, and
pledged as collateral security for indebtedness to the Federal Home Loan Bank of
Des Moines (FHLB).
The Company has pledged government and mortgage-backed securities to secure
deposits of certain customers which exceeded the maximum insurance or those not
covered by the Savings Association Insurance Fund (SAIF) and to secure advances
from the FHLB. At June 30, 1996 and 1997, these pledged assets had a carrying
value of $26,428,446 and $25,466,173, respectively.
3. LOANS
Loans receivable at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Mortgage loans (principally conventional):
One- to four-family residences $ 146,475,588 $ 163,585,999
Multi-family 1,767,511 6,174,708
Commercial 5,618,792 5,992,921
Construction 2,939,526 1,472,620
------------------------ ------------------------
156,801,417 177,226,248
Less:
Loans in process 1,484,711 800,519
Net deferred loan-origination fees 191,446 194,255
------------------------ ------------------------
Net mortgage loans 155,125,260 176,231,474
------------------------ ------------------------
Consumer and other loans:
Automobile 4,070,933 4,799,107
Loan on savings 973,150 917,077
Home equity and second mortgage 5,774,683 7,254,621
Student 366,377 326,367
Unsecured 441,073 695,740
Other 505,842 717,668
------------------------ ------------------------
Total consumer and other loans 12,132,058 14,710,580
------------------------ ------------------------
Total loans receivable 167,257,318 190,942,054
Less allowance for loan losses 634,087 739,369
------------------------ ------------------------
Loans receivable, net $ 166,623,231 $ 190,202,685
======================== ========================
</TABLE>
F-13
<PAGE> 126
Activity in the allowance for loan losses is summarized as follows for the years
ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 454,087 $ 514,087 $ 634,087
Provision charged to income 60,000 120,000 120,000
Charge-offs - - (17,419)
Recoveries - - 2,701
------------------------ ------------------------ ------------------------
Balance, end of year $ 514,087 $ 634,087 $ 739,369
======================== ======================== ========================
</TABLE>
The following information relates to impaired loans as of, and for the years
ended, June 30:
<TABLE>
<CAPTION>
1996 1997
----------------------- ------------------------
<S> <C> <C>
Recorded investment in impaired loans for which there is no need for
a valuation allowance, based upon the measure of the loan's fair value of
underlying collateral $ 299,971 $ 673,550
======================= ========================
Average recorded investment in impaired loans during the year $ 196,383 $ 690,740
======================= ========================
Interest income recognized for cash payments received on impaired loans
during the year $ 21,239 $ 45,203
======================= ========================
</TABLE>
Loans to officers and directors approximated $256,000 and $272,000 at June 30,
1996 and 1997, respectively.
Mortgage loans serviced for the Federal Home Loan Mortgage Corporation (FHLMC)
are not included in the accompanying consolidated statements of financial
condition. The unpaid principal balances of these loans at June 30 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Mortgage loan portfolio serviced for FHLMC $ 47,147,792 $ 41,015,652
======================== ========================
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $175,000 and $307,000 at June 30, 1996 and 1997,
respectively.
4. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ---------------------
<S> <C> <C>
Investment securities $ 443,980 $ 412,579
Loans receivable 957,129 1,052,642
------------------------ ---------------------
$ 1,401,109 $ 1,465,221
======================== =====================
</TABLE>
F-14
<PAGE> 127
5. REAL ESTATE OWNED HELD-FOR-SALE
Real estate owned held-for-sale at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Real estate owned held-for-sale, acquired by
foreclosure $ 43,618 $ 80,962
Allowance for losses (12,064) (12,064)
------------------------ ------------------------
Real estate owned held-for-sale, net $ 31,554 $ 68,898
======================== ========================
</TABLE>
Income from real estate owned held-for-sale for the years ended June 30 is as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Income (expenses) of real estate owned held-for-sale $ 6,573 $ (3,716) $ (2,856)
Gain on sale of real estate owned held-for-sale - 32,701 1,150
------------------------ ------------------------ ------------------------
$ 6,573 $ 28,985 $ (1,706)
======================== ======================== ========================
</TABLE>
There was no activity in the allowance for losses for real estate owned
held-for-sale for each of the three years in the period ended June 30, 1997.
6. PREMISES AND EQUIPMENT
Premises and equipment at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Land $ 395,187 $ 364,186
Buildings 1,859,725 1,900,845
Leasehold improvements 158,147 502,125
Furniture, fixtures and equipment 753,788 770,164
Automobiles 15,614 45,601
------------------------ ------------------------
3,182,461 3,582,921
Less accumulated depreciation and amortization 1,191,720 1,351,775
------------------------ ------------------------
$ 1,990,741 $ 2,231,146
======================== ========================
</TABLE>
Depreciation expense for the years ended June 30, 1995, 1996, and 1997 totaled
$223,565, $260,692 and $312,489, respectively.
The Bank is obligated under operating leases on real and personal property at
several of its locations. Rental expense for all operating leases for the years
ended June 30, 1995, 1996, and 1997 approximated $36,000, $51,000 and $78,000,
respectively.
Future minimum rental commitments under noncancellable leases are as follows:
<TABLE>
<S> <C>
1998 $ 59,600
1999 56,850
2000 58,850
2001 60,850
2002 67,850
Thereafter 720,650
------------------------
$ 1,024,650
========================
</TABLE>
F-15
<PAGE> 128
7. DEPOSITS
Deposits at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Demand deposits $ 11,803,558 $ 17,718,981
Savings deposits 24,226,441 29,246,156
Time deposits 116,314,792 124,073,822
------------------------ ------------------------
$ 152,344,791 $ 171,038,959
======================== ========================
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $8,358,000 and $13,520,469 at June
30, 1996 and 1997, respectively.
At June 30, 1997, scheduled maturities of time deposits were as follows:
<TABLE>
<CAPTION>
Amount
------------------------
<S> <C>
1998 $ 93,021,339
1999 19,378,130
2000 7,354,667
2001 3,258,618
2002 and thereafter 1,061,068
------------------------
$ 124,073,822
========================
</TABLE>
8. BORROWED FUNDS
Borrowed funds at June 30 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Advances from FHLB $ 42,000,000 $ 46,500,000
======================== ========================
</TABLE>
Information concerning advances from FHLB is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Average balance during the year $ 22,655,800 $ 49,125,000
Average interest rate at year end 5.65% 5.68%
Maximum month end balance during the year $ 42,000,000 $ 53,000,000
Mortgage-backed securities pledged for the agreement at year end:
Carrying value $ 23,110,216 $ 5,965,879
Estimated fair value $ 23,048,009 $ 6,159,455
</TABLE>
At June 30, 1997, advances from the FHLB are scheduled to mature in the
following fiscal years:
<TABLE>
<S> <C>
1998 $ 34,500,000
1999 3,000,000
2000 6,000,000
2001 3,000,000
------------------------
$ 46,500,000
========================
</TABLE>
F-16
<PAGE> 129
The Bank has signed a blanket pledge agreement with the FHLB under which it can
draw advances of unspecified amounts from the FHLB. The Bank must hold an
unencumbered portfolio of eligible one- to four-family residential mortgages
with a book value of not less than 150% of the indebtedness.
9. INCOME TAXES
The Company and its subsidiary file consolidated federal income tax and
individual state tax returns on a fiscal year basis. Historically, the Bank was
allowed a special bad-debt deduction based on a percentage of taxable income (8
percent for 1995 and 1996) or on specified experience formulas. The Bank used
the percentage method in 1995 and 1996. Recent legislation repealed the
percentage of taxable income method of computing bad debt deductions for tax
years beginning after December 31, 1995. Effective for fiscal 1997, the Bank is
required to compute its bad debt deduction based on specified experience
formulas.
Generally accepted accounting principles allow an exception for providing a
deferred tax liability on bad debt reserves for tax purposes of qualified thrift
lenders such as the Bank that arose in fiscal years beginning before June 30,
1988. Such bad debt reserve for the Bank amounted to approximately $624,000 with
an income tax effect of $243,000 at June 30, 1997. This bad debt reserve would
become taxable if the Bank does not maintain certain qualifying assets as
defined, if the reserve is charged for other than bad debt losses, or if the
Bank does not maintain its thrift charter.
Recent legislation will require the Bank to be subject to tax of approximately
$230,000 on post - 1987 bad debt reserves. Such tax will be payable over a six
to seven year period beginning in fiscal 1997 and is included in deferred tax
liabilities in the accompanying consolidated statements of financial condition.
Federal income taxes payable at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Current $ 124,030 $ 569,216
Deferred 224,016 381,191
------------------------ ------------------------
Federal income taxes payable $ 348,046 $ 950,407
======================== ========================
</TABLE>
The consolidated provision (benefit) for income taxes consisted of the following
for the years ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Federal:
Current $ 884,690 $ 1,087,128 $ 886,107
Deferred 38,519 (74,209) (11,265)
State:
Current 132,563 164,484 141,205
------------------------ ------------------------ ------------------------
$ 1,055,772 $ 1,177,403 $ 1,016,047
======================== ======================== ========================
</TABLE>
The reasons for the differences between the statutory federal income tax rates
and the effective tax rates are summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Statutory federal income tax rates 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State income taxes 4.7% 5.4% 5.5%
Other (1.5)% (0.6)% 0.1%
---------------------- ---------------------- ---------------------
37.2% 38.8% 39.6%
====================== ====================== =====================
</TABLE>
F-17
<PAGE> 130
The tax effects of temporary differences between the financial reporting basis
and income tax basis of assets and liabilities that are included in the net
deferred tax liability at June 30 relate to the following:
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Deferred tax assets:
Cash/accrual differences $ 302,445 $ 311,897
Interest and fees on loans 74,474 75,759
Unrealized loss on securities available-for-sale 49,235 -
Other 5,535 1,489
------------------------ ------------------------
Total deferred tax assets 431,689 389,145
------------------------ ------------------------
Deferred tax liabilities:
Allowance for losses on loans and real estate
owned held-for-sale 437,911 353,104
FHLB stock dividends 207,252 207,252
Unrealized gain on securities available-for-sale - 119,204
Compensation programs 10,542 90,776
------------------------ ------------------------
Total deferred tax liabilities 655,705 770,336
------------------------ ------------------------
Net deferred tax liability $ (224,016) $ (381,191)
======================== ========================
</TABLE>
10. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. The regulations require the Bank to meet specific
capital adequacy guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classifications
are also subject to qualitative judgements by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tangible, Tier I, and Risk-based capital (as defined in the
regulations). Management believes, as of June 30, 1997, the Bank meets all
capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the OTS categorized the
Bank as well-capitalized under the regulatory framework for prompt corrective
action. A well-capitalized institution significantly exceeds the required
minimum level for each relevant capital measure. There are no conditions or
events since that notification that management believes have changed the
institution's category.
During fiscal 1997, the Bank received OTS approval to distribute to the Company
on a quarterly basis dividends equal to one-half of the Bank's net income.
F-18
<PAGE> 131
<TABLE>
<CAPTION>
(Dollars in thousands)
To Be Well Capitalized
Minimum For Capital For Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- ---------------------- -----------------------
Ratio Amount Ratio Amount Ratio Amount
-------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996:
Stockholders' equity, and ratio to
total assets 8.7% $ 18,838
========
Unrealized loss on securities
available-for-sale 78
----------
Tangible capital, and ratio to
adjusted total assets 8.7% $ 18,916 1.5% $ 3,266
======== ========== ========= =========
Tier 1 (core) capital, and ratio to
adjusted total assets 8.7% $ 18,916 3.0% $ 6,533 5.0% $ 10,888
======== ========== ========= ========= ========= ==========
Tier 1 capital, and ratio to risk-
weighted assets 17.9% $ 18,916 6.0% $ 6,349
======== ========= ==========
Allowance for loan and lease losses 646
----------
Total risk-based capital, and ratio to
risk-weighted assets 18.5% $ 19,562 8.0% $ 8,465 10.0% $ 10,581
======== ========== ========= ========= ========= ==========
Total assets $ 217,684
==========
Adjusted total assets $ 217,763
==========
Risk-weighted assets $ 105,809
==========
As of June 30, 1997:
Stockholders' equity, and ratio to
total assets 7.9% $ 19,127
========
Unrealized gain on securities
available-for-sale (86)
----------
Tangible capital, and ratio to
adjusted total assets 7.9% $ 19,041 1.5% $ 3,618
======== ========== ========= =========
Tier 1 (core) capital, and ratio to
adjusted total assets 7.9% $ 19,041 3.0% $ 7,236 5.0% $ 12,060
======== ========== ========= ========= ========= ==========
Tier 1 capital, and ratio to risk-
weighted assets 16.0% $ 19,041 6.0% $ 7,148
======== ========= ==========
Allowance for loan and lease losses 739
----------
Total risk-based capital, and ratio to
risk-weighted assets 16.6% $ 19,780 8.0% $ 9,530 10.0% $ 11,913
======== ========== ========= ========= ========= ==========
Total assets $ 241,283
==========
Adjusted total assets $ 241,197
==========
Risk -weighted assets $ 119,125
==========
</TABLE>
11. EMPLOYEE BENEFITS
F-19
<PAGE> 132
Pension Plan: All Company employees who are twenty-one years of age and have
been employees for at least one year are included in a trusteed, defined benefit
pension plan. The benefits contemplated by the plan are funded through payments
to the Financial Institutions Retirement Fund, which operates as a
multi-employer plan and does not report relative plan assets and actuarial
liabilities of the individual participating institutions. The cost of funding is
charged to current operations. Net pension cost totaled $ -0- for each of the
years ended June 30, 1995, 1996 and 1997. As of July 1, 1987 the plan was fully
funded and all employer contributions were suspended until further notice from
the plan administrator. Administrative fees are still paid while the plan is in
full funding.
Employee Stock Ownership Plan: In conjunction with the Bank's conversion, the
Company formed an ESOP which covers substantially all employees with more than
one year of employment, have completed 1,000 hours of service, and who have
attained the age of 21. The ESOP borrowed $938,400 from the Company and
purchased common shares equal to 8% of the total number of shares issued in the
conversion. The ESOP debt is secured by shares of the Company. The Bank will
make scheduled discretionary contributions to the ESOP sufficient to service the
debt. At June 30, 1996 and 1997, the balance outstanding on this debt was
$615,825 and $498,525. As the debt is paid down, the number of shares to be
released from serving as collateral is computed as the ratio of the current
principal plus interest to the total original principal plus interest to be
paid. Deferred compensation relating to the ESOP was $583,259 and $461,805 at
June 30, 1996 and 1997, respectively, and is reported as a reduction of
stockholders' equity. Compensation expense totaled $256,958 and $337,334 in 1996
and 1997, respectively, which included dividends paid on uncommitted ESOP shares
totaling $22,296 and $25,997 in 1996 and 1997, respectively.
The following is a summary of ESOP shares at June 30. Amounts for 1996 have been
restated to reflect the stock split issued in 1997.
<TABLE>
<CAPTION>
1996 1997
------------------------ ------------------------
<S> <C> <C>
Allocated shares 46,224 75,080
Committed-to-be-released shares 26,074 24,749
Uncommitted shares 115,382 90,633
------------------------ ------------------------
Total ESOP shares 187,680 190,462
======================== ========================
Fair value of uncommitted shares $ 2,076,876 $ 3,260,940
======================== ========================
</TABLE>
ESOP participants entitled to a distribution have the right to demand such
distribution in the form of the Company's common stock. In the event that the
Company's common stock is not readily tradeable on an established market,
participants are entitled to require that the Company repurchase the common
stock under a fair valuation formula, as provided by governmental regulations.
Recognition and Retention Plan: In conjunction with the Bank's conversion, the
Company formed an RRP which was authorized to award 4% of the total shares of
common stock issued in the conversion. As of June 30, 1996 and 1997, the Company
has awarded a total of 77,168 and 92,986 shares of common stock, respectively,
to directors and employees in key management positions in order to provide them
with a proprietary interest in the Company in a manner designed to encourage
such employees to remain with the Company. As of June 30, 1997, a total of 854
common shares remain available to be awarded under the Plan.
Deferred compensation, representing the shares' fair market value at the date of
award, is charged to income on an accelerated basis over the five year vesting
period as the Bank's directors and employees perform the related future
services. The unamortized balance of $31,110 and $171,176 as of June 30, 1996
and 1997, respectively, is reflected as a reduction of stockholders' equity. The
Company recognized $43,824 and $72,286 as compensation and benefits expense
relating to this plan for the years ended June 30, 1996 and 1997, respectively.
Stock Option and Incentive Plan: In conjunction with the Bank's conversion, the
Company established a stock option and incentive plan for the benefit of
directors and employees of the Company and Bank. The plan became effective upon
its adoption by the Board of Directors of the Company and approval of the plan
by the stockholders' of the Company in October, 1994. The number of authorized
but unissued shares reserved under the plan is 234,600. Granted stock options
are regarded as common stock equivalents and are considered in earnings per
share calculations. At June 30, 1996 and 1997, no options have been exercised
nor stock issued for this plan.
F-20
<PAGE> 133
The stock options may be either incentive stock options or nonqualified stock
options. Incentive stock options can be granted only to participants who are
employees of the Company or its subsidiaries. The exercise price of an incentive
stock option must not be less than the market value of the Company's stock on
the date of the grant. All options expire no later than 10 years from the date
of grant. The options vest at the rate of 33 1/3% per year over a three-year
period.
A summary of the status of the plan at June 30, 1996 and 1997, and changes
during the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1997
--------------------------------------- ---------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
----------------- --------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 163,046 $ 5.00 163,046 $ 5.00
Granted - - 47,300 13.44
Exercised - - - -
Forfeited - - - -
----------------- -----------------
Outstanding, end of year 163,046 5.00 210,346 6.90
================= =================
Options exercisable, end of year 108,697 163,046
================= =================
</TABLE>
The fair value of each option granted is estimated on the date of the grant
using the Black Scholes pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1997
----------------------------- --------------------------
<S> <C> <C>
Dividends per share $ 0.170 $ 0.225
Risk-free interest rate 6.60% 6.36%
Expected life of options 5 years 5 years
Weighted-average fair value of options granted
during the year - $ 4.00
</TABLE>
The following table summarizes information about stock options under the plan
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ------------------------------------------------
Range of Number Remaining Number Exercise
Exercise Prices Outstanding Contractual Life Exercisable Price
- ----------------------- ------------------- ----------------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
$ 5.00 163,046 6.50 years 163,046 $ 5.00
$ 13.44 47,300 9.50 years - -
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans, and no compensation cost has been recognized for the plan. Had
compensation cost for the Company's plan been determined based on the fair value
at the grant dates using Statement of Financial Accounting Standards No. 123,
the Company's net income would have decreased by approximately $26,000 for 1996
and $31,000 for 1997, and earnings per share would have decreased by $.02 for
1996 and 1997, respectively. The effects of applying this statement for either
recognizing compensation cost or providing pro forma disclosures are not likely
to be representative of the effects on reported net income for future years
because options vest over several years.
Executive Employment and Salary Continuation Agreements: Under an employment
agreement with the President and Chief Executive Officer, the Company and the
Bank will provide severance payments in the event of an involuntary termination
of employment in connection with a change in control of the Company, as defined
in the contract. If the employment of the President and Chief Executive Officer
were to be terminated as of June 30, 1997 pursuant to a change in control, he
would be entitled to receive a severance payment amounting to approximately
$391,000.
F-21
<PAGE> 134
On November 1, 1994, the Bank executed a salary continuation agreement with the
President and Chief Executive Officer to provide monthly post-retirement
payments under terms defined in the agreement. The agreement also specifies
provisions for benefits in the events of death, disability, or termination prior
to retirement. The Bank recognized approximately $28,000 as compensation and
benefits expense relating to this agreement for each of the years ended June 30,
1996 and 1997, respectively.
12. TREASURY STOCK
The Company acquired 114,050 shares, 51,900 shares and 49,179 shares of its
common stock on the open market to be held in treasury during the years ended
June 30, 1995, 1996, and 1997, respectively. The Company paid $13.625 to $19.625
per common stock share to acquire the stock and carries the stock at cost.
During the year ended June 30, 1997, 15,800 shares were issued pursuant to
awards under the Company's RRP. At June 30, 1996 and 1997, the Company held
224,410 and 257,789 common shares in treasury, respectively.
13. OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows for the
years ended June 30:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Other noninterest income:
Loan late charges $ 31,796 $ 33,923 $ 46,609
Net income (loss) from real estate owned
held-for-sale (Note 5) 6,573 28,985 (1,706)
Other miscellaneous 3,743 6,454 27,804
------------------------ ------------------------ ------------------------
$ 42,112 $ 69,362 $ 72,707
======================== ======================== ========================
Other noninterest expense:
Printing, postage, stationery, and supplies $ 202,722 $ 240,339 $ 367,273
Telephone 52,545 56,998 64,195
Insurance and surety bond 56,666 44,760 62,042
Supervisory examinations 53,627 55,147 65,086
Professional fees 142,418 107,984 90,008
Data processing 209,658 233,202 297,483
Advertising expense 222,927 304,340 493,983
Other operating expense 266,983 249,328 287,001
------------------------ ------------------------ ------------------------
$ 1,207,546 $ 1,292,098 $ 1,727,071
======================== ======================== ========================
</TABLE>
14. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit. Those instruments involve, to
varying degrees, elements of credit and interest risk in excess of the amount
recognized in the Consolidated Statements of Financial Condition. The
contractual amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend funds for a loan to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates. The Company
evaluates each customer's creditworthiness and related collateral on a
case-by-case basis.
F-22
<PAGE> 135
The Company's exposure to market loss in the event of future changes in market
prices rendering these financial instruments less valuable is represented by the
contractual amount of the instruments.
The Company's exposure to accounting loss on these financial instruments is a
combination of the credit and market risk described above.
The Company does not require collateral or other security to support financial
instruments with credit risk.
The Company is not committed to lend additional funds to debtors whose loans
have been modified.
At June 30, 1997, the Company had approximate outstanding commitments to
originate loans of $1,997,000. Fixed-rate loan commitments were $808,000 in
first mortgage loans committed at interest rates ranging from 7.625% to 8.375%.
Variable-rate loan commitments were $1,189,000 in first mortgage loans with
interest rates ranging from 6.25% to 8%.
The Company also offers home equity and other lines of credit for its customers.
At June 30, 1997, the outstanding lines of credit available totaled
approximately $4,726,000.
Fair value estimates, methods and assumptions for the Company's financial
instruments are set forth below, as of June 30:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1997
---------------------------------------- ----------------------------------------
Carrying Fair Carrying Fair
ASSETS Amount Value Amount Value
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cash and due from depository institutions $ 2,973 $ 2,973 $ 7,953 $ 7,953
Securities available-for-sale 30,306 30,306 28,154 28,154
Securities held-to-maturity 11,979 11,876 8,984 9,004
Stock in FHLB 2,100 2,100 3,025 3,025
Mortgage loans 155,125 156,707 176,231 178,114
Consumer loans 12,132 12,169 14,711 14,714
Accrued interest receivable 1,401 1,401 1,465 1,465
LIABILITIES
Savings and transaction accounts 36,030 36,030 46,965 46,965
Certificates of deposit 116,315 116,566 124,074 124,099
Borrowed funds 42,000 41,787 46,500 46,345
All other liabilities 3,128 3,128 3,639 3,639
</TABLE>
Cash and Due from Depository Institutions: The carrying amounts of cash and due
from depository institutions approximate their fair value.
Securities Available-for-Sale and Securities Held-to-Maturity: Fair values for
securities are based on market prices from published sources or dealer quotes
for like or similar securities.
Stock in FHLB: This stock is considered a restricted asset and its carrying
value is a reasonable estimate of fair value.
Mortgage Loans: The fair value of mortgage loans is calculated by using
discounted cash flow analysis with discount rates based on secondary market
sources. The majority of real estate loans are residential. Mortgage loans are
segregated by fixed and adjustable interest terms. Fair values for impaired
loans are estimated using discounted cash flow analysis.
Consumer Loans: The fair value of consumer loans is calculated by using
discounted cash flow analysis based upon the current market for like
instruments.
Accrued Interest Receivable: The carrying value approximates fair value.
Savings and Transaction Accounts: Savings and transaction deposits, payable on
demand or with maturities of 90 days or less, have a fair value equal to book
value.
F-23
<PAGE> 136
Certificates of Deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Borrowed Funds: The carrying value of short term borrowings maturing in 90 days
or less approximates fair value. The fair value of borrowings having a maturity
greater than 90 days is estimated by discounting the future cash flows
using rates currently offered for other similar maturities.
All Other Liabilities: The carrying value approximates fair value.
Off-Balance-Sheet Instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present creditworthiness of the counter parties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Company's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument. The
valuation techniques employed above involve uncertainties and are affected by
assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
In addition, the fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. For example, the Company has a mortgage
servicing portfolio that contributes net fee income annually. The mortgage
servicing portfolio is not considered a financial instrument and its value has
not been incorporated into the fair value estimates. Also, the fair value
estimates do not include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of borrowing funds in
the market.
15. CONVERSION TO STOCK OWNERSHIP
On June 24, 1993, the Board of Directors of the Bank adopted a plan of
conversion pursuant to which the Bank converted from a state-chartered mutual
association to a federal-chartered stock institution with the concurrent
formation of the holding company which acquired all of the common stock of the
Bank. In addition to common stock, the Company was also authorized to issue
800,000 shares of $.01 par value preferred stock. At June 30, 1996 and 1997, no
shares of preferred stock have been issued.
As part of the conversion, the Bank established a liquidation account for the
benefit of eligible depositors who continued to maintain their deposit accounts
in the Bank after the conversion. In the unlikely event of a complete
liquidation of the Bank, and only in such event, each eligible depositor will be
entitled to receive a liquidation distribution from the liquidation account in
the proportionate amount of the then-current adjusted balance for deposit
accounts held, before distribution may be made with respect to the Bank's
capital stock. The Bank may not declare or pay a cash dividend to the Company
on, or repurchase any of, its capital stock if the effect thereof would cause
the retained earnings of the Bank to be reduced below the amount required for
the liquidation account. Except for such restrictions, the existence of the
liquidation account does not restrict the use or application of retained
earnings.
The Bank's capital exceeds all of the fully phased-in capital requirements
imposed by OTS. OTS regulations provide that an institution that exceeds all
fully phased-in capital requirements before and after a proposed capital
distribution and, like the Bank, has not been notified of a need for more than
normal supervision could, after prior notice but without approval by the OTS,
make capital distributions during the calendar year of up to 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year. Any
additional capital distributions would require prior regulatory approval.
Unlike the Bank, the Company is not subject to these regulatory restrictions on
the payment of dividends to its stockholders. However, the source of future
dividends may depend upon dividends from the Bank.
16. RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND (SAIF)
F-24
<PAGE> 137
On September 30, 1996, legislation was enacted to recapitalize the SAIF which
required savings institutions with SAIF insured deposits to pay a one time
special assessment of 65.7 cents per $100 of deposits at March 31, 1995. The
Bank's special assessment amounted to approximately $959,000 and is included in
non-interest expense in the consolidated statement of income for the year ended
June 30, 1997. Subsequent to the special assessment, the Bank's SAIF assessment
rate on deposits decreased from 23 cents to approximately 6.5 cents per $100 of
deposits.
17. PARENT COMPANY FINANCIAL INFORMATION
The following tables present condensed financial information of the parent
company, Capital Savings Bancorp, Inc.
Condensed Statements of Financial Condition
June 30, 1996 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1997
------------------- -------------------
<S> <C> <C>
ASSETS
Cash and due from depository institutions $ 647 $ 361
Securities available-for-sale 179 1,215
Investment in subsidiary 18,838 19,127
Other assets 849 707
------------------- -------------------
Total assets $ 20,513 $ 21,410
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued liabilities $ 32 $ 70
Stockholders' equity 20,481 21,340
------------------- -------------------
Total liabilities and stockholders' equity $ 20,513 $ 21,410
=================== ===================
</TABLE>
Condensed Statements of Income
For the years ended June 30, 1995, 1996 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1996 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Income
Income from securities available-for-sale $ 112 $ 54 $ 14
Other interest 61 64 55
Gain on sale of securities available-for-sale - - 76
---------------- --------------- ---------------
173 118 145
---------------- --------------- ---------------
Expenses
Compensation and benefits 135 44 72
Other 155 87 123
---------------- --------------- ---------------
290 131 195
---------------- --------------- ---------------
(Loss) before income taxes and equity in undistributed
earnings of subsidiary (117) (13) (50)
Benefit from income taxes 38 3 16
Equity in undistributed earnings of subsidiary 1,861 1,870 1,584
---------------- --------------- ---------------
Net income $ 1,782 $ 1,860 $ 1,550
================ =============== ===============
</TABLE>
F-25
<PAGE> 138
Condensed Statements of Cash Flows
For the years ended June 30, 1995, 1996 and 1997
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1996 1997
--------------- ----------------- ---------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,782 $ 1,860 $ 1,550
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary (1,861) (1,870) (1,584)
Loss (gain) on sale of securities 23 - (76)
Compensation expense - RRP 135 44 72
Change in other assets (70) (54) (40)
Change in other liabilities 28 4 38
--------------- ----------------- ---------------
Net cash provided (used) by operating activities 37 (16) (40)
--------------- ----------------- ---------------
Cash Flows From Investing Activities
Dividends from Capital Savings Bank, FSB - - 1,770
Purchases of securities available-for-sale - (1,379) (960)
Sale / maturity of securities available-for-sale 1,960 2,692 169
(Increase) decrease in certificates of deposit 300 - -
--------------- ----------------- ---------------
Net cash provided by investing activities 2,260 1,313 979
--------------- ----------------- ---------------
Cash Flows From Financing Activities
Acquisition of treasury stock (1,770) (968) (941)
Payment received on loan to ESOP (other asset) 138 117 117
Dividends paid (310) (327) (401)
--------------- ----------------- ---------------
Net cash (used) by financing activities (1,942) (1,178) (1,225)
--------------- ----------------- ---------------
Net increase (decrease) in cash and cash equivalents 355 119 (286)
Cash and cash equivalents, beginning of period 173 528 647
--------------- ----------------- ---------------
Cash and cash equivalents, end of period $ 528 $ 647 $ 361
=============== ================= ===============
Supplemental Disclosure of Non-Cash Transactions
Treasury stock issued as deferred
compensation - RRP $ - $ - $ 220
Par value of common stock issued due to stock split $ - $ - $ 9
</TABLE>
F-26
<PAGE> 139
18. EARNINGS PER SHARE
Earnings per share of common stock have been computed on the basis of the
weighted average number of shares of common stock outstanding, including the
effect of stock options and excluding the effect of treasury stock. All earnings
per share reflect the implementation of SFAS No. 128, EARNINGS PER SHARE. SFAS
128 established new standards for computing and presenting earnings per share.
Basic earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of shares outstanding during the
period and does not include the impact of any potentially dilutive common stock
equivalents. Diluted earnings per share is computed using the weighted average
number of shares determined for the basic computation plus the number of shares
of common stock that would be issued assuming all contingently issuable shares
having a dilutive effect on earnings per share were outstanding for the period.
Because the Company issued a stock split during 1997, earnings per share and the
weighted average number of common shares outstanding during 1995 and 1996 have
been restated to reflect the stock split.
The weighted average number of common shares outstanding for basic and diluted
net earnings per share is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Numerator:
Net Income: $1,781,539 $1,859,687 $1,549,936
---------- ---------- ----------
Denominator:
Weighted average common stock outstanding (basic) 2,098,136 1,927,948 1,797,872
Dilutive options adjustment 183,239 204,095 204,766
---------- ---------- ----------
Weighted average common stock outstanding (diluted) 2,281,375 2,132,043 2,002,638
Net income per share:
Basic $ 0.85 $ 0.96 $ 0.86
Diluted $ 0.78 $ 0.87 $ 0.77
</TABLE>
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly data for fiscal year 1997 are presented below:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
September December 31, March 31, June 30,
30, 1996 1996 1997 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Total interest income $ 4,289 $ 4,445 $ 4,433 $ 4,560
Total interest expense (2,508) (2,600) (2,578) (2,679)
------------------- ------------------- ------------------- -------------------
Net interest income 1,781 1,845 1,855 1,881
Provision for loan losses (30) (30) (30) (30)
------------------- ------------------- ------------------- -------------------
Net interest income after provision for
loan losses 1,751 1,815 1,825 1,851
Total noninterest income 237 274 355 370
Total noninterest expense (2,186) (1,215) (1,264) (1,248)
------------------- ------------------- ------------------- -------------------
Income (loss) before income taxes (198) 874 916 973
(Provision) benefit for income taxes 73 (337) (363) (388)
------------------- ------------------- ------------------- -------------------
Net income (loss) $ (125) $ 537 $ 553 $ 585
=================== =================== =================== ===================
Basic earnings (loss) per share $ (0.07) $ 0.30 $ 0.31 $ 0.32
=================== =================== =================== ===================
Diluted earnings (loss) per share $ (0.07) $ 0.27 $ 0.28 $ 0.29
=================== =================== =================== ===================
</TABLE>
F-27
<PAGE> 140
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------- -------------
ASSETS (unaudited)
<S> <C> <C>
Cash and due from depository institutions (including interest-earning deposits
totaling $6,390,000 at March 31, 1998 and $4,468,000 at June 30, 1997) $9,461,110 $7,953,414
Securities available-for-sale 24,944,660 28,154,190
Securities held-to-maturity (approximate fair values of $3,009,000 at March
31, 1998 and $9,004,000 at June 30, 1997) 2,997,448 8,984,323
Stock in Federal Home Loan Bank 3,025,000 3,025,000
Loans receivable, net 187,214,480 190,202,685
Accrued interest receivable 1,492,094 1,465,221
Real estate owned held-for-sale, net 122,948 68,898
Premises and equipment, net 2,109,651 2,231,146
Other assets 482,751 433,019
------------- -------------
Total assets $231,850,142 $242,517,896
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $170,997,600 $171,038,959
Borrowed funds 34,000,000 46,500,000
Advances from borrowers for taxes and insurance 813,012 1,335,474
Accrued expenses and other liabilities 1,216,994 1,352,868
Income tax payable 1,329,492 950,407
------------- -------------
Total liabilities 208,357,098 221,177,708
------------- -------------
Serial preferred stock, $.01 par value;
authorized 800,000 shares; none issued - -
Common stock, $.01 par value:
Authorized, 5,200,000 shares; Issued, 2,149,597 21,496 21,496
Additional paid-in capital 12,174,273 11,910,849
Retained earnings, restricted 15,845,868 14,122,506
Treasury Stock, at cost - 258,189 shares at
March 31, 1998 and 257,789 shares at June 30, 1997 (4,276,694) (4,271,136)
Deferred compensation-Recognition and Retention Plan (RRP) (97,547) (171,176)
Deferred compensation - Employee Stock Ownership Plan (ESOP) (373,260) (461,805)
Unrealized gain (loss) on securities available-for-sale, net of deferred taxes 198,908 189,454
------------- -------------
Total stockholders' equity 23,493,044 21,340,188
------------- -------------
Total liabilities and stockholders' equity $231,850,142 $242,517,896
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
F-28
<PAGE> 141
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $3,585,192 $3,416,230 $10,804,284 $9,932,674
Consumer and other loans 400,122 316,161 1,168,300 930,826
Investment securities held-to-maturity
and securities available-for-sale 248,118 223,037 772,347 852,195
Mortgage-backed securities 328,135 439,133 1,065,972 1,373,331
Other interest-earning assets 44,905 38,651 123,115 78,425
------------ ------------ ------------ ------------
Total Interest Income 4,606,472 4,433,212 13,934,018 13,167,451
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits 1,948,764 1,915,399 6,011,018 5,579,289
Borrowed funds 609,268 662,529 1,881,869 2,106,444
------------ ------------ ------------ ------------
Total Interest expense 2,558,032 2,577,928 7,892,887 7,685,733
------------ ------------ ------------ ------------
Net Interest Income 2,048,440 1,855,284 6,041,131 5,481,718
Provision for loan losses 30,000 30,000 90,000 90,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 2,018,440 1,825,284 5,951,131 5,391,718
------------ ------------ ------------ ------------
NONINTEREST INCOME:
Bank service charges and fees 233,814 163,464 746,417 448,183
Loan servicing fees 46,734 48,189 137,953 147,673
Other 471,169 131,956 804,672 260,622
Income (loss) from real estate owned held-for-sale (483) 11,665 (1,515) 9,570
------------ ------------ ------------ ------------
Total noninterest income 751,234 355,274 1,687,527 866,048
------------ ------------ ------------ ------------
NONINTEREST EXPENSE:
Compensation and benefits 724,910 648,467 2,168,953 1,790,052
Occupancy and equipment 170,748 171,166 511,942 451,512
Federal insurance premiums 27,204 5,820 81,423 1,140,124
Other expense 523,901 439,120 1,515,087 1,283,964
------------ ------------ ------------ ------------
Total noninterest expense 1,446,763 1,264,573 4,277,405 4,665,652
------------ ------------ ------------ ------------
Income before provision for income taxes 1,322,911 915,985 3,361,253 1,592,114
Provision for income taxes 504,081 363,237 1,312,642 627,593
------------ ------------ ------------ ------------
Net Income $818,830 $552,748 $2,048,611 $964,521
============ ============ ============ ============
Net Income per share $0.45 $0.31 $1.13 $0.54
Net Income per share(diluted) $0.42 $0.29 $1.06 $0.51
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
F-29
<PAGE> 142
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, March 31,
1998 1997
-------- --------
(Dollars in Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $2,049 $965
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred loan origination fees (54) (35)
Amortization of premiums and accretion of discounts on
mortgage-backed, investment securities and securities held for sale 46 49
Depreciation 262 255
Provision for loan losses 90 90
Loss(gain) on sale of real estate owned held for sale 0 0
Loss(gain) on sale of securities (558) (60)
Compensation Expense-RRP 66 44
Compensation Expense-ESOP 365 224
Origination of loans receivable originated for sale to FHLMC (14,939) 0
Proceeds from loans receivable originated for sale to FHLMC 14,939 0
Adjustments for (increases) decreases in operating assets
and increases (decreases) in operating liabilities:
Accrued interest and other assets (77) 90
Accrued expenses and other liabilities (136) (70)
Income taxes payable 379 442
-------- --------
Net cash provided by operating activities $2,432 $1,994
-------- --------
INVESTING ACTIVITIES
(Loan origination) and principal payment on loans receivable, net $2,682 ($21,274)
Principal payments on mortgage-backed securities 4,253 4,487
Purchases of:
Securities available-for-sale (3,422) (2,122)
Securities held-to-maturity 0 (2,000)
Proceeds from maturities of:
Securities available-for-sale 500 1,000
Securities held-to-maturity 6,000 4,000
Sales of securities available-for-sale 2,328 785
Purchase of Federal Home Loan Bank stock 0 (925)
Proceeds from sale of real estate owned held-for-sale 17 0
Adjustments for (increases) decreases in premises and equipment 121 (63)
-------- --------
Net cash provided (used) by investing activities $12,479 ($16,112)
-------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
F-30
<PAGE> 143
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Net increase (decrease) in deposits ($41) $16,896
Net increase (decrease) in borrowed funds (12,500) 3,000
Net increase (decrease) in advances from borrowers
for taxes and insurance (522) (433)
Acquisition of treasury stock 0 (941)
Dividends (340) (312)
-------- --------
Net cash provided (used) by financing activities ($13,403) $18,210
-------- --------
Net increase (decrease) in cash and cash equivalents 1,508 4,092
-------- --------
Cash and cash equivalents at beginning of the period 7,953 2,973
-------- --------
Cash and cash equivalents at end of the period $9,461 $7,065
======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest $8,018 $7,093
======== ========
Income taxes $940 $269
======== ========
Non-cash transactions:
Transfers from loans receivable to
real estate owned held-for-sale $115 $40
======== ========
Transfers from real estate owned held-
for-sale to loans receivable $26 $0
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (unaudited)
F-31
<PAGE> 144
CAPITAL SAVINGS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation have been
included. The results of operations and other data for the three and
nine months ended March 31, 1998 are not necessarily indicative of
results that may be expected for the entire fiscal year ending June
30, 1998.
The unaudited consolidated financial statements include the amounts
of Capital Savings Bancorp, Inc. (the "Company") and its
wholly-owned subsidiary, Capital Savings Bank, FSB (the "Bank") and
the Bank's wholly-owned subsidiary, Capital Savings Financial
Services, Inc. ("CSFS") for the three and nine months ended March
31, 1998. Material intercompany accounts and transactions have been
eliminated in consolidation.
(2) BENEFIT PLANS
The Bank established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with its conversion from
mutual to stock form (the "Conversion"). The ESOP borrowed $938,400
from the Company and purchased 93,840 common shares issued in the
Conversion, subsequently adjusted to reflect the 2-for-1 stock split
in the form of 100% stock dividend completed on November 22, 1996.
The Bank is expected to make scheduled discretionary cash
contributions to the ESOP sufficient to service the amount borrowed.
At March 31, 1998, the remaining balance of the ESOP loan was
$411,000 ($938,400 in proceeds from stock issued by the Company less
the principal payments made by the Bank) and is reflected in the
accompanying consolidated financial statements as a charge to
unearned compensation and a credit to common stock and paid- in
capital. The unamortized balance of unearned compensation is shown
as a deduction to stockholders' equity. The unpaid balance of the
ESOP loan is eliminated in consolidation.
The Company has established a Recognition and Retention Plan ("RRP")
which may award up to 46,920 shares of Company common stock to
officers, directors and other employees of the Company and the Bank.
On December 28, 1993, 38,589 shares of common stock were awarded
pursuant to the RRP. All shares were awarded to directors and
officers of the Company and the Bank, and vest at a rate of 20% per
calendar year. The number of shares were adjusted for the November
22, 1996 stock dividend. On December 19, 1996, an additional 15,800
shares of common stock were awarded to directors, officers and
certain employees of the Company and the Bank, and also vest at a
rate of 20% per calendar year beginning January 1, 1998. The
aggregate purchase price of these shares will be amortized as
compensation expense over the participants' vesting period.
The Company has also adopted a stock option plan for the benefit of
directors, officers, and other key employees of the Company and the
Bank. The number of shares of common stock reserved for issuance
under the stock option plan is 117,300. On December 28, 1993,
options to purchase 87,388 shares of common stock were granted to
directors and certain officers of the Company and the Bank at an
exercise price of $10.00 per share. As of March 31, 1998, all
options awarded December 28, 1993 have vested. The number of shares
and the exercise price were adjusted for the November 22, 1996 stock
dividend. On December 19, 1996, options to purchase 47,300 shares of
common stock were granted to directors, certain officers, and
certain employees of the Company and the Bank at an exercise price
of $13.44 per share. The maximum option term cannot exceed ten
years.
F-32
<PAGE> 145
(3) EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." This Statement establishes standards
for computing and presenting earnings per share ("EPS") and applies
to entities with publicly held common stock. This statement
simplifies the standards for computing EPS previously found in APB
Opinion No. 15 "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The
Company adopted SFAS 128 in the quarter ended December 31, 1997.
Treasury stock and uncommitted ESOP shares are excluded from
weighted average number of common shares outstanding.
(4) STOCK REPURCHASE PROGRAM
As of March 31, 1998 the Company had repurchased a total of 273,589
shares of its common stock. The repurchased shares have become
treasury shares available for general corporate purposes, including
the funding of stock options and RRPs.
(5) COMMITMENTS AND CONTINGENCIES
Commitments to originate mortgage loans of $1.9 million (of which
$650,000 were adjustable-rate commitments) at March 31, 1998
represent amounts which the Company plans to fund within the normal
commitment period of sixty to ninety days. As of March 31, 1998, the
Company did not have any commitments to purchase mortgage-backed
securities.
The Company also offers home equity lines of credit to its
customers. At March 31, 1998 the lines of credit totalled $9.8
million, of which $4.2 million was outstanding and $5.6 million was
committed but not outstanding.
(6) SUBSEQUENT EVENTS
The Company declared a cash dividend of 6.0 cents per share for the
quarter ended March 31, 1998. The cash dividend is payable to
stockholders of record as of May 8, 1998, and will be paid on May
18, 1998.
F-33
<PAGE> 146
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
CAPITAL SAVINGS BANCORP, INC.
AND
UNION PLANTERS CORPORATION
DATED AS OF NOVEMBER 25, 1997
A-1
<PAGE> 147
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Parties................................................................. A-7
Preamble................................................................ A-7
ARTICLE 1 - TRANSACTIONS AND TERMS OF MERGER............................ A-7
1.1 Merger.......................................................... A-7
1.2 Time and Place of Closing....................................... A-7
1.3 Effective Time.................................................. A-8
1.4 Execution of Stock Option Agreement............................. A-8
1.5 Restructure of Transaction...................................... A-8
ARTICLE 2 - TERMS OF MERGER............................................. A-8
2.1 Charter......................................................... A-8
2.2 By-laws......................................................... A-8
2.3 Directors and Officers.......................................... A-8
ARTICLE 3 - MANNER OF CONVERTING SHARES................................. A-9
3.1 Conversion of Shares............................................ A-9
3.2 Anti-Dilution Provisions........................................ A-9
3.3 Shares Held by Capital or UPC................................... A-9
3.4 Fractional Shares............................................... A-9
3.5 Conversion of Stock Options..................................... A-9
ARTICLE 4 - EXCHANGE OF SHARES.......................................... A-10
4.1 Exchange Procedures............................................. A-10
4.2 Rights of Former Capital Shareholders........................... A-11
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF CAPITAL................... A-11
5.1 Organization, Standing, and Power............................... A-11
5.2 Authority; No Breach By Agreement............................... A-11
5.3 Capital Stock................................................... A-12
5.4 Capital Subsidiaries............................................ A-12
5.5 SEC Filings; Financial Statements............................... A-13
5.6 Absence of Undisclosed Liabilities.............................. A-13
5.7 Absence of Certain Changes or Events............................ A-14
5.8 Tax Matters..................................................... A-14
5.9 Allowance for Possible Loan Losses.............................. A-15
5.10 Assets.......................................................... A-15
5.11 Intellectual Property........................................... A-15
5.12 Environmental Matters........................................... A-15
5.13 Compliance With Laws............................................ A-16
5.14 Labor Relations................................................. A-16
5.15 Employee Benefit Plans.......................................... A-17
5.16 Material Contracts.............................................. A-18
5.17 Legal Proceedings............................................... A-18
5.18 Reports......................................................... A-19
5.19 Statements True and Correct..................................... A1-9
5.20 Accounting, Tax, and Regulatory Matters......................... A-19
5.21 State Takeover Laws............................................. A-19
5.22 Charter Provisions.............................................. A-19
ARTICL - REPRESENTATIONS AND WARRANTIES OF UPC.......................... A-20
6.1 Organization, Standing, and Power............................... A-20
6.2 Authority; No Breach By Agreement............................... A-20
6.3 Capital Stock................................................... A-20
6.4 UPC Subsidiaries................................................ A-21
6.5 SEC Filings; Financial Statements............................... A-21
6.6 Absence of Undisclosed Liabilities.............................. A-22
6.7 Absence of Certain Changes or Events............................ A-22
</TABLE>
A-2
<PAGE> 148
<TABLE>
<S> <C>
6.8 Tax Matters .................................................... A-22
6.9 Environmental Matters........................................... A-22
6.10 Compliance With Laws............................................ A-23
6.11 Legal Proceedings............................................... A-23
6.12 Reports......................................................... A-23
6.13 Statements True and Correct..................................... A-23
6.14 Accounting, Tax, and Regulatory Matters......................... A-24
ARTICLE 7 - CONDUCT OF BUSINESS PENDING CONSUMMATION.................... A-24
7.1 Affirmative Covenants of Capital................................ A-24
7.2 Negative Covenants of Capital................................... A-24
7.3 Covenants of UPC................................................ A-26
7.4 Adverse Changes in Condition.................................... A-26
7.5 Reports......................................................... A-26
ARTICLE 8 - ADDITIONAL AGREEMENTS....................................... A-27
8.1 Registration Statement; Proxy Statement; Shareholder Approval... A-27
8.2 Exchange Listing................................................ A-27
8.3 Applications.................................................... A-27
8.4 Filings with State Offices...................................... A-27
8.5 Agreement as to Efforts to Consummate........................... A-27
8.6 Investigation and Confidentiality............................... A-28
8.7 Press Releases.................................................. A-28
8.8 Certain Actions................................................. A-28
8.9 Accounting and Tax Treatment.................................... A-28
8.10 State Takeover Laws............................................. A-28
8.11 Charter Provisions.............................................. A-29
8.12 Agreements of Affiliates........................................ A-29
8.13 Employee Benefits and Contracts................................. A-29
8.14 Indemnification................................................. A-29
8.15 Corporate Actions of Holding.................................... A-30
ARTICLE 9 - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........... A-30
9.1 Conditions to Obligations of Each Party......................... A-30
9.2 Conditions to Obligations of UPC................................ A-31
9.3 Conditions to Obligations of Capital............................ A-32
ARTICLE 10 - TERMINATION................................................ A-33
10.1 Termination..................................................... A-33
10.2 Effect of Termination........................................... A-35
10.3 Non-Survival of Representations and Covenants................... A-35
ARTICLE 11 - MISCELLANEOUS.............................................. A-36
11.1 Definitions..................................................... A-36
11.2 Expenses........................................................ A-42
11.3 Brokers and Finders............................................. A-42
11.4 Entire Agreement................................................ A-42
11.5 Amendments...................................................... A-42
11.6 Waivers......................................................... A-43
11.7 Assignment...................................................... A-43
11.8 Notices......................................................... A-43
11.9 Governing Law................................................... A-44
11.11 Counterparts.................................................... A-44
11.11 Captions........................................................ A-44
11.12 Interpretations................................................. A-44
11.13 Enforcement of Agreement........................................ A-44
11.14 Severability.................................................... A-44
Signatures............................................................... A-45
</TABLE>
A-3
<PAGE> 149
LIST OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION
1. Plan of Merger. (Section 1.1).
2. Form of Stock Option Agreement. (Sections 1.4, 11.1).
3. Form of agreement of affiliates of Capital.
(Sections 8.12, 9.2(d)).
4. Form of Supplemental Letter. (Sections 7.2, 11.1).
A-4
<PAGE> 150
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of November 25, 1997, by and between CAPITAL SAVINGS
BANCORP, INC. ("Capital"), a Delaware corporation having its principal office
located in Jefferson City, Missouri; and UNION PLANTERS CORPORATION ("UPC"), a
Tennessee corporation having its principal office located in Memphis, Tennessee.
PREAMBLE
The Boards of Directors of Capital and UPC are of the opinion that
the transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the acquisition of
Capital by UPC pursuant to the merger of Capital with and into Union Planters
Holding Corporation, a wholly owned, first-tier subsidiary of UPC organized and
existing under the Laws of the State of Tennessee (" Holding"). At the effective
time of such merger, the outstanding shares of the common stock of Capital shall
be converted into the right to receive shares of the common stock of UPC (except
as provided in Sections 3.3 and 3.4 of this Agreement). As a result,
shareholders of Capital shall become shareholders of UPC and Holding shall
continue to conduct the business and operations of Capital as a wholly owned
subsidiary of UPC. The transactions described in this Agreement are subject to
the approvals of the shareholders of Capital, the Board of Governors of the
Federal Reserve System, and other applicable federal and state regulatory
authorities, and the satisfaction of certain other conditions described in this
Agreement. It is the intention of the parties to this Agreement that the Merger
for federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code, and for accounting
purposes shall qualify for treatment as a pooling of interests.
Immediately after the execution and delivery of this Agreement, as a
condition and inducement to UPC's willingness to enter into this Agreement,
Capital and UPC are entering into a stock option agreement pursuant to which
Capital is granting to UPC an option to purchase shares of Capital Common Stock.
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time, Capital shall be merged with and into Holding in
accordance with the provisions of Section 252 of the DGCL and with the effect
provided in Section 259 of the DGCL and in accordance with the provisions of
48-21-109 of the TBCA with the effect provided in Section 48-21-108 of the TBCA
(the "Merger"). Holding shall be the Surviving Corporation resulting from the
Merger and shall continue to be governed by the Laws of the State of Tennessee.
The Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of Capital
and UPC and the Plan of Merger, in substantially the form of Exhibit 1, which
has been approved and adopted by the Board of Directors of Capital and will be
approved and adopted by the Board of Directors of Holding and UPC (in its
capacity as sole shareholder of Holding).
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at 9:00
A.M. on the date that the Effective Time occurs (or the immediately preceding
day if the Effective Time is earlier than 9:00 A.M.), or at such other time as
the Parties, acting through their chief executive officers or chief financial
officers, may mutually agree. The Closing shall be held at such place as may be
mutually agreed upon by the Parties.
A-5
<PAGE> 151
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective on the date and at the time the
Certificate of Merger reflecting the Merger shall become effective with the
Secretary of State of the State of Delaware and the Articles of Merger
reflecting the Merger shall become effective with the Secretary of State of the
State of Tennessee (the "Effective Time"). Subject to the terms and conditions
hereof, unless otherwise mutually agreed upon in writing by the chief executive
officers or chief financial officers of each Party, the Parties shall use their
reasonable efforts to cause the Effective Time to occur on such date as may be
designated by UPC within 30 days following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required Consent of any Regulatory Authority having authority over and
approving or exempting the Merger, (ii) the date on which the shareholders of
Capital approve this Agreement and the Plan of Merger as required by applicable
Law, and (iii) the date on which all other conditions precedent to each Party's
obligations hereunder shall have been satisfied or waived (to the extent
waivable by such Party).
1.4 EXECUTION OF STOCK OPTION AGREEMENT. Simultaneously with the
execution of this Agreement by the Parties and as a condition thereto, Capital
is executing and delivering to UPC a stock option agreement (the "Stock Option
Agreement"), in substantially the form of Exhibit 2, pursuant to which Capital
is granting to UPC an option to purchase shares of Capital Common Stock.
1.5 RESTRUCTURE OF TRANSACTION. UPC shall, in its reasonable
discretion, have the unilateral right to revise the structure of the Merger
contemplated by this Agreement in order to achieve tax benefits or for any other
reason which UPC may deem advisable; provided, however, that UPC shall not have
the right, without the approval of the Board of Directors of Capital, to make
any revision to the structure of the Merger which: (i) changes the amount of the
consideration which the holders of shares of Capital Common Stock are entitled
to receive (determined in the manner provided in Section 3.1 of this Agreement);
(ii) changes the intended tax-free effects of the Merger to UPC or the holders
of shares of Capital Common Stock; (iii) would permit UPC to pay the
consideration other than by delivery of UPC Common Stock registered with the SEC
(in the manner described in Section 4.1 of this Agreement); (iv) would be
materially adverse to the interests of Capital or holders of shares of Capital
Common Stock; (v) would unreasonably impede or delay consummation of the Merger;
or (vi) would affect any of the provisions in Sections 8.13 or 8.14 of this
Agreement. UPC may exercise this right of revision by giving written notice to
Capital in the manner provided in Section 11.8 of this Agreement which notice
shall be in the form of an amendment to this Agreement or in the form of an
Amended and Restated Agreement and Plan of Merger.
ARTICLE 2
TERMS OF MERGER
2.1 CHARTER. The Charter of Holding in effect immediately prior to
the Effective Time shall be the Charter of the Surviving Corporation until
otherwise amended or repealed.
2.2 BY-LAWS. The By-laws of Holding in effect immediately prior to
the Effective Time shall be the By-laws of the Surviving Corporation until
otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of Holding in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the By-laws of
the Surviving Corporation. The officers of Holding in office immediately prior
to the Effective Time, together with such additional persons as may thereafter
be elected, shall serve as the officers of the Surviving Corporation from and
after the Effective Time in accordance with the By-laws of the Surviving
Corporation.
A-6
<PAGE> 152
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article
3, at the Effective Time, by virtue of the Merger and without any action on the
part of UPC, Holding, Capital, or the shareholders of any of the foregoing, the
shares of the constituent corporations shall be converted as follows:
(a) Each share of UPC Capital Stock, including any associated UPC
Rights, issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding from and after the Effective Time.
(b) Each share of Holding Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(c) Each share of Capital Common Stock (excluding shares held by any
Capital Company or by UPC or any of its Subsidiaries, in each case other
than in a fiduciary capacity or as a result of debts previously contracted)
issued and outstanding at the Effective Time shall cease to be outstanding
and shall be converted into and exchanged for the right to receive .3812 of
a share of UPC Common Stock (as subject to possible adjustment as set forth
in Section 10.1(g) of this Agreement, the "Exchange Ratio"). Pursuant to
the UPC Rights Agreement, each share of UPC Common Stock issued in
connection with the Merger upon conversion of Capital Common Stock shall be
accompanied by a UPC Right.
3.2 ANTI-DILUTION PROVISIONS. In the event UPC changes the number of
shares of UPC Common Stock issued and outstanding prior to the Effective Time as
a result of a stock split, stock dividend, or similar recapitalization with
respect to such stock and the record date therefor (in the case of a stock
dividend) or the effective date thereof (in the case of a stock split or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the Exchange Ratio shall be proportionately adjusted.
3.3 SHARES HELD BY CAPITAL OR UPC. Each of the shares of Capital
Common Stock held by any Capital Company or by any UPC Company, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Capital Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of UPC Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of UPC Common Stock multiplied
by the market value of one share of UPC Common Stock at the Effective Time. The
market value of one share of UPC Common Stock at the Effective Time shall be the
closing price of such common stock on the NYSE (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source selected by
UPC) on the last trading day preceding the Effective Time. No such holder will
be entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
3.5 CONVERSION OF STOCK OPTIONS.
(a) At the Effective Time, each option to purchase or other
right with respect to shares of Capital Common Stock pursuant to stock options,
stock appreciation rights or other rights, including stock awards ("Capital
Options") granted by Capital under the Capital Stock Plans, which are
outstanding at the Effective Time, whether or not exercisable, shall be
converted into and become rights with respect to UPC Common Stock, and UPC shall
assume each Capital Option, in accordance with the terms of the Capital Stock
Plan and stock option or other agreement by which it is evidenced, except that
from and after the Effective Time, (i) UPC and its Salary and Benefits Committee
shall be substituted for Capital and the Committee of Capital's Board of
Directors (including, if applicable, the entire Board of Directors of Capital)
or other independent
A-7
<PAGE> 153
committee administering such Capital Stock Plan, (ii) each Capital Option
assumed by UPC may be exercised solely for shares of UPC Common Stock (or cash
in the case of stock appreciation rights), (iii) the number of shares of UPC
Common Stock subject to such Capital Option shall be equal to the number of
shares of Capital Common Stock subject to such Capital Option immediately prior
to the Effective Time multiplied by the Exchange Ratio and rounding down to the
nearest whole share, and (iv) the per share exercise price under each such
Capital Option shall be adjusted by dividing the per share exercise price under
each such Capital Option by the Exchange Ratio and rounding up to the nearest
cent. Notwithstanding the clauses (iii) and (iv) of the first sentence of this
Section 3.5, each Capital Option which is an "incentive stock option" shall be
adjusted as required by Section 424 of the Internal Revenue Code, and the
regulations promulgated thereunder, so as not to constitute a modification,
extension or renewal of the option, within the meaning of Section 424(h) of the
Internal Revenue Code. UPC and Capital agree to take all necessary steps to
effectuate the foregoing provisions of this Section 3.5.
(b) As soon as practicable after the Effective Time, UPC shall
deliver to the participants in each Capital Stock Plan an appropriate notice
setting forth such participant's rights pursuant thereto and the grants subject
to such Capital Stock Plan shall continue in effect on the same terms and
conditions (subject to the adjustments required by Section 3.5(a) after giving
effect to the Merger), and UPC shall comply with the terms of each Capital Stock
Plan to ensure, to the extent required by, and subject to the provisions of,
such Capital Stock Plan, that Capital Options which qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time. Within 30 days after the Effective Time, UPC
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of UPC
Common Stock subject to such options and shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
(c) In approving this Agreement, Capital and the Committee
appointed by the Board of Directors of Capital in accordance with paragraph 3 of
the Capital Bancorp 1993 Stock Option and Incentive Plan agree not to permit the
holders of options outstanding under such plan to receive cash upon the Merger
in an amount equal to the excess of the "Market Value" of the Capital Common
Stock subject to such option over the "Exercise Price" of the shares subject to
such option in accordance with Section 13 of the Capital Bancorp 1993 Stock
Option and Incentive Plan.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, UPC and
Capital shall cause the exchange agent selected by UPC (the "Exchange Agent") to
mail to the former shareholders of Capital appropriate transmittal materials
(which shall specify that delivery shall be effected, and risk of loss and title
to the certificates theretofore representing shares of Capital Common Stock
shall pass, only upon proper delivery of such certificates to the Exchange
Agent). The Exchange Agent may establish reasonable and customary rules and
procedures in connection with its duties. After the Effective Time, each holder
of shares of Capital Common Stock (other than shares to be canceled pursuant to
Section 3.3 of this Agreement) issued and outstanding at the Effective Time
shall surrender the certificate or certificates representing such shares to the
Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1 of this Agreement, together
with all undelivered dividends or distributions in respect of such shares
(without interest thereon) pursuant to Section 4.2 of this Agreement. To the
extent required by Section 3.4 of this Agreement, each holder of shares of
Capital Common Stock issued and outstanding at the Effective Time also shall
receive, upon surrender of the certificate or certificates representing such
shares, cash in lieu of any fractional share of UPC Common Stock to which such
holder may be otherwise entitled (without interest). UPC shall not be obligated
to deliver the consideration to which any former holder of Capital Common Stock
is entitled as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing the shares of Capital Common Stock for
exchange as provided in this Section 4.1. The certificate or certificates of
Capital Common Stock so surrendered shall be duly endorsed as the Exchange Agent
may require. Any other provision of this Agreement notwithstanding, neither UPC
nor the Exchange Agent shall be liable to a holder of Capital Common Stock for
any
A-8
<PAGE> 154
amounts paid or property delivered in good faith to a public official pursuant
to any applicable abandoned property Law. Adoption of this Agreement by the
shareholders of Capital shall constitute ratification of the appointment of the
Exchange Agent.
4.2 RIGHTS OF FORMER CAPITAL SHAREHOLDERS. At the Effective Time,
the stock transfer books of Capital shall be closed as to holders of Capital
Common Stock immediately prior to the Effective Time and no transfer of Capital
Common Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of Capital
Common Stock (other than shares to be canceled pursuant to Section 3.3 of this
Agreement) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 3.1 and 3.4 of
this Agreement in exchange therefor, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which have been declared or made
by Capital in respect of such shares of Capital Common Stock in accordance with
the terms of this Agreement and which remain unpaid at the Effective Time.
Whenever a dividend or other distribution is declared by UPC on the UPC Common
Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares of UPC
Common Stock issuable pursuant to this Agreement, but beginning 30 days after
the Effective Time no dividend or other distribution payable to the holders of
record of UPC Common Stock as of any time subsequent to the Effective Time shall
be delivered to the holder of any certificate representing shares of Capital
Common Stock issued and outstanding at the Effective Time until such holder
surrenders such certificate for exchange as provided in Section 4.1 of this
Agreement. However, upon surrender of such Capital Common Stock certificate,
both the UPC Common Stock certificate (together with all such undelivered
dividends or other distributions without interest) and any undelivered dividends
and cash payments payable hereunder (without interest) shall be delivered and
paid with respect to each share represented by such certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CAPITAL
Capital hereby represents and warrants to UPC as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Capital is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Delaware, and has the corporate power and authority to carry on its business as
now conducted and to own, lease, and operate its Assets. Capital is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Capital.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Capital has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and the Plan
of Merger and to consummate the transactions contemplated hereby and thereby.
The execution, delivery, and performance of this Agreement and the Plan of
Merger, as appropriate, and the consummation of the transactions contemplated
herein and therein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Capital,
subject to the approval of this Agreement and the Plan of Merger by the holders
of a majority of the outstanding shares of Capital Common Stock, which is the
only shareholder vote required for approval of this Agreement and the Plan of
Merger and consummation of the Merger by Capital. Subject to such requisite
shareholder approval, this Agreement and the Plan of Merger (which for purposes
of this sentence shall not include the Stock Option Agreement) represent legal,
valid, and binding obligations of Capital, enforceable against Capital in
accordance with their respective terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the
A-9
<PAGE> 155
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(b) Except as set forth in Section 5.2 of the Capital
Disclosure Memorandum, neither the execution and delivery of this Agreement or
the Plan of Merger, as appropriate, by Capital, nor the consummation by Capital
of the transactions contemplated hereby or thereby, nor compliance by Capital
with any of the provisions hereof or thereof, will (i) conflict with or result
in a breach of any provision of Capital's Certificate of Incorporation or
By-laws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any material Asset of any
Capital Company under, any Contract or Permit of any Capital Company, other than
Defaults that are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Capital, or (iii) subject to receipt of
the requisite Consents referred to in Section 9.1(b) of this Agreement, violate
any Law or Order applicable to any Capital Company or any of their respective
material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from Regulatory Authorities,
and other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Capital, no notice to, filing with,
or Consent of, any public body or authority is necessary for the consummation by
Capital of the Merger and the other transactions contemplated in this Agreement
and the Plan of Merger.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of Capital consists of (i)
5,200,000 shares of Capital Common Stock, of which 1,891,800 shares are issued
and outstanding as of the date of this Agreement (exclusive of treasury shares)
and not more than 2,102,146 shares will be issued and outstanding at the
Effective Time and (ii) 800,000 shares of Capital preferred stock, none of which
is outstanding. All of the issued and outstanding shares of capital stock of
Capital are duly and validly issued and outstanding and are fully paid and
nonassessable under the DGCL. None of the outstanding shares of capital stock of
Capital has been issued in violation of any preemptive rights of the current or
past shareholders of Capital. Capital has reserved 234,600 shares of Capital
Common Stock for issuance under the Capital Stock Plans, pursuant to which
options to purchase not more than 210,346 shares of Capital Common Stock are
outstanding.
(b) Except as set forth in Section 5.3(a) of this Agreement,
or as provided in the Stock Option Agreement, there are no shares of capital
stock or other equity securities of Capital outstanding and no outstanding
Rights relating to the capital stock of Capital.
5.4 CAPITAL SUBSIDIARIES. Capital has disclosed in Section 5.4 of
the Capital Disclosure Memorandum all of the Capital Subsidiaries that are
corporations (identifying its jurisdiction of incorporation, each jurisdiction
in which the character of its Assets or the nature or conduct of its business
requires it to be qualified and/or licensed to transact business, and the number
of shares owned and percentage ownership interest represented by such share
ownership) and all of the Capital Subsidiaries that are general or limited
partnerships or other non-corporate entities (identifying the Law under which
such entity is organized, each jurisdiction in which character of its Assets or
the nature or conduct of its business requires it to be qualified and/or
licensed to transact business, and the amount and nature of the ownership
interest therein of all Capital Companies). Capital or one of its wholly owned
Subsidiaries owns all of the issued and outstanding shares of capital stock (or
other equity interests) of each Capital Subsidiary. No capital stock (or other
equity interest) of any Capital Subsidiary is or may become required to be
issued (other than to another Capital Company) by reason of any Rights, and
there are no Contracts by which any Capital Subsidiary is bound to issue (other
than to another Capital Company) additional shares of its capital stock (or
other equity interests) or Rights or by which any Capital Company is or
A-10
<PAGE> 156
may be bound to transfer any shares of the capital stock (or other equity
interests) of any Capital Subsidiary (other than to another Capital Company).
There are no Contracts relating to the rights of any Capital Company to vote or
to dispose of any shares of the capital stock (or other equity interests) of any
Capital Subsidiary. All of the shares of capital stock (or other equity
interests) of each Capital Subsidiary held by a Capital Company are fully paid
and nonassessable under the applicable corporation or similar Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are owned
by the Capital Company free and clear of any Lien. Each Capital Subsidiary is
either a bank, a savings association, partnership, limited liability
corporation, or a corporation, and each such Subsidiary is duly organized,
validly existing, and (as to corporations) in good standing under the Laws of
the jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease, and operate its Assets and
to carry on its business as now conducted. Each Capital Subsidiary is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Capital. The only Capital
Subsidiary that is a depository institution is Capital Savings. Capital Savings
is an "insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder, and the deposits in which are insured by the
Savings Association Insurance Fund. The minute book and other organizational
documents for each Capital Subsidiary have been made available to UPC for its
review, and are true and complete as in effect as of the date of this Agreement
and accurately reflect all amendments thereto and all proceedings of the Board
of Directors and shareholders thereof.
5.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Capital has filed and made available to UPC all SEC
Documents required to be filed by Capital since September 30, 1993 (the "Capital
SEC Reports"). The Capital SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not, at the time they were filed (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Capital SEC Reports or necessary in order to make
the statements in such Capital SEC Reports, in light of the circumstances under
which they were made, not misleading. None of Capital's Subsidiaries is required
to file any SEC Documents.
(b) Each of the Capital Financial Statements (including, in
each case, any related notes) contained in the Capital SEC Reports, including
any Capital SEC Reports filed after the date of this Agreement until the
Effective Time, complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited interim statements, as permitted by Form 10-QSB of
the SEC), and fairly presented in all material respects the consolidated
financial position of Capital and its Subsidiaries as at the respective dates
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount or effect.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Capital Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Capital, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of Capital as of
June 30, 1997, included in the Capital Financial Statements made available prior
to the date of this Agreement or reflected in the notes thereto. No Capital
Company has incurred or paid any Liability since June 30, 1997, except for such
Liabilities incurred or paid (i) in the ordinary course of business consistent
with past business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Capital or (ii)
in connection with the transactions contemplated by this Agreement.
A-11
<PAGE> 157
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997,
except as disclosed in the Capital Financial Statements made available prior to
the date of this Agreement, (i) there have been no events, changes, or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Capital, and (ii) the Capital
Companies have not taken any action, or failed to take any action, prior to the
date of this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of Capital contained in this Agreement.
5.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
any of the Capital Companies have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1996, and on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, and, to the Knowledge of
Capital, all Tax Returns filed are complete and accurate. All Taxes shown on
filed Tax Returns have been paid. There is no audit examination, deficiency, or
refund Litigation with respect to any Taxes, except as reserved against in the
Capital Financial Statements made available prior to the date of this Agreement.
All Taxes and other Liabilities due with respect to completed and settled
examinations or concluded Litigation have been paid. There are no Liens with
respect to Taxes upon any of the Assets of the Capital Companies.
(b) None of the Capital Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due (excluding such statutes that relate to years currently under examination by
the Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the Capital Companies for the period or periods through and including the
date of the respective Capital Financial Statements has been made and is
reflected on such Capital Financial Statements.
(d) Deferred Taxes of the Capital Companies have been
provided for in accordance with GAAP.
(e) To the Knowledge of Capital, each of the Capital Companies
is in compliance with, and its records contain all information and documents
(including properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and Tax withholding requirements under federal,
state, and local Tax Laws, and such records identify with specificity all
accounts subject to backup withholding under Section 3406 of the Internal
Revenue Code.
(f) Except as set forth in Section 5.8 of the Capital
Disclosure Memorandum, none of the Capital Companies has made any payments, is
obligated to make any payments, or is a party to any Contract that could
obligate it to make any payments that would be disallowed as a deduction under
Section 280G or 162(m) of the Internal Revenue Code.
(g) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of the Capital Companies that occurred
during or after any Taxable Period in which the Companies incurred a net
operating loss that carries over to any Taxable Period ending after December 31,
1996.
(h) Except as set forth in Section 5.8 of the Capital
Disclosure Memorandum, none of the Capital Companies is a party to any tax
allocation or sharing agreement and none of the Capital Companies has been a
member of an affiliated group filing a consolidated federal income tax return
(other than a group the common parent of which was Capital) has any Liability
for taxes of any Person (other than Capital and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law) as a transferee or successor or by Contract or otherwise.
A-12
<PAGE> 158
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan or credit losses (the "Allowance") shown on the consolidated balance sheets
of Capital included in the most recent Capital Financial Statements dated prior
to the date of this Agreement was, and the Allowance shown on the consolidated
balance sheets of Capital included in the Capital Financial Statements as of
dates subsequent to the execution of this Agreement will be, as of the dates
thereof, in the reasonable opinion of management of Capital adequate (within the
meaning of GAAP and applicable regulatory requirements or guidelines) to provide
for all known and reasonably anticipated losses relating to or inherent in the
loan and lease portfolios (including accrued interest receivables) of the
Capital Companies and other extensions of credit (including letters of credit
and commitments to make loans or extend credit) by the Capital Companies as of
the dates thereof.
5.10 ASSETS. Except as disclosed or reserved against in the Capital
Financial Statements made available prior to the date of this Agreement or in
Section 5.10 of the Capital Disclosure Memorandum, the Capital Companies have
good and marketable title, free and clear of all material Liens, to all of their
respective Assets. All tangible properties used in the businesses of the Capital
Companies are in good condition, reasonable wear and tear excepted, and are
usable in the ordinary course of business consistent with Capital's past
practices. All Assets which are material to Capital's business on a consolidated
basis, held under leases or subleases by any of the Capital Companies, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be brought), and each such
Contract is in full force and effect. To the Knowledge of Capital, the Capital
Companies currently maintain insurance similar in amounts, scope, and coverage
to that maintained by other peer banking organizations. None of the Capital
Companies has received notice from any insurance carrier that (i) such insurance
will be canceled or that coverage thereunder will be reduced or eliminated, or
(ii) premium costs with respect to such policies of insurance will be
substantially increased. There are presently no claims pending under any such
policies of insurance and no notices have been given by any Capital Company
under such policies, except for routine claims, none of which is material, or as
disclosed in Section 5.17 of the Capital Disclosure Memorandum.
5.11 INTELLECTUAL PROPERTY. All of the Intellectual Property rights
of the Capital Companies are in full force and effect and constitute legal,
valid, and binding obligations of the respective parties thereto, and there have
not been, and, to the Knowledge of Capital, there currently are not, any
Defaults thereunder by Capital. A Capital Company owns or is the valid licensee
of all such Intellectual Property rights free and clear of all Liens or claims
of infringement. None of the Capital Companies or, to the Knowledge of Capital,
their respective predecessors has misused the Intellectual Property rights of
others and, to the Knowledge of Capital, none of the Intellectual Property
rights as used in the business conducted by any such Capital Company infringes
upon or otherwise violates the rights of any Person, nor has any Person asserted
a claim of such infringement. To the Knowledge of Capital, no Capital Company is
obligated to pay any royalties to any Person with respect to any such
Intellectual Property. To the Knowledge of Capital, each Capital Company owns or
has the valid right to use all of the Intellectual Property rights which it is
presently using, or in connection with performance of any material Contract to
which it is a party. No officer, director, or employee of any Capital Company is
party to any Contract which requires such officer, director or employee to
assign any interest in any Intellectual Property or keep confidential any trade
secrets, proprietary data, customer information, or other business information,
which restricts or prohibits such officer, director, or employee from engaging
in activities competitive with any Person, including any Capital Company.
5.12 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.12
of the Capital Disclosure Memorandum:
(a) To the Knowledge of Capital, each Capital Company, its
Participation Facilities, and its Operating Properties are, and have been, in
compliance with all Environmental Laws, except for
A-13
<PAGE> 159
violations which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Capital.
(b) To the Knowledge of Capital, there is no Litigation
pending or threatened before any court, governmental agency, or authority or
other forum in which any Capital Company or any of its Operating Properties or
Participation Facilities (or Capital in respect of such Operating Property or
Participation Facility) has been or, with respect to threatened Litigation, may
be named as a defendant (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release into the
environment of any Hazardous Material, whether or not occurring at, on, under,
adjacent to, or affecting (or potentially affecting) a site owned, leased, or
operated by any Capital Company or any of its Operating Properties or
Participation Facilities, except for such Litigation pending or threatened that
is not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Capital, nor is there any reasonable basis for any Litigation
of a type described in this sentence.
(c) During the period of (i) any Capital Company's ownership
or operation of any of their respective current properties, (ii) any Capital
Company's participation in the management of any Participation Facility, or
(iii) any Capital Company's holding of a security interest in a Operating
Property, to the Knowledge of Capital, there have been no releases of Hazardous
Material in, on, under, adjacent to, or affecting (or potentially affecting)
such properties, except such as are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Capital. Prior to the period
of (i) any Capital Company's ownership or operation of any of their respective
current properties, (ii) any Capital Company's participation in the management
of any Participation Facility, or (iii) any Capital Company's holding of a
security interest in a Operating Property, to the Knowledge of Capital, there
were no releases of Hazardous Material in, on, under, or affecting any such
property, Participation Facility or Operating Property, except such as are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Capital.
5.13 COMPLIANCE WITH LAWS. Capital is duly registered as a savings
and loan holding company under the HOLA. Each Capital Company has in effect all
Permits necessary for it to own, lease, or operate its material Assets and to
carry on its business as now conducted, and there has occurred no Default under
any such Permit. None of the Capital Companies:
(a) to the Knowledge of Capital, is in violation of any
material Laws, Orders, or Permits applicable to its business or employees
conducting its business; and
(b) except as reflected in regulatory examination reports, has
received any notification or communication from any agency or department of
federal, state, or local government or any Regulatory Authority or the
staff thereof (i) asserting that any Capital Company is not in compliance
with any of the Laws or Orders which such governmental authority or
Regulatory Authority enforces, (ii) threatening to revoke any Permits, or
(iii) requiring any Capital Company to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its
credit or reserve policies, its management, or the payment of dividends.
5.14 LABOR RELATIONS. No Capital Company is the subject of any
Litigation asserting that it or any other Capital Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Capital Company to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving any Capital Company,
pending or threatened, or to the Knowledge of Capital, is there any activity
involving any Capital Company's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
A-14
<PAGE> 160
5.15 EMPLOYEE BENEFIT PLANS.
(a) Capital has disclosed in Section 5.15 of the Capital
Disclosure Memorandum, and has delivered or made available to UPC prior to the
execution of this Agreement copies in each case of, all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plan, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by any Capital Company or ERISA
Affiliate thereof for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries and under which
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries are eligible to participate (collectively, the "Capital
Benefit Plans"). Any of the Capital Benefit Plans which is an "employee pension
benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "Capital ERISA Plan." Each Capital ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code) is referred to herein as a "Capital Pension Plan." No Capital Pension Plan
is or has been a multiemployer plan within the meaning of Section 3(37) of
ERISA.
(b) All Capital Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Capital. Each
Capital ERISA Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and Capital is not aware of any circumstances likely
to result in revocation of any such favorable determination letter. No Capital
Company has engaged in a transaction with respect to any Capital Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any Capital Company to a Tax imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA.
(c) No Capital Pension Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the
fair market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. Since the date of the most
recent actuarial valuation, there has been (i) no material change in the
financial position of any Capital Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Capital Pension Plan, and (iii) no increase in
benefits under any Capital Pension Plan as a result of plan amendments or
changes in applicable Law which is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Capital or materially adversely
affect the funding status of any such plan. Neither any Capital Pension Plan nor
any "single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Capital Company, or the single-employer
plan of any entity which is considered one employer with Capital under Section
4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code or
Section 302 of ERISA. No Capital Company has provided, or is required to
provide, security to a Capital Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time,
no Liability under Subtitle C or D of Title IV of ERISA has been or is expected
to be incurred by any Capital Company with respect to any ongoing, frozen, or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No Capital Company has incurred any withdrawal Liability with respect
to a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Capital Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
A-15
<PAGE> 161
(e) Except as disclosed in Section 5.15 of the Capital
Disclosure Memorandum, no Capital Company has any Liability for retiree health
and life benefits under any of the Capital Benefit Plans and there are no
restrictions on the rights of such Capital Company to amend or terminate any
such retiree health or benefit Plan without incurring Liability thereunder.
(f) Except as disclosed in Section 5.15 of the Capital
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Capital Company
from any Capital Company under any Capital Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Capital Benefit Plan, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefit.
(g) The actuarial present values of all accrued deferred
compensation entitlements (including entitlements under any executive
compensation, supplemental retirement, or employment agreement) of employees and
former employees of any Capital Company and their respective beneficiaries,
other than entitlements accrued pursuant to funded retirement plans subject to
the provisions of Section 412 of the Internal Revenue Code or Section 302 of
ERISA, have been fully reflected on the Capital Financial Statements to the
extent required by and in accordance with GAAP.
5.16 MATERIAL CONTRACTS. Except as disclosed in the Capital SEC
Reports or as disclosed in Section 5.16 of the Capital Disclosure Memorandum,
none of the Capital Companies, nor any of their respective Assets, businesses,
or operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
Capital Company or the guarantee by any Capital Company of any such obligation
(other than Contracts evidencing deposit liabilities, purchases of federal
funds, fully-secured repurchase agreements, and Federal Home Loan Bank advances
of depository institution Subsidiaries, trade payables, and Contracts relating
to borrowings or guarantees made in the ordinary course of business), (iii) any
Contracts which prohibit or restrict any Capital Company from engaging in any
business activities in any geographic area, line of business, or otherwise in
competition with any other Person, (iv) any Contracts between or among Capital
Companies, (v) any exchange-traded or over-the-counter swap, forward, future,
option, cap, floor, or collar financial Contract, or any other interest rate or
foreign currency protection Contract (not disclosed in the Capital Financial
Statements delivered prior to the date of this Agreement) which is a financial
derivative Contract (including various combinations thereof), and (vi) any other
Contract or amendment thereto that would be required to be filed as an exhibit
to a Capital SEC Report filed by Capital with the SEC prior to the date of this
Agreement that has not been filed as an exhibit to a Capital SEC Report
(together with all Contracts referred to in Sections 5.10 and 5.15(a) of this
Agreement, the "Capital Contracts"). With respect to each Capital Contract: (i)
the Contract is in full force and effect; (ii) no Capital Company is in Default
thereunder; (iii) no Capital Company has repudiated or waived any material
provision of any such Contract; and (iv) no other party to any such Contract is,
to the Knowledge of Capital, in Default in any respect or has repudiated or
waived any material provision thereunder. Except as set forth in Section 5.16 of
the Capital Disclosure Memorandum, all of the indebtedness of any Capital
Company for money borrowed is prepayable at any time by such Capital Company
without penalty or premium.
5.17 LEGAL PROCEEDINGS. There is no Litigation instituted or
pending, or, to the Knowledge of Capital, threatened (or unasserted but
considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against any Capital Company,
or against any Asset, employee benefit plan, interest, or right of any of them,
that is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Capital, nor are there any Orders of any Regulatory
Authorities, other governmental authorities, or arbitrators outstanding against
any Capital Company. Section 5.17 of the Capital Disclosure Memorandum includes
a summary report of all material Litigation as of the date of this Agreement to
which any Capital Company is a party and which names a Capital Company as a
defendant or cross-defendant.
A-16
<PAGE> 162
5.18 REPORTS. Since September 30, 1993, or the date of organization
if later, each Capital Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that it
was required to file with (i) the SEC, including, but not limited to, Forms
10-KSB, Forms 10-QSB, Forms 8-K, and proxy statements, (ii) other Regulatory
Authorities, and (iii) any applicable state securities or banking authorities
(except, in the case of other Regulatory Authorities and state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Capital). As of
their respective dates, or as subsequently amended for minor corrections, each
of such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
5.19 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument, or other writing furnished or to be furnished by any Capital Company
or any Affiliate thereof to UPC pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. None of the information supplied or to be
supplied by any Capital Company or any Affiliate thereof for inclusion in the
Registration Statement to be filed by UPC with the SEC will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Capital Company or any Affiliate thereof for inclusion in the
Proxy Statement to be mailed to Capital's shareholders in connection with the
Shareholders' Meeting, and any other documents to be filed by a Capital Company
or any Affiliate thereof with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, and with respect to the Proxy Statement, when
first mailed to the shareholders of Capital, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
any Capital Company or any Affiliate thereof is responsible for filing with any
Regulatory Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the provisions of
applicable Law.
5.20 ACCOUNTING, TAX, AND REGULATORY MATTERS. No Capital Company or
any Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance relating to Capital that is reasonably likely to (i) prevent the
transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 9.1(b) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such section.
5.21 STATE TAKEOVER LAWS. Each Capital Company has taken all
necessary action to exempt the transactions contemplated by this Agreement and
the Plan of Merger from, or if necessary challenge the validity or applicability
of, any applicable "moratorium," "fair price," "business combination," "control
share," or other anti-takeover Laws (collectively, "Takeover Laws"), including
Section 203 of the DGCL.
5.22 CHARTER PROVISIONS. Except as disclosed in Section 5.21 of the
Capital Disclosure Memorandum, each Capital Company has taken all action so that
the entering into of this Agreement and the Plan of Merger and the consummation
of the Merger and the other transactions contemplated by this Agreement and the
Plan of Merger do not and will not result in the grant of any rights to any
Person under the Certificate of Incorporation, By-laws or other governing
instruments of any Capital Company or restrict or impair the ability of
A-17
<PAGE> 163
UPC or any of its Subsidiaries to vote, or otherwise to exercise the rights of a
shareholder with respect to, shares of any Capital Company that may be directly
or indirectly acquired or controlled by it.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF UPC
UPC hereby represents and warrants to Capital as follows:
6.1 ORGANIZATION, STANDING, AND POWER. UPC and Holding are
corporations duly organized, validly existing, and in good standing under the
Laws of the State of Tennessee, and each has the corporate power and authority
to carry on its business as now conducted and to own, lease and operate its
material Assets. UPC and Holding are each duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its Assets or the nature
or conduct of its business requires it to be so qualified or licensed, except
for such jurisdictions in which the failure to be so qualified or licensed is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on UPC.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) UPC has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of UPC. This
Agreement (which for purposes of this sentence shall not include the Stock
Option Agreement) represents a legal, valid, and binding obligation of UPC,
enforceable against UPC in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by
UPC, nor the consummation by UPC of the transactions contemplated hereby, nor
compliance by UPC with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of UPC's Restated Certificate of
Incorporation or By-laws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any UPC Company under, any Contract or Permit of any UPC Company, or
(iii) subject to receipt of the requisite approvals referred to in Section
9.1(b) of this Agreement, violate any Law or Order applicable to any UPC Company
or any of their respective material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NYSE, and other than Consents required from Regulatory Authorities,
and other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on UPC, no notice to, filing with, or
Consent of, any public body or authority is necessary for the consummation by
UPC or Holding of the Merger and the other transactions contemplated in this
Agreement and the Plan of Merger.
6.3 CAPITAL STOCK. The authorized capital stock of UPC consists of
(i) 100,000,000 shares of UPC Common Stock, of which 67,211,642 shares were
issued and outstanding as of September 30, 1997 (exclusive of treasury shares),
and (ii) 10,000,000 shares of UPC Preferred Stock, of which no shares of UPC
Series A Preferred Stock, and 2,289,594 shares of UPC Series E Preferred Stock
were issued and outstanding as of September 30, 1997. All of the issued and
outstanding shares of UPC Capital Stock are, and all of the shares of
A-18
<PAGE> 164
UPC Common Stock to be issued in exchange for shares of Capital Common Stock
upon consummation of the Merger, when issued in accordance with the terms of
this Agreement, will be, duly and validly issued and outstanding and fully paid
and nonassessable under the Tennessee Business Corporation Act. None of the
outstanding shares of UPC Capital Stock has been, and none of the shares of UPC
Common Stock to be issued in exchange for shares of Capital Common Stock upon
consummation of the Merger will be, issued in violation of any preemptive rights
of the current or past shareholders of UPC. UPC has reserved for issuance a
sufficient number of shares of UPC Common Stock for the purpose of issuing
shares of UPC Common Stock in accordance with the provisions of Sections 3.1 and
3.5 of this Agreement.
6.4 UPC SUBSIDIARIES. UPC or one of its Subsidiaries owns all
of the issued and outstanding shares of capital stock of each UPC Subsidiary
that is a "significant subsidiary" as defined. No equity securities of any UPC
Subsidiary are or may become required to be issued (other than to another UPC
Company) by reason of any Rights, and there are no Contracts by which any UPC
Subsidiary is bound to issue (other than to another UPC Company) additional
shares of its capital stock or Rights or by which any UPC Company is or may be
bound to transfer any shares of the capital stock of any UPC Subsidiary (other
than to another UPC Company). There are no Contracts relating to the rights of
any UPC Company to vote or to dispose of any shares of the capital stock of any
UPC Subsidiary. All of the shares of capital stock of each UPC Subsidiary held
by a UPC Company are fully paid and nonassessable (except pursuant to 12 USC
Section 55 in the case of national banks and comparable, applicable state Law,
if any, in the case of state depository institutions) under the applicable
corporation Law of the jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the UPC Company free and clear of any Lien. Each UPC
Subsidiary is either a bank or a corporation, and is duly organized, validly
existing, and (as to corporations) in good standing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease, and operate its Assets and
to carry on its business as now conducted. Each UPC Subsidiary is duly qualified
or licensed to transact business as a foreign corporation in good standing in
the States of the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on UPC. Each UPC Subsidiary that is a
depository institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder, and the deposits in
which are insured by the Bank Insurance Fund or Savings Association Insurance
Fund.
6.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) UPC has filed and made available to Capital all SEC
Documents required to be filed by UPC since December 31, 1993 (the "UPC SEC
Reports"). The UPC SEC Reports (i) at the time filed, complied in all material
respects with the applicable requirements of the Securities Laws and (ii) did
not, at the time they were filed (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated in such UPC SEC Reports or necessary in order to make the statements
in such UPC SEC Reports, in light of the circumstances under which they were
made, not misleading. Except for UPC Subsidiaries that are registered as a
broker, dealer, or investment advisor, none of UPC's Subsidiaries is required to
file any SEC Documents.
(b) Each of the UPC Financial Statements (including, in each
case, any related notes) contained in the UPC SEC Reports, including any UPC SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all material respects the consolidated financial position of UPC
and its Subsidiaries as at the respective dates and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount or effect.
A-19
<PAGE> 165
6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No UPC Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on UPC, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of UPC as of June
30, 1997, included in the UPC Financial Statements made available prior to the
date of this Agreement or reflected in the notes thereto. No UPC Company has
incurred or paid any Liability since June 30, 1997, except for such Liabilities
incurred or paid (i) in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on UPC or (ii) in connection with
the transactions contemplated by this Agreement.
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997,
except as disclosed in the UPC Financial Statements made available prior to the
date of this Agreement, (i) there have been no events, changes, or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on UPC, and (ii) the UPC Companies have not
taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this Agreement,
would represent or result in a material breach or violation of any of the
covenants and agreements of UPC contained in this Agreement.
6.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
any of the UPC Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or before
December 31, 1996, and on or before the date of the most recent fiscal year end
immediately preceding the Effective Time, and, to the Knowledge of UPC, all Tax
Returns filed are complete and accurate. All Taxes shown on filed Tax Returns
have been paid. There is no audit examination, deficiency, or refund Litigation
with respect to any Taxes, except as reserved against in the UPC Financial
Statements delivered prior to the date of this Agreement. All Taxes and other
Liabilities due with respect to completed and settled examinations or concluded
Litigation have been paid. There are no Liens with respect to Taxes upon any of
the Assets of the UPC Companies.
(b) Adequate provision for any Taxes due or to become due for
any of the UPC Companies for the period or periods through and including the
date of the respective UPC Financial Statements has been made and is reflected
on such UPC Financial Statements.
(c) Deferred Taxes of the UPC Companies have been provided for
in accordance with GAAP.
6.9 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of UPC, each UPC Company, its
Participation Facilities, and its Operating Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on UPC.
(b) To the Knowledge of UPC, there is no Litigation pending or
threatened before any court, governmental agency, or authority or other forum in
which any UPC Company or any of its Operating Properties or Participation
Facilities (or UPC in respect of such Operating Property or Participation
Facility) has been or, with respect to threatened Litigation, may be named as a
defendant (i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material, whether or not occurring at, on, under, adjacent to, or
affecting (or potentially affecting) a site owned, leased, or operated by any
UPC Company or any of its Operating Properties or Participation Facilities,
except for such Litigation pending or threatened that is not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on UPC, nor
is there any reasonable basis for any Litigation of a type described in this
sentence.
A-20
<PAGE> 166
(c) During the period of (i) any UPC Company's ownership or
operation of any of their respective current properties, (ii) any UPC Company's
participation in the management of any Participation Facility, or (iii) any UPC
Company's holding of a security interest in a Operating Property, to the
Knowledge of UPC, there have been no releases of Hazardous Material in, on,
under, adjacent to, or affecting (or potentially affecting) such properties,
except such as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on UPC. Prior to the period of (i) any UPC
Company's ownership or operation of any of their respective current properties,
(ii) any UPC Company's participation in the management of any Participation
Facility, or (iii) any UPC Company's holding of a security interest in a
Operating Property, to the Knowledge of UPC, there were no releases of Hazardous
Material in, on, under, or affecting any such property, Participation Facility
or Operating Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on UPC.
6.10 COMPLIANCE WITH LAWS. UPC is duly registered as a bank holding
company under the BHC Act. Each UPC Company has in effect all Permits necessary
for it to own, lease, or operate its material Assets and to carry on its
business as now conducted, and there has occurred no Default under any such
Permit. No UPC Company:
(a) to the Knowledge of UPC, is in violation of any material
Laws, Orders, or Permits applicable to its business or employees conducting
its business; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any UPC
Company is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, (ii) threatening
to revoke any Permits, or (iii) requiring any UPC Company to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its
credit or reserve policies, its management, or the payment of dividends.
6.11 LEGAL PROCEEDINGS. There is no Litigation instituted or
pending, or, to the Knowledge of UPC, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any UPC Company, or against any
Asset, employee benefit plan, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on UPC, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any UPC Company.
6.12 REPORTS. Since January 1, 1994, or the date of organization if
later, each UPC Company has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q,
Forms 8-K, and proxy statements, (ii) other Regulatory Authorities, and (iii)
any applicable state securities or banking authorities (except, in the case of
state securities authorities, failures to file which are not reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on UPC). As
of their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
6.13 STATEMENTS TRUE AND CORRECT. No statement, certificate,
instrument or other writing furnished or to be furnished by any UPC Company or
any Affiliate thereof to Capital pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the
A-21
<PAGE> 167
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any UPC Company or any Affiliate
thereof for inclusion in the Registration Statement to be filed by UPC with the
SEC, will, when the Registration Statement becomes effective, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein not misleading. None of the information
supplied or to be supplied by any UPC Company or any Affiliate thereof for
inclusion in the Proxy Statement to be mailed to Capital's shareholders in
connection with the Shareholders' Meeting, and any other documents to be filed
by any UPC Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at the
respective time such documents are filed, and with respect to the Proxy
Statement, when first mailed to the shareholders of Capital, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the Shareholders'
Meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that any UPC Company or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
6.14 ACCOUNTING, TAX, AND REGULATORY MATTERS. No UPC Company or any
Affiliate thereof has taken any action or has any Knowledge of any fact or
circumstance relating to UPC that is reasonably likely to (i) prevent the
transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 9.1(b) of this Agreement or result in the imposition of a condition or
restriction of the type referred to in the last sentence of such Section.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF CAPITAL. Unless the prior written
consent of UPC shall have been obtained, and except as otherwise expressly
contemplated herein or as set forth in Section 7.1 of the Capital Disclosure
Memorandum, Capital shall and shall cause each of its Subsidiaries to (i)
operate its business only in the usual, regular, and ordinary course, (ii)
preserve intact its business organization and Assets and maintain its rights and
franchises, and (iii) take no action which would (a) materially adversely affect
the ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the last sentence of Section 9.1(b) of this Agreement or prevent
the transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (b) materially
adversely affect the ability of any Party to perform its covenants and
agreements under this Agreement.
7.2 NEGATIVE COVENANTS OF CAPITAL. Except as specifically
contemplated by this Agreement or other documents or instruments executed in
connection with this Agreement, from the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Capital
covenants and agrees that it will not do or agree or commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of the chief executive officer, president, or chief
financial officer of UPC, which consent shall not be unreasonably withheld:
(a) amend the Certificate of Incorporation, By-laws, or other
governing instruments of any Capital Company; or
(b) incur any additional debt obligation or other obligation
for borrowed money (other than indebtedness of a Capital Company to another
Capital Company) in excess of an aggregate of
A-22
<PAGE> 168
$100,000 (for the Capital Companies on a consolidated basis) except in the
ordinary course of the business of Capital Subsidiaries consistent with
past practices (which shall include, for Capital Subsidiaries that are
depository institutions, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal Home Loan
Bank, and entry into repurchase agreements fully secured by U.S. government
or agency securities), or impose, or suffer the imposition, on any Asset of
any Capital Company of any Lien or permit any such Lien to exist (other
than in connection with deposits, repurchase agreements, bankers
acceptances, advances from the Federal Reserve Board or Federal Home Loan
Bank, "treasury tax and loan" accounts established in the ordinary course
of business, the satisfaction of legal requirements in the exercise of
trust powers, and Liens in effect as of the date hereof that are disclosed
in the Capital Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of any Capital Company, or declare or pay any
dividend or make any other distribution in respect of Capital's capital
stock, provided that Capital may (to the extent legally and contractually
permitted to do so), but shall not be obligated to, declare and pay regular
quarterly cash dividends on the shares of Capital Common Stock at a rate
not in excess of $.06 per share with usual and regular record and payment
dates in accordance with past practice disclosed in Section 7.2(c) of the
Capital Disclosure Memorandum and such dates may not be changed without the
prior written consent of UPC, provided, that, notwithstanding the
provisions of Section 1.3, the Parties shall cooperate in selecting the
Effective Time to ensure that, with respect to the quarterly period in
which the Effective Time occurs, the holders of Capital Common Stock do not
become entitled to receive both a dividend in respect of their Capital
Common Stock and a dividend in respect of UPC Common Stock or fail to be
entitled to receive any dividend ; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof or issuance of shares to
satisfy stock rights outstanding as of the date hereof, plus dividend and
accumulation rights, if any, and pursuant to the terms of the Capital Stock
Plans in existence on the date hereof, or pursuant to the Stock Option
Agreement, issue, sell, pledge, encumber, authorize the issuance of, enter
into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional
shares of Capital Common Stock or any other capital stock of any Capital
Company, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
any Capital Company or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Capital Common
Stock, or sell, lease, mortgage or otherwise dispose of or otherwise
encumber any shares of capital stock of any Capital Subsidiary (unless any
such shares of stock are sold or otherwise transferred to another Capital
Company) or any Asset having a book value in excess of $100,000 other than
in the ordinary course of business for reasonable and adequate
consideration; or
(f) except as disclosed in Section 7.2(f) of the Capital
Disclosure Memorandum and for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less or Federal Home Loan Bank Stock, purchase any securities or
make any material investment, either by purchase of stock of securities,
contributions to capital, Asset transfers, or purchase of any Assets, in
any Person other than a wholly owned Capital Subsidiary, or otherwise
acquire direct or indirect control over any Person, other than in
connection with (i) foreclosures in the ordinary course of business, (ii)
acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity, or (iii) the creation of new wholly owned Subsidiaries
organized to conduct or continue activities otherwise permitted by this
Agreement; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Capital Company, except in accordance with
past practice disclosed in Section 7.2(g) of the Capital Disclosure
Memorandum or as required by Law; pay any severance or termination pay or
any bonus other
A-23
<PAGE> 169
than pursuant to written policies or written Contracts in effect on the
date of this Agreement and disclosed in Section 7.2(g) of the Capital
Disclosure Memorandum; and enter into or amend any severance agreements
with officers of any Capital Company; grant any material increase in fees
or other increases in compensation or other benefits to directors of any
Capital Company except in accordance with past practice disclosed in
Section 7.2(g) of the Capital Disclosure Memorandum; or voluntarily
accelerate the vesting of any stock options or other stock-based
compensation or employee benefits (other than the acceleration of vesting
which occurs under a benefit plan upon a change of control of Capital); or
(h) enter into or amend any employment Contract between any
Capital Company and any Person (unless such amendment is required by Law)
that the Capital Company does not have the unconditional right to terminate
without Liability (other than Liability for services already rendered), at
any time on or after the Effective Time; or
(i) except as disclosed in Section 7.2(i) of the Capital
Disclosure Memorandum, adopt any new employee benefit plan of any Capital
Company or terminate or withdraw from, or make any material change in or
to, any existing employee benefit plans of any Capital Company other than
any such change that is required by Law or that, in the opinion of counsel,
is necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except as
required by Law, the terms of such plans or consistent with past practice;
or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be
appropriate to conform to changes in Tax Laws or regulatory accounting
requirements or GAAP; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any Capital
Company for money damages in excess of $100,000 or restrictions upon the
operations of any Capital Company; or
(l) other than in the ordinary course of business consistent
with past practice, enter into, modify, amend, or terminate any material
Contract (excluding any loan Contract) or waive, release, compromise, or
assign any material rights or claims.
7.3 COVENANTS OF UPC. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, UPC
covenants and agrees that it shall (i) continue to conduct its business and the
business of its Subsidiaries in a manner designed in its reasonable judgment, to
enhance the long-term value of the UPC Common Stock and the business prospects
of the UPC Companies, and (ii) take no action which would (a) materially
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(b) of
this Agreement or prevent the transactions contemplated hereby, including the
Merger, from qualifying for pooling-of-interests accounting treatment or as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (b) materially adversely affect the ability of any Party to perform its
covenants and agreements under this Agreement.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the occurrence
or impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties, or covenants
contained herein, and to use its reasonable efforts to prevent or promptly to
remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other Party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any
A-24
<PAGE> 170
such reports filed with the SEC, such financial statements will fairly present
the consolidated financial position of the entity filing such statements as of
the dates indicated and the consolidated results of operations, changes in
shareholders' equity, and cash flows for the periods then ended in accordance
with GAAP (subject in the case of interim financial statements to normal
recurring year-end adjustments that are not material). As of their respective
dates, such reports filed with the SEC will comply in all material respects with
the Securities Laws and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Any financial statements contained in any other
reports to another Regulatory Authority shall be prepared in accordance with
Laws applicable to such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER APPROVAL.
UPC shall file the Registration Statement with the SEC, and shall use its
reasonable efforts to cause the Registration Statement to become effective under
the 1933 Act and take any action required to be taken under the applicable state
Blue Sky or securities Laws in connection with the issuance of the shares of UPC
Common Stock upon consummation of the Merger. Capital shall furnish all
information concerning it and the holders of its capital stock as UPC may
reasonably request in connection with such action. Capital shall call a
Shareholders' Meeting, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon approval of this Agreement and the Plan of Merger and such other
related matters as it deems appropriate. In connection with the Shareholders'
Meeting, (i) Capital shall prepare and file with the SEC a Proxy Statement and
mail such Proxy Statement to its shareholders, (ii) the Parties shall furnish to
each other all information concerning them that they may reasonably request in
connection with such Proxy Statement, (iii) the Board of Directors of Capital
shall recommend (subject to compliance with their fiduciary duties as advised by
counsel) to its shareholders the approval of the matters submitted for approval,
and (iv) the Board of Directors and officers of Capital shall (subject to
compliance with their fiduciary duties as advised by counsel) use their
reasonable efforts to obtain such shareholders' approvals.
8.2 EXCHANGE LISTING. UPC shall use its reasonable efforts to
list, prior to the Effective Time, on the NYSE, subject to official notice of
issuance, the shares of UPC Common Stock to be issued to the holders of Capital
Common Stock or Capital Options pursuant to the Merger, and UPC shall give all
notices and make all filings with the NYSE required in connection with the
transactions contemplated herein.
8.3 APPLICATIONS. UPC shall prepare and file, and Capital shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement. The Parties shall
deliver to each other copies of all filings, correspondence and orders to and
from all Regulatory Authorities in connection with the transactions contemplated
hereby as soon as practicable upon their becoming available.
8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Holding shall execute and file the Certificate of
Merger with the Secretary of State of the State of Delaware and the Articles of
Merger with the Secretary of State of Tennessee in connection with the Closing.
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the
terms and conditions of this Agreement, each Party agrees to use, and to cause
its Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated by
this Agreement, including using its reasonable efforts to lift or rescind any
Order adversely affecting its ability to consummate the transactions
contemplated herein and to cause to be satisfied the conditions referred to in
Article 9 of this Agreement; provided, that nothing herein shall preclude either
Party from exercising
A-25
<PAGE> 171
its rights under this Agreement or the Stock Option Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its reasonable efforts to
obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
8.6 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party shall keep the
other Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information furnished to it
by the other Party concerning its and its Subsidiaries' businesses, operations,
and financial positions and shall not use such information for any purpose
except in furtherance of the transactions contemplated by this Agreement. If
this Agreement is terminated prior to the Effective Time, each Party shall
promptly return or certify the destruction of all documents and copies thereof,
and all work papers containing confidential information received from the other
Party.
(c) Capital shall use its reasonable efforts to exercise its
rights under confidentiality agreements entered into with Persons which were
considering an Acquisition Transaction with Capital to preserve the
confidentiality of the information relating to Capital provided to such Persons
and their Affiliates and Representatives.
8.7 PRESS RELEASES. Prior to the Effective Time, Capital and UPC
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 CERTAIN ACTIONS. Except with respect to this Agreement and the
Plan of Merger and the transactions contemplated hereby and thereby, after the
date of this Agreement, no Capital Company nor any Affiliate thereof nor any
Representatives thereof retained by any Capital Company shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of Capital's Board of Directors as
advised by counsel, no Capital Company or any Affiliate or Representative
thereof shall furnish any non-public information that it is not legally
obligated to furnish, negotiate with respect to, or enter into any Contract with
respect to, any Acquisition Proposal, but Capital may communicate information
about such an Acquisition Proposal to its shareholders if and to the extent that
it is required to do so in order to comply with its legal obligations as advised
by counsel. Capital shall promptly notify UPC orally and in writing in the event
that it receives any inquiry or proposal relating to any such transaction.
Capital shall (i) immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any Persons conducted heretofore
with respect to any of the foregoing, and (ii) direct and use its reasonable
efforts to cause all of its Representatives not to engage in any of the
foregoing.
8.9 ACCOUNTING AND TAX TREATMENT. Each of the Parties
undertakes and agrees to use its reasonable efforts to cause the Merger, and to
take no action which would cause the Merger not, to qualify for
pooling-of-interests accounting treatment and treatment as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code for federal
income tax purposes.
8.10 STATE TAKEOVER LAWS. Each Capital Company shall take all
necessary steps to exempt the transactions contemplated by this Agreement from,
or if necessary challenge the validity or applicability of, any applicable
Takeover Law.
A-26
<PAGE> 172
8.11 CHARTER PROVISIONS. Each Capital Company shall take all
necessary action to ensure that the entering into of this Agreement and the Plan
of Merger and the consummation of the Merger and the other transactions
contemplated hereby and thereby do not and will not result in the grant of any
rights to any Person under the Certificate of Incorporation, By-laws, or other
governing instruments of any Capital Company or restrict or impair the ability
of UPC or any of its Subsidiaries to vote, or otherwise to exercise the rights
of a shareholder with respect to, shares of any Capital Company that may be
directly or indirectly acquired or controlled by it.
8.12 AGREEMENT OF AFFILIATES. Capital has disclosed in Section 8.12
of the Capital Disclosure Memorandum all Persons whom it reasonably believes is
an "affiliate" of Capital for purposes of Rule 145 under the 1933 Act. Capital
shall use its reasonable efforts to cause each such Person to deliver to UPC not
later than 30 days prior to the Effective Time, a written agreement,
substantially in the form of Exhibit 3, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of Capital Common
Stock held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of UPC Common Stock to be received by such Person upon consummation of
the Merger except in compliance with applicable provisions of the 1933 Act and
the rules and regulations thereunder and until such time as financial results
covering at least 30 days of combined operations of UPC and Capital have been
published within the meaning of Section 201.01 of the SEC's Codification of
Financial Reporting Policies. If the Merger will qualify for
pooling-of-interests accounting treatment, shares of UPC Common Stock issued to
such affiliates of Capital in exchange for shares of Capital Common Stock shall
not be transferable until such time as financial results covering at least 30
days of combined operations of UPC and Capital have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such affiliate has provided the written
agreement referred to in this Section 8.12 (and UPC shall be entitled to place
restrictive legends upon certificates for shares of UPC Common Stock issued to
affiliates of Capital pursuant to this Agreement to enforce the provisions of
this Section 8.12). UPC shall not be required to maintain the effectiveness of
the Registration Statement under the 1933 Act for the purposes of resale of UPC
Common Stock by such affiliates.
8.13 EMPLOYEE BENEFITS AND CONTRACTS. Subject to the terms of the
Supplemental Letter, following the Effective Time, UPC shall provide to officers
and employees of the Capital Companies employee benefits under employee benefit
and welfare plans, on terms and conditions which when taken as a whole are
substantially similar to those currently provided by the UPC Companies to their
similarly situated officers and employees. For purposes of participation,
vesting, and (except in the case of defined benefit plans) benefit accrual under
such employee benefit plans, the service of the employees of the Capital
Companies prior to the Effective Time shall be treated as service with a UPC
Company participating in such employee benefit plans.
8.14 INDEMNIFICATION.
(a) After the Effective Time, UPC shall indemnify, defend and
hold harmless the present and former directors, officers, employees, and agents
of the Capital Companies (each, an "Indemnified Party") (including any person
who becomes a director, officer, employee, or agent prior to the Effective Time)
against all Liabilities (including reasonable attorneys' fees, and expenses,
judgments, fines and amounts paid in settlement) arising out of actions or
omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement and the Stock Option Agreement) to
the full extent permitted under Delaware Law and by Capital's Certificate of
Incorporation and By-laws as in effect on the date hereof, including provisions
relating to advances of expenses incurred in the defense of any Litigation.
Without limiting the foregoing, in any case in which approval by UPC is required
to effectuate any indemnification, UPC shall direct, at the election of the
Indemnified Party, that the determination of any such approval shall be made by
independent counsel mutually agreed upon between UPC and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 8.14, upon learning of any such Liability or
Litigation, shall promptly notify UPC thereof, provided that the failure so to
notify shall not affect the obligations of UPC under this Section 8.14 unless
and to the extent
A-27
<PAGE> 173
such failure materially increases UPC's liability under this Section 8.14. In
the event of any such Litigation (whether arising before or after the Effective
Time), (i) UPC or the Surviving Corporation shall have the right to assume the
defense thereof and UPC shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
UPC or the Surviving Corporation elects not to assume such defense or counsel
for the Indemnified Parties advises that there are substantive issues which
raise conflicts of interest between UPC or the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them, and UPC or the Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, that UPC shall be obligated pursuant to this
paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in
any jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of
any such Litigation, and (iii) UPC shall not be liable for any settlement
effected without its prior written consent; and provided further that the
Surviving Corporation shall not have any obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law.
(c) The Surviving Corporation shall not be liable for any
settlement effected without its prior written consent which shall not be
unreasonably withheld. The Surviving Corporation shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable Law.
(d) If the Surviving Corporation or any of its successors or
assigns shall consolidate with or merge into any other Person and shall not be
the continuing or surviving Person of such consolidation or merger or shall
transfer all or substantially all of its assets to any Person, then and in each
case, proper provision shall be made so that the successors and assigns of the
Surviving Corporation shall assume the obligations set forth in this Section
8.14.
8.15 CORPORATE ACTIONS OF HOLDING. UPC agrees to cause Holding to
effect all corporate action necessary to approve and adopt the Plan of Merger
prior to the Effective Time in accordance with the TBCA. In addition, UPC, as a
sole shareholder of Holding, shall vote prior to the Effective Time the shares
of Holding Common Stock in favor of the Plan of Merger.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.6 of this Agreement:
(a) SHAREHOLDER APPROVAL. The shareholders of Capital shall
have approved this Agreement and the Plan of Merger, and the consummation
of the transactions contemplated hereby and thereby, including the Merger,
as and to the extent required by Law, by the provisions of any governing
instruments, or by the rules of the NASD.
(b) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities
required for consummation of the Merger shall have been obtained or made
and shall be in full force and effect and all waiting periods required by
Law shall have expired. No Consent obtained from any Regulatory Authority
which is necessary to consummate the transactions contemplated hereby shall
be conditioned or restricted in a manner (other than matters relating
A-28
<PAGE> 174
to the raising of additional capital or the disposition of Assets (including,
but not limited to, any divestiture or restrictions on the insurance activities
of any Capital Companies) or deposit Liabilities and associated branches) which
in the reasonable judgment of the Board of Directors of UPC would so materially
adversely impact the financial or economic benefits of the transactions
contemplated by this Agreement that, had such condition or requirement been
known, UPC would not, in its reasonable judgment, have entered into this
Agreement.
(c) CONSENTS AND APPROVALS. Each Party shall have obtained any
and all Consents required for consummation of the Merger (other than those
referred to in Section 9.1(b) of this Agreement) or for the preventing of
any Default under any Contract or Permit of such Party which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such Party.
(d) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary, or permanent) or taken any other action which prohibits,
materially restricts, or makes illegal consummation of the transactions
contemplated by this Agreement and the Plan of Merger.
(e) REGISTRATION STATEMENT. The Registration Statement shall
be effective under the 1933 Act, no stop order suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under state securities Laws or the 1933 Act or 1934 Act relating
to the issuance or trading of the shares of UPC Common Stock issuable
pursuant to the Merger shall have been received.
(f) EXCHANGE LISTING. The shares of UPC Common Stock issuable
pursuant to the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(g) POOLING LETTERS. Each of the Parties shall have received
copies of the letters, dated as of the date of filing of the Registration
Statement with the SEC and as of the Effective Time, addressed to UPC, from
Price Waterhouse LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
(h) TAX MATTERS. Each Party shall have received a written
opinion of counsel from Alston & Bird LLP, in form reasonably satisfactory
to such Parties (the "Tax Opinion"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) the exchange in the Merger of Capital Common
Stock for UPC Common Stock will not give rise to gain or loss to the
shareholders of Capital with respect to such exchange (except to the extent
of any cash received), and (iii) none of Capital or UPC will recognize gain
or loss as a consequence of the Merger (except for the inclusion in income
of the amount of the bad-debt reserve maintained by Capital Savings and any
other amounts resulting from any required change in accounting methods and
any income and deferred gain recognized pursuant to Treasury regulations
issued under Section 1502 of the Internal Revenue Code). In rendering such
Tax Opinion, such counsel shall be entitled to rely upon representations of
officers of Capital and UPC reasonably satisfactory in form and substance
to such counsel.
9.2 CONDITIONS TO OBLIGATIONS OF UPC. The obligations of UPC to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by UPC pursuant to Section 11.6(a) of this Agreement:
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of
Capital set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as though
all such
A-29
<PAGE> 175
representations and warranties had been made on and as of the Effective Time
(provided that representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and warranties of
Capital set forth in Section 5.3 of this Agreement shall be true and correct
(except for inaccuracies which are de minimus in amount). The representations
and warranties of Capital set forth in Sections 5.20, 5.21, and 5.22 of this
Agreement shall be true and correct in all material respects. There shall not
exist inaccuracies in the representations and warranties of Capital set forth in
this Agreement (including the representations and warranties set forth in
Sections 5.3, 5.20, 5.21, and 5.22) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse Effect on
Capital; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to "material"
or "Material Adverse Effect" shall be deemed not to include such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Capital to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) CERTIFICATES. Capital shall have delivered to UPC (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, or other
authorized officers, to the effect that the conditions of its obligations
set forth in Section 9.2(a) and 9.2(b) of this Agreement have been
satisfied, and (ii) certified copies of resolutions duly adopted by
Capital's Board of Directors and shareholders evidencing the taking of all
corporate action necessary to authorize the execution, delivery, and
performance of this Agreement and the Plan of Merger, and the consummation
of the transactions contemplated hereby and thereby, all in such reasonable
detail as UPC and its counsel shall request.
(d) AFFILIATES AGREEMENTS. UPC shall have received from each
affiliate of Capital the affiliates letter referred to in Section 8.12 of
this Agreement, to the extent necessary to assure in the reasonable
judgment of UPC that the transactions contemplated hereby will qualify for
pooling-of-interests accounting treatment.
(e) EMPLOYMENT AGREEMENTS. Larry V. Schepers, Arthur F.
Wankum, Joseph E. Forck, and Charles W. Clark shall have entered into
employment agreements with UPC, substantially in the form of Appendices A,
B, C, and D, respectively, to the Supplemental Letter.
9.3 CONDITIONS TO OBLIGATIONS OF CAPITAL. The obligations of Capital
to perform this Agreement and the Plan of Merger and consummate the Merger and
the other transactions contemplated hereby are subject to the satisfaction of
the following conditions, unless waived by Capital pursuant to Section 11.6(b)
of this Agreement:
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of UPC
set forth in this Agreement shall be assessed as of the date of this
Agreement and as of the Effective Time with the same effect as though all
such representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are
confined to a specified date shall speak only as of such date). The
representations and warranties of UPC set forth in Section 6.3 of this
Agreement shall be true and correct (except for inaccuracies which are de
minimus in amount). The representations and warranties of UPC set forth in
Section 6.14 of this Agreement shall be true and correct in all material
respects. There shall not exist inaccuracies in the representations and
warranties of UPC set forth in this Agreement (including the
representations and warranties set forth in Sections 6.3 and 6.14) such
that the aggregate effect of such inaccuracies has, or is reasonably likely
to have, a Material Adverse Effect on UPC; provided that, for purposes of
this sentence only, those representations and warranties which are
qualified by references to "material" or "Material Adverse Effect" shall be
deemed not to include such qualifications.
A-30
<PAGE> 176
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of UPC to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) CERTIFICATES. UPC shall have delivered to Capital (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions of its obligations set forth in Section 9.3(a) and 9.3(b) of
this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by UPC's Board of Directors evidencing the taking
of all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Capital and its
counsel shall request.
ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of Capital, this Agreement and the Plan of Merger may be terminated
and the Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of UPC and
the Board of Directors of Capital; or
(b) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Capital and
Section 9.3(a) in the case of UPC or in material breach of any covenant or
other agreement contained in this Agreement) in the event of an inaccuracy
of any representation or warranty of the other Party contained in this
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such inaccuracy and
which inaccuracy would provide the terminating Party the ability to refuse
to consummate the Merger under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Capital and Section 9.3(a) of this
Agreement in the case of UPC; or
(c) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Capital and
Section 9.3(a) in the case of UPC or in material breach of any covenant or
other agreement contained in this Agreement) in the event of a material
breach by the other Party of any covenant or agreement contained in this
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party in the event (i)
any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby shall have been
denied by final nonappealable action of such authority or if any action
taken by such authority is not appealed within the time limit for appeal,
or (ii) the shareholders of Capital fail to vote their approval of this
Agreement and the transactions contemplated hereby as required by the DGCL
and the rules of the NASD at the Shareholders' Meeting where the
transactions were presented to such shareholders for approval and voted
upon; or
(e) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated by September 30, 1998, if
the failure to consummate the transactions contemplated
A-31
<PAGE> 177
hereby on or before such date is not caused by any willful breach of this
Agreement by the Party electing to terminate pursuant to this Section 10.1(e);
or
(f) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Capital and
Section 9.3(a) in the case of UPC or in material breach of any covenant or
other agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Merger cannot be satisfied or fulfilled by the date specified in Section
10.1(e) of this Agreement.
(g) By the Board of Directors of Capital, if it determines by
a vote of a majority of the members of its entire Board, at any time during
the ten-day period commencing two days after the Determination Date, if
both of the following conditions are satisfied:
(1) the Average Closing Price shall be less than the
product of (i) 0.80 and (ii) the Starting Price; and
(2) (i) the quotient obtained by dividing the Average
Closing Price by the Starting Price (such number being referred to
herein as the "UPC Ratio") shall be less than (ii) the quotient
obtained by dividing the Index Price on the Determination Date by the
Index Price on the Starting Date and subtracting 0.15 from the quotient
in this clause (2)(ii) (such number being referred to herein as the
"Index Ratio");
subject, however, to the following three sentences. If Capital refuses to
consummate the Merger pursuant to this Section 10.1(g), it shall give
prompt written notice thereof to UPC; provided, that such notice of
election to terminate may be withdrawn at any time within the
aforementioned ten-day period. During the five-day period commencing with
its receipt of such notice, UPC shall have the option to elect to increase
the Exchange Ratio to equal the lesser of (i) the quotient obtained by
dividing (1) the product of 0.80, the Starting Price, and the Exchange
Ratio (as then in effect) by (2) the Average Closing Price, and (ii) the
quotient obtained by dividing (1) the product of the Index Ratio and the
Exchange Ratio (as then in effect) by (2) the UPC Ratio. If UPC makes an
election contemplated by the preceding sentence, within such five-day
period, it shall give prompt written notice to Capital of such election and
the revised Exchange Ratio, whereupon no termination shall have occurred
pursuant to this Section 10.1(g) and this Agreement shall remain in effect
in accordance with its terms (except as the Exchange Ratio shall have been
so modified), and any references in this Agreement to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this Section 10.1(g).
For purposes of this Section 10.1(g), the following terms shall have
the meanings indicated:
"Average Closing Price" shall mean the average of the daily
last sales prices of UPC Common Stock as reported on the NYSE (as
reported by The Wall Street Journal or, if not reported thereby,
another authoritative source as chosen by UPC) for the 10 consecutive
full trading days in which such shares are traded on the NYSE ending at
the close of trading on the Determination Date.
"Determination Date" shall mean the later of the date (i) of
the Shareholders' Meeting and (ii) on which the last Consent of the
Board of Governors of the Federal Reserve System shall be received.
"Index Group" shall mean the 17 bank holding companies listed
below, the common stocks of all of which shall be publicly traded and
as to which there shall not have been, since the Starting Date and
before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another
company or companies in transactions with a value exceeding 25% of the
acquiror's market capitalization. In the event that any such company or
companies are removed from the Index Group, the weights (which shall be
A-32
<PAGE> 178
determined based upon the number of outstanding shares of common stock)
shall be redistributed proportionately for purposes of determining the
Index Price. The 17 bank holding companies and the weights attributed
to them are as follows:
<TABLE>
<CAPTION>
BANK HOLDING COMPANIES WEIGHTING
-------------------------------------- --------------
<S> <C>
AmSouth Bancorporation 4.87%
Central Fidelity Banks, Inc. 5.11
Compass Bancshares, Inc. 3.63
Deposit Guaranty Corporation 3.56
Fifth Third Bancorp 9.24
First American Corporation 2.60
First Commerce Corporation 3.39
First Tennessee National Corporation 5.62
First Virginia Banks, Inc. 2.83
Hibernia Corporation 11.25
Huntington Bancshares, Inc. 12.35
Mercantile Bancorporation, Inc. 5.30
National Commerce Bancorp 2.14
Regions Financial Corporation 5.80
Signet Banking Corporation 5.25
Southern National Corporation 9.55
Star Banc Corporation 7.50
------
Total 100.00%
=======
</TABLE>
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing
prices of the companies composing the Index Group.
"Starting Date" shall mean the fourth full trading day after
the announcement by press release of the Merger.
"Starting Price" shall mean the closing price per share of UPC
Common Stock as reported on the NYSE (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source as
chosen by UPC) on the Starting Date.
If any company belonging to the Index Group or UPC declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the date of
this Agreement and the Determination Date, the prices for the common stock
of such company or UPC shall be appropriately adjusted for the purposes of
applying this Section 10.1(g).
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement, the Plan of Merger, and the Supplemental Letter shall become void and
have no effect, except that (i) the provisions of this Section 10.2 and Article
11 and Section 8.6(b) of this Agreement shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c), or
10.1(f) of this Agreement shall not relieve the breaching Party from Liability
for an uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination. The Stock Option Agreement shall be
governed by its own terms as to its termination.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 2, 3, 4 and 11 and Sections 8.12, 8.13, and 8.14 of this Agreement and
the provisions of the Supplemental Letter.
A-33
<PAGE> 179
ARTICLE 11
MISCELLANEOUS
11.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized terms
set forth below shall have the following meanings:
"ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving such Party
or any of its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the assets of, such Party or any
of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled
by, or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Reorganization,
including the Stock Option Agreement and the Exhibits delivered pursuant
hereto and incorporated herein by reference.
"ARTICLES OF MERGER" shall mean the Articles of Merger to be
executed by Holding and filed with the Secretary of State of the State of
Tennessee relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956,
as amended.
"CAPITAL COMMON STOCK" shall mean the $0.01 par value common stock
of Capital.
"CAPITAL COMPANIES" shall mean, collectively, Capital and all
Capital Subsidiaries.
"CAPITAL DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Capital Savings Bancorp, Inc. Disclosure Memorandum" delivered
prior to the date of this Agreement to UPC describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"CAPITAL FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Capital
as of June 30, 1997, 1996 and 1995, and the related statements of earnings,
changes in shareholders' equity, and cash flows (including related notes
and schedules, if any) for each of the years ended June 30, 1997, 1996 and
1995, as filed by Capital in SEC Documents, and (ii) the consolidated
balance sheets of Capital (including related notes and schedules, if any)
and related statements of earnings, changes in shareholders' equity, and
cash flows (including related notes and schedules, if any) included in SEC
Documents filed with respect to periods ended subsequent to September 30,
1997.
A-34
<PAGE> 180
"CAPITAL SAVINGS" shall mean Capital Savings Bank, FSB, a federal
stock savings bank and a Capital Subsidiary.
"CAPITAL STOCK PLANS" shall mean the existing stock option and other
stock-based compensation plans of Capital designated as follows: (i)
Capital Savings Bancorp, Inc. Employee Stock Ownership Plan; (ii) Capital
Savings Bancorp, Inc. Recognition and Retention Plan; and (iii) Capital
Savings Bancorp, Inc. 1991 Stock Option and Incentive Plan.
"CAPITAL SUBSIDIARIES" shall mean the Subsidiaries of Capital, which
shall include the Capital Subsidiaries described in Section 5.4 of the
Capital Disclosure Memorandum and any corporation, bank, savings
association, or other organization acquired as a Subsidiary of Capital in
the future and owned by Capital at the Effective Time.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be
executed by Holding and filed with the Secretary of State of the State of
Delaware relating to the Merger as contemplated by Section 1.1 of this
Agreement.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person pursuant
to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets, or business.
"DEFAULT" shall mean (i) any breach or violation of or default under
any Contract, Order, or Permit, (ii) any occurrence of any event that with
the passage of time or the giving of notice or both would constitute a
breach or violation of or default under any Contract, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time
or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order or Permit.
"DGCL" shall mean the Delaware General Corporation Law.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface or subsurface strata) and which
are administered, interpreted or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases, or threatened releases of any Hazardous Material, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of any Hazardous
Material.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXHIBITS" 1 through 4, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
A-35
<PAGE> 181
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic
substance (as those terms are defined by any applicable Environmental Laws)
and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum
products, or oil (and specifically shall include asbestos requiring
abatement, removal, or encapsulation pursuant to the requirements of
governmental authorities and any polychlorinated biphenyls).
"HOLA" shall mean the Home Owners' Loan Act of 1933, as amended.
"HOLDING COMMON STOCK" shall mean the $1.00 par value common stock
of Holding.
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by
Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor,
technology rights and licenses, computer software (including any source or
object codes therefor or documentation relating thereto), trade secrets,
franchises, know-how, inventions, and other intellectual property rights.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a Person (including references
to such Person being aware of a particular matter) shall mean those facts
that are known by the Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, or General Counsel of such
Person.
"LAW" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business, including those promulgated, interpreted,
or enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost, or expense (including
costs of investigation, collection, and defense), claim, deficiency,
guaranty, or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention, or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, and (ii) for depository institution
Subsidiaries of a Party, pledges to secure deposits and other Liens
incurred in the ordinary course of the banking business.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or
other examination or investigation, hearing, inquiry, administrative or
other proceeding, or notice (written or oral) by any Person alleging
potential Liability or requesting information relating to or affecting a
Party, its business, its Assets (including Contracts related to it), or the
transactions contemplated by this Agreement, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
A-36
<PAGE> 182
"MATERIAL" for purposes of this Agreement shall be determined in
light of the facts and circumstances of the matter in question; provided
that any specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"MATERIAL ADVERSE EFFECT" on a Party shall mean an event, change, or
occurrence which, individually or together with any other event, change, or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of such Party and its Subsidiaries,
taken as a whole, or (ii) the ability of such Party to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "Material
Adverse Effect" and "material adverse impact" shall not be deemed to
include the impact of (a) changes in banking and similar Laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in GAAP or regulatory accounting principles
generally applicable to banks, savings associations, and their holding
companies, (c) actions and omissions of a Party (or any of its
Subsidiaries) taken with the prior informed written consent of the other
Party in contemplation of the transaction contemplated hereby, and (d) the
direct effects of compliance with this Agreement (including the expense
associated with the vesting of benefits under the various employee benefit
plans of Capital as a result of the Merger constituting a change of
control) on the operating performance of the Parties, including expenses
incurred by the Parties in consummating the transactions contemplated by
the Agreement.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"NASDAQ NATIONAL MARKET" shall mean the National Market System of
the National Association of Securities Dealers Automated Quotations
System.
"NYSE" shall mean the New York Stock Exchange, Inc.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"OPERATING PROPERTY" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or Subsidiary
holds a security interest, and, where required by the context, includes the
owner or operator of such property, but only with respect to such property.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local, or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility or property in
which the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"PARTY" shall mean either Capital or UPC, and "PARTIES" shall mean
both Capital and UPC.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets or business.
"PLAN OF MERGER" shall mean the plan of merger providing for the
Merger, in substantially the form of Exhibit 1.
A-37
<PAGE> 183
"PERSON" shall mean a natural person or any legal, commercial, or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"PROXY STATEMENT" shall mean the proxy statement used by Capital to
solicit the approval of its shareholders of the transactions contemplated
by this Agreement and the Plan of Merger, which shall include the
prospectus of UPC relating to the issuance of the UPC Common Stock to
holders of Capital Common Stock.
"REGISTRATION STATEMENT" shall mean the Registration Statement on
Form S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by UPC
under the 1933 Act with respect to the shares of UPC Common Stock to be
issued to the shareholders of Capital in connection with the transactions
contemplated by this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, the Board of the
Governors of the Federal Reserve System, the Office of Thrift Supervision
(including its predecessor, the Federal Home Loan Bank Board), the Office
of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, all state regulatory agencies having jurisdiction over the
Parties and their respective Subsidiaries, the NYSE, the NASD, and the SEC.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a
Person.
"RIGHTS" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock
of a Person or by which a Person is or may be bound to issue additional
shares of its capital stock or other Rights.
"SEC DOCUMENTS" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to
be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"SHAREHOLDERS' MEETING" shall mean the meeting of the shareholders
of Capital to be held pursuant to Section 8.1 of this Agreement, including
any adjournment or postponements thereof.
"STOCK OPTION AGREEMENT" shall mean the Stock Option Agreement of
even date herewith issued to UPC by Capital, in substantially the form of
Exhibit 2.
"SUBSIDIARIES" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or
controls 10% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 10% or more of
the outstanding equity securities is owned directly or indirectly by its
parent; provided, there shall not be included any such entity acquired
through foreclosure or any such entity the equity securities of which are
owned or controlled in a fiduciary capacity.
"SUPPLEMENTAL LETTER" shall mean the supplemental letter of even
date herewith relating to certain understandings and agreements in addition
to those included in this Agreement, substantially in the form of Exhibit
4.
A-38
<PAGE> 184
"SURVIVING CORPORATION" shall mean Capital as the surviving
corporation resulting from the Merger.
"TBCA" shall mean the Tennessee Business Corporation Act.
"TAX" or "TAXES" shall mean any federal, state, county, local, or
foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other taxes,
assessments, charges, fares, or impositions, including interest, penalties,
and additions imposed thereon or with respect thereto.
"UPC CAPITAL STOCK" shall mean, collectively, the UPC Common Stock,
the UPC Preferred Stock and any other class or series of capital stock of
UPC.
"UPC COMMON STOCK" shall mean the $5.00 par value common stock of
UPC.
"UPC COMPANIES" shall mean, collectively, UPC and all UPC
Subsidiaries.
"UPC FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of UPC as of June
30, 1997, and December 31, 1996, 1995 and 1994, and the related statements
of earnings, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the six months ended June 30, 1997
and for each of the years ended December 31, 1996, 1995 and 1994, as filed
by UPC in SEC Documents, and (ii) the consolidated balance sheets of UPC
(including related notes and schedules, if any) and related statements of
earnings, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) included in SEC Documents filed with
respect to periods ended subsequent to June 30, 1997.
"UPC PREFERRED STOCK" shall mean the no par value preferred stock of
UPC and shall include the (i) Series A Preferred Stock and (ii) Series E,
8% Cumulative, Convertible Preferred Stock, of UPC ("UPC Series E Preferred
Stock").
"UPC RIGHTS" shall mean the preferred stock purchase rights issued
pursuant to the UPC Rights Agreement.
"UPC RIGHTS AGREEMENT" shall mean that certain Rights Agreement,
dated January 19, 1989, between UPC and UPNB, as Rights Agent.
"UPC SUBSIDIARIES" shall mean the Subsidiaries of UPC and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of UPC in the future and owned by UPC at the Effective Time.
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
<TABLE>
<S> <C>
Allowance Section 5.9
Average Closing Price Section 10.1(g)
Capital Benefit Plans Section 5.15(a)
Capital Contracts Section 5.16
Capital ERISA Plan Section 5.15(a)
Capital Options Section 3.5(a)
Capital Pension Plan Section 5.15(a)
Capital SEC Reports Section 5.5(a)
Closing Section 1.2
</TABLE>
A-39
<PAGE> 185
<TABLE>
<S> <C>
Determination Date Section 10.1(g)
Effective Time Section 1.3
ERISA Affiliate Section 5.15(c)
Exchange Agent Section 4.1
Exchange Ratio Section 3.1(c)
Indemnified Party Section 8.14(a)
Index Group Section 10.1(g)
Index Price Section 10.1(g)
Index Ratio Section 10.1(g)
Merger Section 1.1
Starting Date Section 10.1(g)
Starting Price Section 10.1(g)
Takeover Laws Section 5.21
Tax Opinion Section 9.1(h)
UPC Ratio Section 10.1(g)
UPC SEC Reports Section 6.4(a)
</TABLE>
(c) Any singular term in this Agreement shall be deemed to
include the plural, and any plural term the singular. Whenever the words
"include," "includes," or "including" are used in this Agreement, they shall be
deemed followed by the words "without limitation."
11.2 EXPENSES.
(a) Except as otherwise provided in this Section 11.2, each of
the Parties shall bear and pay all direct costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that UPC shall bear and pay the filing fees
payable in connection with the Registration Statement and the Proxy Statement
and the printing costs incurred in connection with the printing of the
Registration Statement and the Proxy Statement.
(b) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.
11.3 BROKERS AND FINDERS. Except for ABN AMRO Incorporated as to
Capital, each of the Parties represents and warrants that neither it nor any of
its officers, directors, employees, or Affiliates has employed any broker or
finder or incurred any Liability for any financial advisory fees, investment
bankers' fees, brokerage fees, commissions, or finders' fees in connection with
this Agreement or the transactions contemplated hereby. In the event of a claim
by any broker or finder based upon his or its representing or being retained by
or allegedly representing or being retained by Capital or UPC, each of Capital
and UPC, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement (including the other documents and instruments referred
to herein or executed in connection with this Agreement) constitutes the entire
agreement between the Parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereto, written or oral. Nothing in this Agreement expressed or implied, is
intended to confer upon any Person, other than the Parties or their respective
successors, any rights, remedies, obligations, or liabilities under or by reason
of this Agreement, other than as provided in Sections 8.12 and 8.14 of this
Agreement.
11.5 AMENDMENTS. To the extent permitted by Law, this Agreement may
be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties, whether before or
after shareholder approval of this Agreement and the Plan of Merger has been
obtained;
A-40
<PAGE> 186
provided, that after any such approval by the holders of Capital Common Stock,
there shall be made no amendment that modifies in any material respect the
consideration to be received by the holders of Capital Common Stock without the
further approval of such shareholders.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, UPC, acting through its
Board of Directors, chief executive officer, or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by Capital, to waive or extend the time for the compliance or
fulfillment by Capital of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of UPC
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of UPC.
(b) Prior to or at the Effective Time, Capital, acting through
its Board of Directors, chief executive officer, or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by UPC, to waive or extend the time for the compliance or fulfillment
by UPC of any and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of Capital under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing signed
by a duly authorized officer of Capital.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests, or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
11.8 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
pre-paid, or by courier or overnight carrier, to the persons at the addresses
set forth below (or at such other address as may be provided hereunder), and
shall be deemed to have been delivered as of the date so delivered:
Capital: CAPITAL SAVINGS BANCORP, INC.
425 Madison Street
Jefferson City, Missouri 65101
Telecopy Number: (573) 636-4122
Attention: Larry V. Schepers
Chairman of the Board and
Chief Executive Officer
Copy to Counsel: SILVER, FREEDMAN & TAFF, LLP
1100 New York Avenue, N.W.
Washington, D.C. 20005
Telecopy Number: (202) 682-0354
Attention: James S. Fleischer
A-41
<PAGE> 187
UPC: UNION PLANTERS CORPORATION
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Telecopy Number: (901) 580-2877
Attention: Jackson W. Moore
President
Copy to Counsel:UNION PLANTERS CORPORATION
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Telecopy Number: (901) 580-2939
Attention: E. James House, Jr.
Manager, Legal Division
ALSTON & BIRD LLP
601 Pennsylvania Avenue
North Building, Suite 250
Washington, D.C. 20004
Telecopy Number: (202) 508-3333
Attention: Frank M. Conner III
11.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Tennessee, without regard
to any applicable conflicts of Laws, except to the extent the Laws of the State
of Delaware apply.
11.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The Parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all Parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
11.14 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
A-42
<PAGE> 188
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: CAPITAL SAVINGS BANCORP, INC.
By: /s/ Marilyn Curtit By: /s/ Larry V. Schepers
--------------------------- --------------------------------
Marilyn Curtit Larry V. Schepers
Secretary Chairman of the Board and
Chief Executive Officer
[CORPORATE SEAL]
ATTEST: UNION PLANTERS CORPORATION
By: /s/ E. James House, Jr. By: /s/ Jackson W. Moore
--------------------------- --------------------------------
E. James House, Jr. Jackson W. Moore
Secretary President and Chief Operating Officer
[CORPORATE SEAL]
A-43
<PAGE> 189
APPENDIX B
[Form of]
PLAN OF MERGER
OF
CAPITAL SAVINGS BANCORP, INC.
WITH AND INTO
UNION PLANTERS HOLDING CORPORATION
Pursuant to this Plan of Merger ("Plan of Merger"), UNION PLANTERS
HOLDING CORPORATION ("Holding"), a corporation organized and existing under the
laws of the State of Tennessee and a wholly owned subsidiary of UNION PLANTERS
CORPORATION, a corporation organized and existing under the laws of the State of
Tennessee ("UPC"), shall be merged with CAPITAL SAVINGS BANCORP, INC., a
corporation organized and existing under the laws of the State of Delaware
("Capital") with the result that Holding shall be the Surviving Corporation
resulting from the Merger.
ARTICLE 1
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
1.1 "ARTICLES OF MERGER" shall mean the Articles of Merger to be
executed by Holding and filed with the Secretary of State of the State of
Tennessee relating to the Merger as contemplated by Section 2.1 of this Plan of
Merger.
1.2 "CAPITAL COMMON STOCK" shall mean the $0.01 par value common
stock of Capital.
1.3 "CAPITAL COMPANIES" shall mean, collectively, Capital and all
Capital Subsidiaries.
1.4 "CAPITAL INCENTIVE PLAN" shall mean the Capital Savings
Bancorp, Inc. 1991 Stock Option and Incentive Plan.
1.5 "CAPITAL OPTIONS" shall mean each option to purchase or other
right with respect to shares of Capital Common Stock pursuant to stock options,
stock appreciation rights or other rights, including stock awards.
1.6 "CAPITAL STOCK PLANS" shall have the meaning set forth in the
Merger Agreement.
1.7 "CERTIFICATE OF MERGER" shall mean the Certificate of Merger
to be executed by Holding and filed with the Secretary of State of the State of
Delaware relating to the Merger as contemplated by Section 2.1 of this Plan of
Merger.
1.8 "DGCL" shall mean the Delaware General Corporation Law.
B-1
<PAGE> 190
1.9 "EFFECTIVE TIME" shall mean the date and time on which the
Merger becomes effective pursuant to the Laws of the State of Delaware and the
Laws of the State of Tennessee as defined in Section 2.2 of this Plan of Merger.
1.10 "EXCHANGE AGENT" shall mean the exchange agent selected by
UPC.
1.11 "HOLDING COMMON STOCK" shall mean the $1.00 par value common
stock of Holding.
1.12 "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated thereunder.
1.13 "LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a person or
its assets, liabilities, or business, including those promulgated, interpreted,
or enforced by any federal or state regulatory agencies having jurisdiction over
a person or its Subsidiaries
1.14 "MERGER" shall mean the merger of Capital into and with
Holding as provided in Section 2.1 of this Plan of Merger.
1.15 "MERGER AGREEMENT" shall mean the Agreement and Plan of
Reorganization, dated as of November 25, 1997, by and between UPC and Capital.
1.16 "NYSE" shall mean the New York Stock Exchange, Inc.
1.17 "SUBSIDIARIES" shall mean all those corporations, banks,
associations, or other entities of which the entity in question owns or controls
10% or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 10% or more of the outstanding
equity securities is owned directly or indirectly by its parent; provided, there
shall not be included any such entity acquired through foreclosure or any such
entity the equity securities of which are owned or controlled in a fiduciary
capacity.
1.18 "SURVIVING CORPORATION" shall refer to Holding as the
surviving corporation resulting from the Merger.
1.19 "TBCA" shall mean the Tennessee Business Corporation Act.
1.20 "UPC CAPITAL STOCK" shall mean, collectively, the UPC Common
Stock, the UPC Preferred Stock, and any other class or series of capital stock
of UPC.
1.21 "UPC COMMON STOCK" shall mean the $5.00 par value common stock
of UPC.
1.22 "UPC COMPANIES" shall mean, collectively, UPC and all UPC
Subsidiaries.
1.23 "UPC PREFERRED STOCK" shall mean the no par value preferred
stock of UPC and shall include the (i) Series A Preferred Stock and (ii) Series
E, 8% Cumulative, Convertible Preferred Stock, of UPC.
1.24 "UPC RIGHTS" shall mean the preferred stock purchase rights
issued pursuant to the UPC Rights Agreement.
1.25 "UPC RIGHTS AGREEMENT" shall mean that certain Rights
Agreement, dated January 19, 1989, between UPC and UPNB, as Rights Agent.
B-2
<PAGE> 191
ARTICLE 2
TERMS OF MERGER
2.1 MERGER. Subject to the terms and conditions set forth in this
Plan of Merger, at the Effective Time, Capital shall be merged into and with
Holding in accordance with the provisions of Section 252 of the DGCL and with
the effect provided in Section 259 of the DGCL and in accordance with the
provisions of 48-21-109 of the TBCA and with the effect provided in Section
48-21-108 of the TBCA. Capital shall be the Surviving Corporation of the Merger
and shall continue to be governed by the Laws of the State of Delaware.
2.2 EFFECTIVE TIME. The Merger shall become effective on the date
and at the time the Certificate of Merger reflecting the Merger shall become
effective with the Secretary of State of the State of Delaware and the Articles
of Merger reflecting the Merger shall become effective with the Secretary of
State of Tennessee..
2.3 CHARTER. The Charter of Holding, as in effect immediately
prior to the Effective Time, shall remain in full force and effect following the
Effective Time as the Charter of the Surviving Corporation until otherwise
amended or repealed as provided by Law or by such Charter.
2.4 BYLAWS. The Bylaws of Holding, as in effect immediately prior
to the Effective Time, shall continue in full force and effect as the Bylaws of
the Surviving Corporation until otherwise amended or repealed as provided by
Law or by such Bylaws.
2.5 DIRECTORS AND OFFICERS. The directors of Holding in office
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of Holding in office immediately prior
to the Effective Time, together with such additional persons as may thereafter
be elected, shall serve as the officers of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any
action on the part of UPC, Holding, Capital, or the shareholders of any of the
foregoing, the shares of the constituent corporations shall be converted as
follows:
(a) Each share of UPC Capital Stock, including any associated
UPC Rights, issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding from and after the Effective Time.
(b) Each share of Holding Common Stock issued and outstanding
at the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(c) Each share of Capital Common Stock (excluding shares held
by any Capital Company or any UPC Company, in each case other than in a
fiduciary capacity or as a result of debts previously contracted) issued
and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for the right to receive .3812 of a
share of UPC Common Stock (as subject to possible adjustment as set forth
in Section 10.1(g) of the Merger Agreement, the "Exchange Ratio"). Pursuant
to the UPC Rights Agreement, each share of UPC Common Stock issued in
connection with the Merger upon conversion of Capital Common Stock shall be
accompanied by a UPC Right.
B-3
<PAGE> 192
3.2 ANTI-DILUTION PROVISIONS. In the event UPC changes the
number of shares of UPC Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in the
case of a stock dividend) or the effective date thereof (in the case of a stock
split or similar recapitalization for which a record date is not established)
shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 SHARES HELD BY CAPITAL OR UPC. Each of the shares of Capital
Common Stock held by any Capital Company or by any UPC Company, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Capital Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of UPC Common Stock (after taking into account all certificates delivered
by such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of UPC Common Stock multiplied
by the market value of one share of UPC Common Stock at the Effective Time. The
market value of one share of UPC Common Stock at the Effective Time shall be the
closing price of such common stock on the NYSE-Composite Transactions List (as
reported by The Wall Street Journal or, if not reported thereby, any other
authoritative source selected by UPC) on the last trading day preceding the
Effective Time. No such holder will be entitled to dividends, voting rights, or
any other rights as a shareholder in respect of any fractional shares.
3.5 CONVERSION OF STOCK OPTIONS.
(a) At the Effective Time, each Capital Option granted by
Capital under the Capital Stock Plans, which is outstanding at the Effective
Time, whether or not exercisable, shall be converted into and become rights with
respect to UPC Common Stock, and UPC shall assume each Capital Option, in
accordance with the terms of the Capital Stock Plan and stock option or other
agreement by which it is evidenced, except that from and after the Effective
Time, (i) UPC and its salary and benefits committee shall be substituted for
Capital and the committee of Capital's Board of Directors (including, if
applicable, the entire Board of Directors of Capital) administering such Capital
Stock Plan, (ii) each Capital Option assumed by UPC may be exercised solely for
shares of UPC Common Stock (or cash in the case of stock appreciation rights),
(iii) the number of shares of UPC Common Stock subject to such Capital Option
shall be equal to the number of shares of Capital Common Stock subject to such
Capital Option immediately prior to the Effective Time multiplied by the
Exchange Ratio and rounding down to the nearest whole share, and (iv) the per
share exercise price under each such Capital Option shall be adjusted by
dividing the per share exercise price under each such Capital Option by the
Exchange Ratio and rounding up to the nearest cent. Notwithstanding the clauses
(iii) and (iv) of the first sentence of this Section 3.5, each Capital Option
which is an "incentive stock option" shall be adjusted as required by Section
424 of the Internal Revenue Code, and the regulations promulgated thereunder, so
as not to constitute a modification, extension or renewal of the option, within
the meaning of Section 424(h) of the Internal Revenue Code. UPC and Capital
agree to take all necessary steps to effectuate the foregoing provisions of this
Section 3.5.
(b) As soon as practicable after the Effective Time, UPC shall
deliver to the participants in each Capital Stock Plan an appropriate notice
setting forth such participant's rights pursuant thereto and the grants subject
to such Capital Stock Plan shall continue in effect on the same terms and
conditions (subject to the adjustments required by Section 3.5(a) after giving
effect to the Merger), and UPC shall comply with the terms of each Capital Stock
Plan to ensure, to the extent required by, and subject to the provisions of,
such Capital Stock Plan, that Capital Options which qualified as incentive stock
options prior to the Effective Time continue to qualify as incentive stock
options after the Effective Time. Within 30 days after the Effective Time, UPC
shall file a registration statement on Form S-3 or Form S-8, as the case may be
(or any successor or other appropriate forms), with respect to the shares of UPC
Common Stock subject to such options and shall use its reasonable efforts to
maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding.
B-4
<PAGE> 193
ARTICLE 4
DELIVERY OF CONSIDERATION
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time,
UPC and Capital shall cause the Exchange Agent to mail to the former
shareholders of Capital appropriate transmittal materials (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of Capital Common Stock shall pass, only upon
proper delivery of such certificates to the Exchange Agent). After the Effective
Time, each holder of shares of Capital Common Stock (other than shares to be
canceled pursuant to Section 3.3 of this Plan of Merger) issued and outstanding
at the Effective Time shall surrender the certificate or certificates
representing such shares to the Exchange Agent and shall promptly upon surrender
thereof receive in exchange therefor the consideration provided in Section 3.1
of this Plan of Merger, together with all undelivered dividends or distributions
in respect of such shares (without interest thereon) pursuant to Section 4.2 of
this Plan of Merger. To the extent required by Section 3.4 of this Plan of
Merger, each holder of shares of Capital Common Stock issued and outstanding at
the Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
UPC Common Stock to which such holder may be otherwise entitled (without
interest). UPC shall not be obligated to deliver the consideration to which any
former holder of Capital Common Stock is entitled as a result of the Merger
until such holder surrenders such holder's certificate or certificates
representing the shares of Capital Common Stock for exchange as provided in this
Section 4.1. The certificate or certificates of Capital Common Stock so
surrendered shall be duly endorsed as the Exchange Agent may require. Any other
provision of this Plan of Merger notwithstanding, neither the Surviving
Corporation nor the Exchange Agent shall be liable to a holder of Capital Common
Stock for any amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property Law.
4.2 RIGHTS OF FORMER CAPITAL SHAREHOLDERS. At the Effective Time,
the stock transfer books of Capital shall be closed as to holders of Capital
Common Stock immediately prior to the Effective Time and no transfer of Capital
Common Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Plan of Merger, each certificate theretofore representing shares of Capital
Common Stock (other than shares to be canceled pursuant to Section 3.3 of this
Plan of Merger) shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Sections 3.1
and 3.4 of this Plan of Merger in exchange therefor, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which have been
declared or made by Capital in respect of such shares of Capital Common Stock in
accordance with the terms of this Plan of Merger and which remain unpaid at the
Effective Time. To the extent permitted by Law, former shareholders of record of
Capital shall be entitled to vote after the Effective Time at any meeting of UPC
shareholders the number of whole shares of UPC Common Stock into which their
respective shares of Capital Common Stock are converted, regardless of whether
such holders have exchanged their certificates representing Capital Common Stock
for certificates representing UPC Common Stock in accordance with the provisions
of this Plan of Merger. Whenever a dividend or other distribution is declared by
UPC on the UPC Common Stock, the record date for which is at or after the
Effective Time, the declaration shall include dividends or other distributions
on all shares issuable pursuant to this Plan of Merger, but beginning 30 days
after the Effective Time no dividend or other distribution payable to the
holders of record of UPC Common Stock as of any time subsequent to the Effective
Time shall be delivered to the holder of any certificate representing shares of
Capital Common Stock issued and outstanding at the Effective Time until such
holder surrenders such certificate for exchange as provided in Section 4.1 of
this Plan of Merger. However, upon surrender of such Capital Common Stock
certificate, both the UPC Common Stock certificate (together with all such
undelivered dividends or other distributions without interest) and any
undelivered dividends and cash payments to be paid for fractional share
interests (without interest) shall be delivered and paid with respect to each
share represented by such certificate.
B-5
<PAGE> 194
ARTICLE 5
MISCELLANEOUS
5.1 CONDITIONS PRECEDENT. Consummation of the Merger by Holding
shall be conditioned on the satisfaction of, or waiver by UPC of the conditions
precedent to the Merger set forth in Sections 9.1 and 9.2 of the Merger
Agreement. Consummation of the Merger by Capital shall be conditioned on the
satisfaction of, or waiver by Capital of, the conditions precedent to the Merger
set forth in Sections 9.1 and 9.3 of the Merger Agreement.
5.2 TERMINATION. This Plan of Merger may be terminated at any time
prior to the Effective Time by the parties hereto as provided in Article 10 of
the Merger Agreement.
5.3 GOVERNING LAW. This Plan of Merger shall be governed by and
construed in accordance with the Laws of the State of Tennessee, without regard
to any applicable conflicts of Laws, except to the extent the Laws of the State
of Delaware apply.
5.4 COUNTERPARTS. This Plan of Merger may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
5.5 CAPTIONS. The captions contained in this Plan of Merger are
for reference purposes only and are not part of this Plan of Merger.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: CAPITAL SAVINGS BANCORP, INC.
By: By:
---------------------- ----------------------------
Marilyn Curtit Larry V. Schepers
Secretary Chairman of the Board and
Chief Executive Officer
[CORPORATE SEAL]
ATTEST: UNION PLANTERS HOLDING
CORPORATION
By: By:
---------------------- ----------------------------
E. James House, Jr. Jackson W. Moore
Secretary President
[CORPORATE SEAL]
B-6
<PAGE> 195
Appendix C
June [ ], 1998
Board of Directors
Capital Savings Bancorp, Inc.
425 Madison Street
Jefferson City, MO 65101
Members of the Board:
We understand that Capital Savings Bancorp, Inc. ("CAPS") and Union
Planters Corporation ("UPC") have entered into an Agreement and Plan of
Reorganization dated November 25, 1997 (the "Agreement") pursuant to which CAPS
will be merged with and into a first-tier subsidiary of UPC in a transaction
(the "Merger") in which each issued and outstanding share of common stock of
CAPS, $0.01 par value per share ("CAPS Common Stock"), will be converted into
the right to receive 0.3812 (the "Exchange Ratio") of a share of common stock of
UPC, $5.00 par value per share ("UPC Common Stock"), and each outstanding option
issued by CAPS to purchase CAPS Common Stock will be converted into and become a
right to purchase 0.3812 of a share of UPC Common Stock with each option's per
share exercise price adjusted by dividing such exercise price by the Exchange
Ratio. As more fully described in the Agreement, the Exchange Ratio is
adjustable upward if certain conditions are met concerning the quoted price of
UPC Common Stock during a period following public announcement of the Merger to
the later of (i) the date of the CAPS stockholders meeting to be held to
consider and vote upon the Merger and (ii) the date on which the last regulatory
consents or approvals with respect to the Merger are received.
You have asked us whether, in our opinion, the Exchange Ratio to be
received by the holders of CAPS Common Stock in the Merger is fair to such
stockholders from a financial point of view.
In connection with this opinion, we have reviewed CAPS's and UPC's Proxy
Statement/Prospectus of even date herewith as well as the Agreement and certain
related documents. We have held discussions with certain senior officers,
directors and other representatives and advisors of CAPS and certain senior
officers and other representatives of UPC concerning the businesses, operations
and prospects of CAPS and UPC. We examined certain publicly available business
and financial information relating to CAPS and UPC as well as certain financial
information and other data for CAPS and certain financial information and other
data related to UPC which were provided to or otherwise discussed with us by the
respective managements of CAPS and UPC. We reviewed the financial terms of the
Merger as set forth in the Agreement in relation to: (i) current and historical
market prices and trading volumes of CAPS Common Stock and UPC Common Stock;
(ii) the respective companies' financial and other operating data; and (iii) the
capitalization and financial condition of CAPS and UPC. We also considered, to
the extent publicly available, the financial terms of certain other
thrift-industry transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of CAPS and UPC. In
connection with our engagement, we identified, approached and held discussions
with certain third parties to solicit indications of interest in a possible
transaction with CAPS.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by us and we have
not made or obtained or assumed any responsibility for independent verification
of such information. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of CAPS or UPC or any of their
respective
C-1
<PAGE> 196
subsidiaries. With respect to the financial data of CAPS, we have assumed that
it has been reasonably prepared on bases reflecting the best currently available
estimates and judgements of the management of CAPS as to the future financial
performance of CAPS. We have assumed that the Merger will be consummated in
accordance with the terms of the Agreement including among other things, that
the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles and as a tax-free reorganization for federal
income tax purposes. We are not expressing any opinion in the event that the
Exchange Ratio is adjusted upward under the conditions specified in the
Agreement. We are also not expressing any opinion as to what the value of UPC
Common Stock actually will be when issued to CAPS stockholders pursuant to the
Merger or the price at which UPC Common Stock will trade subsequent to the
Merger.
ABN AMRO Incorporated ("ABN AMRO"), as part of its investment banking
business, is continually engaged in the valuation of businesses in connection
with mergers and acquisitions, as well as initial and secondary offerings of
securities and valuations for other purposes. We have acted as financial advisor
to the Board of Directors of CAPS in connection with this transaction and will
receive a fee for our services, including rendering this opinion, a significant
portion of which is contingent upon the consummation of the Merger. In the
ordinary course of our business, ABN AMRO and its affiliates may actively trade
securities of both CAPS and UPC for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the benefit and use of the Board
of Directors of CAPS in its consideration of the Merger and may not be used for
any other purpose or reproduced, disseminated, quoted or referred to at any
time, in any manner or for any purpose without our prior written consent, except
that this letter may be used as part of any proxy statement/prospectus relating
to the Merger. This letter does not address the CAPS's underlying business
decision to enter into the Merger or constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the proposed
Merger. Finally, our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us,
as of the date hereof, and we assume no responsibility to update or revise our
opinion based upon circumstances or events occurring after the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair from a financial point of view to
the stockholders of CAPS.
Sincerely,
ABN AMRO INCORPORATED
C-2
<PAGE> 197
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Charter of the Registrant provides as follows:
TWELFTH: INDEMNIFICATION OF CERTAIN PERSONS:
To the fullest extent permitted by Tennessee law, the Corporation
may indemnify or purchase and maintain insurance to indemnify any of its
directors, officers, employees or agents and any persons who may serve at
the request of the Corporation as directors, officers, employees, trustees
or agents of any other corporation, firm, association, national banking
association, state-chartered bank, trust company, business trust,
organization or any other type of entity whether or not the Corporation
shall have any ownership interest in such entity. Such indemnification(s)
may be provided for in the Bylaws, or by resolution of the Board of
Directors or by appropriate contract with the person involved.
Article V, INDEMNIFICATION, of the Registrant's Amended and Restated
Bylaws provides as follows:
The Corporation does hereby indemnify its directors and officers to
the fullest extent permitted by the laws of the State of Tennessee and by
ARTICLE TWELFTH of its Charter. The Corporation may indemnify any other
person to the extent permitted by the Charter and by applicable law.
Indemnification of corporate directors and officers is governed by
Sections 48-18-501 through 48-18-509 of the Tennessee Business Corporation
Act (the "Act"). Under the Act, a person may be indemnified by a
corporation against judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) actually and necessarily
incurred by him in connection with any threatened or pending suit or
proceeding or any appeal thereof (other than an action by or in the right
of the corporation), whether civil or criminal, by reason of the fact that
he is or was a director or officer of the corporation or is or was serving
at the request of the corporation as a director or officer, employee or
agent of another corporation of any type or kind, domestic or foreign, if
such director or officer acted in good faith for a purpose which he
reasonably believed to be in the best interest of the corporation and, in
criminal actions or proceedings only, in addition, had no reasonable cause
to believe that his conduct was unlawful. A Tennessee corporation may
indemnify a director or officer thereof in a suit by or in the right of
the corporation against amounts paid in settlement and reasonable
expenses, including attorneys' fees, actually and necessarily incurred as
a result of such suit unless such director or officer did not act in good
faith or with the degree of diligence, care and skill which ordinarily
prudent men exercise under similar circumstances and in like positions.
A person who has been wholly successful, on the merits or otherwise,
in the defense of any of the foregoing types of suits or proceedings is
entitled to indemnification for the foregoing amounts. A person who has
not been wholly successful in any such suit or proceeding may be
indemnified only upon the order of a court or a finding that the director
or officer met the required statutory standard of conduct by (i) a
majority vote of a disinterested quorum of the Board of Directors, (ii)
the Board of Directors based upon the written opinion of independent legal
counsel to such effect, or (iii) a vote of the shareholders.
II-1
<PAGE> 198
ITEM 21. EXHIBITS.
The following exhibits are filed herein or have been, as noted,
previously filed:
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- ---------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of November 25, 1997,
by and between Union Planters Corporation and Capital Savings
Bancorp, Inc. (Included as Appendix A to the Proxy Statement
included as part of this Registration Statement.)
2.2 Plan of Merger of Capital Savings Bancorp, Inc. into and with
Union Planters Holding Corporation. (Included as Appendix B to
the Proxy Statement included as part of this Registration
Statement.)
2.3 Stock Option Agreement, dated as of November 25, 1997, by and
between Capital Savings Bancorp, Inc. and Union Planters
Corporation.
4.1 Restated Charter of Union Planters Corporation. (Incorporated by
reference to Exhibit 3(a) to the Quarterly Report on Form 10-Q of
UPC for the three months ended March 31, 1998.)
4.2 Amended and Restated Bylaws of Union Planters Corporation.
(Incorporated by reference to exhibit 3(d) to the Annual Report on
Form 10-K of UPC for the fiscal year ended December 31, 1996 (File
No. 0-6919).)
5.1 Opinion of E. James House, Jr., Secretary and Manager of the Legal
Department of Union Planters Corporation, as to the validity of the
shares of UPC Common Stock.
8.1 Form of opinion of Alston & Bird LLP as to federal income tax
consequences.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Williams -Keppers, LLP, independent auditors for
Capital Savings Bancorp, Inc.
23.3 Consent of E. James House, Jr., Secretary and Manager of the Legal
Department of Union Planters Corporation (included in Exhibit 5.1).
23.4 Consent of Alston & Bird LLP (to be filed by amendment and included
in Exhibit 8.1).
23.5 Consent of ABN AMRO Incorporated
24.1 Power of Attorney (contained on the signature page hereof).
99.1 Form of Proxy of Capital Savings Bancorp, Inc.
</TABLE>
II-2
<PAGE> 199
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
(7) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(8) That every prospectus: (i) that is filed pursuant to Paragraph (7)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee on this the 19th day of February, 1998.
REGISTRANT
UNION PLANTERS CORPORATION
By:/s/ Benjamin W. Rawlins, Jr.
---------------------------------------
Benjamin W. Rawlins, Jr.
Chairman of the Board and
Chief Executive Officer
We, the undersigned directors and officers of Union Planters Corporation
do hereby constitute and appoint E. James House, Jr. and M. Kirk Walters, and
each of them, our true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for us and in our name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, and we do
hereby ratify and confirm all that said attorneys-in-fact and agents, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and at the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Benjamin W. Rawlins, Jr. Chairman of the Board, Chief Executive February 19, 1998
- --------------------------- Officer, Director (Principal
Benjamin W. Rawlins, Jr. Executive Officer)
/s/ Jackson W. Moore President, Chief Operating Officer, February 19, 1998
- ------------------------ Director
Jackson W. Moore
/s/ John W. Parker Executive Vice President and February 19, 1998
- ------------------------ Chief Financial Officer
John W. Parker (Principal Financial Officer)
/s/ M. Kirk Walters Senior Vice President, Treasurer, February 19, 1998
- ------------------------ and Chief Accounting Officer
M. Kirk Walters
/s/ Edgar H. Bailey Vice Chairman of the Board February 19, 1998
- ------------------------ and Director
Edgar H. Bailey
</TABLE>
II-4
<PAGE> 201
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Albert M. Austin Director February 19, 1998
- -------------------------
Albert M. Austin
/s/ Marvin E. Bruce Director February 19, 1998
- -------------------------
Marvin E. Bruce
/s/ George W. Bryan Director February 19, 1998
- -------------------------
George W. Bryan
/s/ James E. Harwood Director February 19, 1998
- -------------------------
James E. Harwood
/s/ Parnell S. Lewis, Jr. Director February 19, 1998
- -------------------------
Parnell S. Lewis, Jr.
/s/ C. J. Lowrance, III Director February 19, 1998
- -------------------------
C. J. Lowrance, III
/s/ Stanley D. Overton Director February 19, 1998
- ------------------------
Stanley D. Overton
/s/ Dr. V. Lane Rawlins Director February 19, 1998
- ------------------------
Dr. V. Lane Rawlins
/s/ Donald F. Schuppe Director February 19, 1998
- ------------------------
Donald F. Schuppe
/s/ Mike P. Sturdivant Director February 19, 1998
- ------------------------
Mike P. Sturdivant
/s/ David M. Thomas Director February 19, 1998
- ------------------------
David M. Thomas
Director _________, 1998
- ------------------------
Richard A. Trippeer, Jr.
Director _________, 1998
- ------------------------
Spence L. Wilson
</TABLE>
II-5
<PAGE> 202
EXHIBIT INDEX
The following exhibits are filed herein or have been, as noted,
previously filed:
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- --------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization, dated as of November 25,
1997, by and between Capital Savings Bancorp, Inc. and Union
Planters Corporation. (Included as Appendix A to the Proxy
Statement included as part of this Registration Statement.)
2.2 Plan of Merger of Capital Savings Bancorp, Inc. into and with
Union Planters Holding Corporation. (Included as Appendix B to
the Proxy Statement included as part of this Registration Statement.)
2.3 Stock Option Agreement, dated as of November 25, 1997, by and
between Capital Savings Bancorp, Inc. and Union Planters
Corporation.
5.1 Opinion of E. James House, Jr., Secretary and Manager of the Legal
Department of Union Planters Corporation, as to the validity of the
shares of UPC Common Stock.
8.1 Opinion of Alston & Bird LLP as to federal income tax consequences.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Williams-Keepers LLP, independent auditors for Capital
Savings Bancorp, Inc.
23.3 Consent of E. James House, Jr., Secretary and Manager of the Legal
Department of Union Planters Corporation (included in Exhibit 5.1)
23.4 Consent of Alston & Bird LLP (to be filed by amendment and included
in Exhibit 8.1).
23.5 Consent of ABN AMRO Incorporated.
24.1 Power of Attorney (contained on the signature page hereof).
99.1 Form of Proxy of Capital Savings Bancorp, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 2.3
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered
into as of November 25, 1997, by and between Capital Savings Bancorp, Inc., a
Delaware corporation ("Issuer"), and Union Planters Corporation, a Tennessee
corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into that certain Agreement
and Plan of Reorganization, dated as of November 25, 1997 (the "Merger
Agreement"), providing for, among other things, the merger of a wholly owned
Subsidiary of Grantee with and into Issuer, with Grantee as the surviving
entity; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has required that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein and in the Merger
Agreement, and intending to be legally bound hereby, Issuer and Grantee agree
as follows:
1. DEFINED TERMS. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Merger
Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set
forth herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 376,460 shares (as adjusted as set forth herein,
the "Option Shares," which shall include the Option Shares before and after any
transfer of such Option Shares) of common stock, $0.01 par value per share
("Issuer Common Stock"), of Issuer at a purchase price per Option Share
(subject to adjustment as set forth herein, the "Purchase Price") equal to
$18.75; provided, however, that in no event shall the number of shares of
Issuer Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Issuer Common stock without giving
effect to any shares subject to or issued pursuant to the Option.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder (as hereinafter
defined), as applicable, shall not be in material breach of its agreements or
covenants contained in this Agreement or the Merger Agreement, and (ii) no
preliminary or permanent injunction or other order against the delivery of
shares covered by the Option issued by any court of competent jurisdiction in
the United States shall be in effect, Holder may exercise the Option, in whole
or in part, at any time and from time to time following the occurrence of a
Purchase Event; provided that the Option shall terminate and be of no further
force and effect upon the earliest to occur of (A) the Effective Time, (B)
termination of the Merger Agreement in accordance with the terms thereof prior
to the occurrence of a Purchase Event or a Preliminary Purchase Event (other
than a termination of the Merger Agreement by Grantee pursuant to (i) Section
10.1(b) thereof (but only if such
<PAGE> 2
termination was a result of a willful breach by Issuer) or (ii) Section 10.1(c)
thereof (each a "Default Termination")), (C) 12 months after a Default
Termination, and (D) 12 months after any termination of the Merger Agreement
(other than a Default Termination) following the occurrence of a Purchase Event
or a Preliminary Purchase Event; provided further, that any purchase of shares
upon exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Bank Holding Company Act of 1956, as amended
(the "BHC Act"), and the Home Owners' Loan Act of 1933, as amended (the
"HOLA"). The term "Holder" shall mean the holder or holders of the Option from
time to time, and which initially is the Grantee. The rights set forth in
Section 8 shall terminate when the right to exercise the Option terminates
(other than as a result of a complete exercise of the Option) as set forth
herein.
(b) As used herein, a "Purchase Event" means any of the
following events subsequent to the date of this Agreement:
(i) without Grantee's prior written consent,
Issuer shall have authorized, recommended, publicly proposed or
publicly announced an intention to authorize, recommend or propose, or
entered into an agreement with any person (other than Grantee or any
Subsidiary of Grantee) to effect an Acquisition Transaction (as
defined below). As used herein, the term Acquisition Transaction
shall mean (A) a merger, consolidation or similar transaction
involving Issuer or any of its Subsidiaries (other than transactions
solely between Issuer's Subsidiaries), (B) except as permitted
pursuant to Section 7.1 of the Merger Agreement, the disposition, by
sale, lease, exchange or otherwise, of Assets of Issuer or any of its
Subsidiaries representing in either case 25% or more of the
consolidated assets of Issuer and its Subsidiaries, or (C) the
issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 25% or more of the voting power of Issuer or any of its
Subsidiaries (any of the foregoing, an "Acquisition Transaction"); or
(ii) any person (other than Grantee or any
Subsidiary of Grantee) shall have acquired beneficial ownership (as
such term is defined in Rule 13d-3 promulgated under the Exchange Act)
of or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under the Exchange Act), other than a group of
which Grantee or any of its Subsidiaries of Grantee is a member, shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 25% or more of the then-outstanding shares of
Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means
any of the following events:
(i) any person (other than Grantee or any
Subsidiary of Grantee) shall have commenced (as such term is defined
in Rule 14d-2 under the Exchange Act), or shall have filed a
registration statement under the Securities Act with respect to, a
tender offer or exchange offer to purchase any shares of Issuer Common
Stock such that, upon consummation of such offer, such person would
own or control 25% or more of the then-
- 2 -
<PAGE> 3
outstanding shares of Issuer Common Stock (such an offer being
referred to herein as a "Tender Offer" or an "Exchange Offer,"
respectively); or
(ii) the holders of Issuer Common Stock shall
not have approved the Merger Agreement at the meeting of such
shareholders held for the purpose of voting on the Merger Agreement,
such meeting shall not have been held or shall have been canceled
prior to termination of the Merger Agreement, or Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to
Grantee the recommendation of Issuer's Board of Directors with respect
to the Merger Agreement, in each case after it shall have been
publicly announced that any person (other than Grantee or any
Subsidiary of Grantee) shall have (A) made a proposal to engage in an
Acquisition Transaction, (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer, or (C) filed an application (or given a notice),
whether in draft or final form, under any federal or state statute or
regulation (including a notice filed under the HSR Act and an
application or notice filed under the BHC Act, the HOLA, the Bank
Merger Act, or the Change in Bank Control Act of 1978) seeking the
Consent to an Acquisition Transaction from any federal or state
governmental or regulatory authority or agency.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) In the event Holder wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein referred
to as the "Notice Date") specifying (i) the total number of Option Shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than three business days nor later than 15 business days from the
Notice Date for the closing (the "Closing") of such purchase (the "Closing
Date"). If prior Consent of any governmental or regulatory agency or authority
is required in connection with such purchase, Issuer shall cooperate with
Holder in the filing of the required notice or application for such Consent and
the obtaining of such Consent and the Closing shall occur immediately following
receipt of such Consents (and expiration of any mandatory waiting periods).
(e) Notwithstanding any other provision of this Agreement
to the contrary, in no event shall:
(i) Holder's (taking into account all other
Holders) Total Profit (as defined below) exceed $2.4 million and, if
it otherwise would exceed such amount, Holder, at its sole election,
shall either (A) reduce the number of shares of Issuer Common Stock
subject to the Option, (B) deliver to Issuer for cancellation Option
Shares previously purchased by Holder, (C) pay cash to Issuer, or (D)
any combination of the foregoing, so that Holder's actually realized
Total Profit shall not exceed $2.4 million after taking into account
the foregoing actions; and
(ii) the Option be exercised for a number of
shares of Issuer Common Stock as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of
- 3 -
<PAGE> 4
more than $2.4 million; provided, that nothing in this clause (ii)
shall restrict any exercise of the Option permitted hereby on any
subsequent date.
As used in this Agreement, the term "Total Profit" shall mean the aggregate sum
(prior to the payment of taxes) of the following: (i) the amount received by
Holder pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 8; (ii) (x) the amount received by Holder pursuant to
Issuer's repurchase of Option Shares pursuant to Section 8, less (y) Holder's
purchase price for such Option Shares; (iii) (x) the net cash amounts received
by Holder pursuant to the sale of Option Shares (or any other securities into
which such Option Shares shall be converted or exchanged) to any unaffiliated
person, less (y) Holder's purchase price of such Option Shares; and (iv) any
amounts received by Grantee on the transfer of the Option (or any portion
thereof) to any unaffiliated person.
As used in this Agreement, the term "Notional Total Profit" with respect to any
number of shares of Issuer Common Stock as to which Holder may propose to
exercise the Option shall be the Total Profit determined as of the date of such
proposed exercise, assuming that the Option were exercised on such date for
such number of shares and assuming that such shares, together with all other
Option Shares held by Holder and its affiliates as of such date, were sold for
cash at the closing sale price per share of Issuer Common Stock as quoted on
the Nasdaq National Market (or, if Issuer Common Stock is not then quoted on
the Nasdaq National Market, the highest bid price per share as quoted on the
principal trading market or securities exchange on which such shares are traded
as reported by a recognized source chosen by Holder) as of the close of
business on the preceding trading day (less customary brokerage commissions).
(f) Grantee agrees, promptly following any exercise of
all or any portion of the Option, and subject to its rights under Section 8, to
use commercially reasonable efforts promptly to maximize the value of Option
Shares purchased, taking into account market conditions, the number of Option
Shares, the potential negative impact of substantial sales on the market price
for Issuer Common Stock, and availability of an effective registration
statement to permit public sale of Option Shares.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer,
in immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of
Option Shares to be purchased on such Closing Date, and (ii) present and
surrender this Agreement to the Issuer at the address of the Issuer specified
in Section 13(f) hereof.
(b) At each Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided in
Section 4(a), (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no pre-emptive rights, and
(B) if the Option is exercised in part only, an executed new agreement with the
same terms as this Agreement evidencing the right to
- 4 -
<PAGE> 5
purchase the balance of the shares of Issuer Common Stock purchasable
hereunder, and (ii) Holder shall deliver to Issuer a letter agreeing that
Holder shall not offer to sell or otherwise dispose of such Option Shares in
violation of applicable federal and state law or of the provisions of this
Agreement.
(c) In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each Closing
shall be endorsed with a restrictive legend which shall read substantially as
follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
NOVEMBER 25, 1997. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN
REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Holder shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby
represents and warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals
referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Issuer.
This Agreement has been duly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all
times from the date hereof until the obligation to deliver Issuer
Common Stock upon the exercise of the Option terminates, will have
reserved for issuance, upon exercise of the Option, the number of
shares of Issuer Common Stock necessary for Holder to exercise the
Option, and Issuer will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Issuer
Common Stock or other securities which may be issued pursuant to
Section 7 upon exercise of the Option. The shares of Issuer Common
Stock to be issued upon due exercise of the Option, including all
additional shares of Issuer Common Stock or other securities which may
be issuable pursuant to Section 7, upon issuance pursuant hereto,
shall be duly and validly issued, fully paid, and nonassessable, and
shall be delivered free and clear of all liens, claims, charges,
- 5 -
<PAGE> 6
and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any shareholder of Issuer.
6. REPRESENTATIONS AND WARRANTS OF GRANTEE. Grantee hereby
represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals
or consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
Grantee. This Agreement has been duly executed and delivered by
Grantee.
(b) This Option is not being, and any Option Shares or
other securities acquired by Grantee upon exercise of the Option will
not be, acquired with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the
Securities Laws.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by
reason of a stock dividend, stock split, split-up, recapitalization,
combination, exchange of shares or similar transaction, the type and number of
shares or securities subject to the Option, and the Purchase Price therefor,
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that Holder shall receive, upon
exercise of the Option, the number and class of shares or other securities or
property that Holder would have received in respect of Issuer Common Stock if
the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7(a) or pursuant to this
Option), the number of shares of Issuer Common Stock subject to the Option
shall be adjusted so that, after such issuance, it, together with any shares of
Issuer Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the Option.
(b) In the event that Issuer shall enter in an agreement:
(i) to consolidate with or merge into any person, other than Grantee or one of
its Subsidiaries, and shall not be the continuing or surviving corporation of
such consolidation or merger; (ii) to permit any person, other than Grantee or
one of its Subsidiaries, to merge into Issuer and Issuer shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of Issuer Common Stock shall be changed into or
exchanged for stock or other securities of Issuer or any other person or cash
or any other property or the outstanding shares of Issuer Common Stock
immediately prior to such merger shall after such merger represent less than
50% of the outstanding shares and share equivalents of the merged company; or
(iii) to sell or otherwise transfer all or substantially all of its Assets to
any person, other than Grantee or one of
- 6 -
<PAGE> 7
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (x) the Acquiring Corporation
(as defined below), (y) any person that controls the Acquiring Corporation, or
(z) in the case of a merger described in clause (ii), the Issuer (in each case,
such person being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as
the Option, provided that, if the terms of the Substitute Option cannot, for
legal reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to Grantee. The Substitute Option
Issuer shall also enter into an agreement with the then-holder or holders of
the Substitute Option in substantially the same form as this Agreement, which
shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of the Substitute Common Stock (as hereinafter defined) as is
equal to the Assigned Value (as hereinafter defined) multiplied by the number
of shares of the Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as hereinafter defined). The
exercise price of the Substitute Option per share of the Substitute Common
Stock (the "Substitute Purchase Price") shall then be equal to the Purchase
Price multiplied by a fraction in which the numerator is the number of shares
of the Issuer Common Stock for which the Option was theretofore exercisable and
the denominator is the number of shares for which the Substitute Option is
exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (y) Issuer in a merger in which Issuer
is the continuing or surviving person, and (z) the transferee of all
or any substantial part of the Issuer's assets (or the assets of its
Subsidiaries).
(ii) "Substitute Common Stock" shall mean the
common stock issued by the Substitute Option Issuer upon exercise of
the Substitute Option.
(iii) "Assigned Value" shall mean the highest of
(x) the price per share of the Issuer Common Stock at which a Tender
Offer or Exchange Offer therefor has been made by any person (other
than Grantee), (y) the price per share of the Issuer Common Stock to
be paid by any person (other than the Grantee) pursuant to an
agreement with Issuer, and (z) the highest closing sales price per
share of Issuer Common Stock quoted on the Nasdaq National Market (or
if Issuer Common Stock is not quoted on the Nasdaq National Market,
the highest bid price per share on any day as quoted on the principal
trading market or securities exchange on which such shares are traded
as reported by a recognized source chosen by Grantee) within the
six-month period immediately preceding the agreement; provided, that
in the event of a sale of less than all of Issuer's assets, the
Assigned Value
- 7 -
<PAGE> 8
shall be the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected
by Grantee (or by a majority in interest of the Grantees if there
shall be more than one Grantee (a "Grantee Majority")), divided by the
number of shares of the Issuer Common Stock outstanding at the time of
such sale. In the event that an exchange offer is made for the Issuer
Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of
the securities or other property issuable or deliverable in exchange
for the Issuer Common Stock shall be determined by a nationally
recognized investment banking firm mutually selected by Grantee and
Issuer (or if applicable, Acquiring Corporation), provided that if a
mutual selection cannot be made as to such investment banking firm, it
shall be selected by Grantee. (If there shall be more than one
Grantee, any such selection shall be made by a Grantee Majority.)
(iv) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for the one
year immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of the shares
of the Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by Issuer, the person
merging into Issuer or by any company which controls or is controlled
by such merger person, as Grantee may elect.
(f) In no event pursuant to any of the foregoing
paragraphs shall the Substitute Option be exercisable for more than 19.9% of
the aggregate of the shares of the Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute Option
would be exercisable for more than 19.9% of the aggregate of the shares of
Substitute Common Stock but for this clause (f), the Substitute Option Issuer
shall make a cash payment to Grantee equal to the excess of (i) the value of
the Substitute Option without giving effect to the limitation in this clause
(f) over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by
a nationally recognized investment banking firm selected by Grantee (or a
Grantee Majority).
(g) Issuer shall not enter into any transaction described
in subsection (b) of this Section 7 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder and take all other actions that may be
necessary so that the provisions of this Section 7 are given full force and
effect (including, without limitation, any action that may be necessary so that
the shares of Substitute Common Stock are in no way distinguishable from or
have lesser economic value than other shares of common stock issued by the
Substitute Option Issuer).
(h) The provisions of Sections 8, 9, 10 and 11 shall
apply, with appropriate adjustments, to any securities for which the Option
becomes exercisable pursuant to this Section 7 and, as applicable, references
in such sections to "Issuer," "Option," "Purchase Price" and "Issuer Common
Stock" shall be deemed to be references to "Substitute Option Issuer,"
"Substitute Option," "Substitute Purchase Price" and "Substitute Common Stock,"
respectively.
- 8 -
<PAGE> 9
8. REPURCHASE AT THE OPTION OF HOLDER.
(a) Subject to the last sentence of Section 3(a), at the
request of Holder at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d)) and ending 12 months immediately
thereafter, Issuer shall repurchase from Holder the Option and all shares of
Issuer Common Stock purchased by Holder pursuant hereto with respect to which
Holder then has beneficial ownership. The date on which Holder exercises its
rights under this Section 8 is referred to as the "Request Date." Such
repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by
Holder for any shares of Issuer Common Stock acquired by Holder
pursuant to the Option with respect to which Holder then has
beneficial ownership;
(ii) the excess, if any, of (x) the Applicable
Price (as defined below) for each share of Issuer Common Stock over
(y) the Purchase Price (subject to adjustment pursuant to Section 7),
multiplied by the number of shares of Issuer Common Stock with respect
to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable
Price over the Purchase Price (subject to adjustment pursuant to
Section 7) paid (or, in the case of Option Shares with respect to
which the Option has been exercised but the Closing Date has not
occurred, payable) by Holder for each share of Issuer Common Stock
with respect to which the Option has been exercised and with respect
to which Holder then has beneficial ownership, multiplied by the
number of such shares.
(b) If Holder exercises its rights under this Section 8,
Issuer shall, within ten business days after the Request Date, pay the Section
8 Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment Holder shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Holder then has beneficial ownership, and
Holder shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or Consent of any governmental or regulatory
agency or authority is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Holder shall have the
ongoing option to revoke its request for repurchase pursuant to Section 8, in
whole or in part, or to require that Issuer deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is not then so
prohibited from paying and promptly file the required notice or application for
Consent and expeditiously process the same (and each party shall cooperate with
the other in the filing of any such notice or application and the obtaining of
any such Consent). If any governmental or regulatory agency or authority
disapproves of any part of Issuer's proposed repurchase pursuant to this
Section 8, Issuer shall promptly give notice of such fact to Holder. If any
governmental or regulatory agency or authority prohibits the repurchase in part
but not in whole, then Holder shall have the
- 9 -
<PAGE> 10
right (i) to revoke the repurchase request or (ii) to the extent permitted by
such agency or authority, determine whether the repurchase should apply to the
Option and/or Option Shares and to what extent to each, and Holder shall
thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Request Date less the sum of
the number of shares covered by the Option in respect of which payment has been
made pursuant to Section 8(a)(ii) and the number of shares covered by the
portion of the Option (if any) that has been repurchased. Holder shall notify
Issuer of its determination under the preceding sentence within five business
days of receipt of notice of disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all
of Holder's rights under this Section 8 shall terminate on the date of
termination of this Option pursuant to Section 3(a).
(c) For purposes of this Agreement, the "Applicable
Price" means the highest of (i) the highest price per share of Issuer Common
Stock paid for any such share by the person or groups described in Section
8(d)(i), (ii) the price per share of Issuer Common Stock received by holders of
Issuer Common Stock in connection with any merger or other business combination
transaction described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (iii) the
highest closing sales price per share of Issuer Common Stock quoted on the
Nasdaq National Market (or if Issuer Common Stock is not quoted on the Nasdaq
National Market, the highest bid price per share as quoted on the principal
trading market or securities exchange on which such shares are traded as
reported by a recognized source chosen by Holder) during the 60 business days
preceding the Request Date; provided, however, that in the event of a sale of
less than all of Issuer's Assets, the Applicable Price shall be the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by an independent nationally
recognized investment banking firm selected by Holder and reasonably acceptable
to Issuer (which determination shall be conclusive for all purposes of this
Agreement), divided by the number of shares of the Issuer Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in good
faith by an independent nationally recognized investment banking firm selected
by Holder and reasonably acceptable to Issuer, which determination shall be
conclusive for all purposes of this Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i)
any person (other than Grantee or any Subsidiary of Grantee) shall have
acquired actual ownership or control, or any "group" (as such term is defined
under the 1934 Act) shall have been formed which shall have acquired actual
ownership or control, of 50% or more of the then-outstanding shares of Issuer
Common Stock, or (ii) any of the transactions described in Section 7(b)(i),
7(b)(ii) or 7(b)(iii) shall be consummated.
(e) In connection with the application of the provisions
of this Section 8, Grantee acknowledges (i) that Issuer's ability to fund the
Section 8 Repurchase Consideration in accordance with the provisions of this
Section 8 may be dependent upon the payment by Issuer's Subsidiaries of a
capital distribution or distributions ("Capital Distribution") to Issuer and
that any such Capital Distribution will be subject to the prior approval of the
Federal Reserve Board and the principal federal and state regulatory agencies
having jurisdiction over Issuer's Subsidiary
- 10 -
<PAGE> 11
banks, and (ii) that, unless there has been an agreement of the type described
in Section 7(b), Issuer's obligations under this Section 8 do not impose on
Issuer an obligation to otherwise finance the payment of the Section 8
Repurchase Consideration through the incurrence of indebtedness or the issuance
of capital instruments or securities by Issuer in either case sufficient in
amount to satisfy the payment of the Section 8 Repurchase Consideration.
Accordingly, Issuer shall not be deemed to be in breach of this Section 8 if,
after making its best efforts to obtain regulatory authorization for a Capital
Distribution required to pay the Section 8 Repurchase Consideration, it is
unable to do so.
9. REGISTRATION RIGHTS.
(a) Following termination of the Merger Agreement
(provided that the Option shall not have terminated), Issuer shall, subject to
the conditions of subparagraph (c) below, if requested by any Holder, including
Grantee and any permitted transferee ("Selling Holder"), as expeditiously as
possible prepare and file a registration statement under the Securities Laws if
necessary in order to permit the sale or other disposition of any or all shares
of Issuer Common Stock or other securities that have been acquired by or are
issuable to Selling Holder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by Holder in such request
(it being understood and agreed that any such sale or other disposition shall
be effected on a widely distributed basis so that, upon consummation thereof,
no purchaser or transferee shall beneficially own more than 2% of the shares of
Issuer Common Stock then outstanding), including, without limitation, a "shelf"
registration statement under Rule 415 under the Securities Act or any successor
provision, and Issuer shall use its best efforts to qualify such shares or
other securities for sale under any applicable state securities laws. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder.
(b) If Issuer at any time after the exercise of the
Option proposes to register any shares of Issuer Common Stock under the
Securities Laws in connection with an underwritten public offering of such
Issuer Common Stock, Issuer will promptly give written notice to Holder of its
intention to do so and, upon the written request of Holder given within 30 days
after receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Selling Holder), Issuer will cause all such shares, the
holders of which shall have requested participation in such registration, to be
so registered and included in such underwritten public offering; provided, that
Issuer may elect to not cause any such shares to be so registered (i) if the
underwriters in good faith object for valid business reasons, or (ii) in the
case of a registration solely to implement a dividend reinvestment or similar
plan, an employee benefit plan or a registration filed on Form S-4 or any
successor form, or a registration filed on a form which does not permit
registrations of resales; provided, further, that such election pursuant to
clause (i) may only be made once. If some but not all the shares of Issuer
Common Stock, with respect to which Issuer shall have received requests for
registration pursuant to this subparagraph (b), shall be excluded from such
registration, Issuer shall make appropriate allocation of shares to be
registered among Selling Holders and any other person (other than Issuer or any
person exercising demand registration rights in connection with such
registration) who or which is permitted to register their shares of Issuer
Common Stock in
- 11 -
<PAGE> 12
connection with such registration pro rata in the proportion that the number of
shares requested to be registered by each Selling Holder bears to the total
number of shares requested to be registered by all persons then desiring to
have Issuer Common Stock registered for sale.
(c) Issuer shall use all reasonable efforts to cause the
registration statement referred to in subparagraph (a) above to become
effective and to obtain all consents or waivers of other parties which are
required therefor and to keep such registration statement effective, provided,
that Issuer may delay any registration of Option Shares required pursuant to
subparagraph (a) above for a period not exceeding 90 days provided Issuer shall
in good faith determine that any such registration would adversely affect an
offering or contemplated offering of other securities by Issuer, and Issuer
shall not be required to register Option Shares under the Securities Laws
pursuant to subparagraph (a) above:
(i) prior to the earliest of (A) termination
of the Merger Agreement pursuant to Section 10.1 thereof, (B) failure
to obtain the requisite shareholder approval pursuant to Section
9.1(a) of the Merger Agreement, and (C) a Purchase Event or a
Preliminary Purchase Event;
(ii) more than once;
(iii) within 90 days after the effective date of
a registration referred to in subparagraph (b) above pursuant to which
the Selling Holders concerned were afforded the opportunity to
register such shares under the Securities Laws and such shares were
registered as requested; and
(iv) unless a request therefor is made to
Issuer by Selling Holders holding at least 25% or more of the
aggregate number of Option Shares then outstanding.
In addition to the foregoing, Issuer shall not be
required to maintain the effectiveness of any registration statement after the
expiration of 120 days from the effective date of such registration statement.
Issuer shall use all reasonable efforts to make any filings, and take all
steps, under all applicable state securities laws to the extent necessary to
permit the sale or other disposition of the Option Shares so registered in
accordance with the intended method of distribution for such shares, provided,
that Issuer shall not be required to consent to general jurisdiction or qualify
to do business in any state where it is not otherwise required to so consent to
such jurisdiction or to so qualify to do business.
(d) Except where applicable state law prohibits such
payments, Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses (including
the fees and expenses of Issuer's counsel), accounting expenses, printing
expenses, expenses of underwriters, excluding discounts and commissions but
including liability insurance if Issuer so desires or the underwriters so
require, and the reasonable fees and expenses of any necessary special experts)
in connection with each registration pursuant to subparagraph (a) or (b) above
(including the related offerings and sales by Selling Holders) and all other
qualifications, notifications or exemptions pursuant to subparagraph (a) or (b)
above.
- 12 -
<PAGE> 13
Underwriting discounts and commissions relating to Option Shares and any other
expenses incurred by such Selling Holders in connection with any such
registration (including expenses of Selling Holders' counsel) shall be borne by
such Selling Holders.
(e) In connection with any registration under
subparagraph (a) or (b) above Issuer hereby indemnifies the Selling Holders,
and each underwriter thereof, including each person, if any, who controls such
holder or underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such expenses,
losses, claims, damages or liabilities of such indemnified party are caused by
any untrue statement or alleged untrue statement that was included by Issuer in
any such registration statement or prospectus or notification or offering
circular (including any amendments or supplements thereto) in reliance upon and
in conformity with, information furnished in writing to Issuer by such
indemnified party expressly for use therein, and Issuer and each officer,
director and controlling person of Issuer shall be indemnified by such Selling
Holder, or by such underwriter, as the case may be, for all such expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged
untrue, statement, that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to Issuer by such holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under
this subparagraph (e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be sought
against any indemnifying party under this subparagraph (e), such indemnified
party shall notify the indemnifying party in writing of the commencement of
such action, but the failure so to notify the indemnifying party shall not
relieve it of any liability which it may otherwise have to any indemnified
party under this subparagraph (e). In case notice of commencement of any such
action shall be given to the indemnifying party as above provided, the
indemnifying party shall be entitled to participate in and, to the extent it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense of such action at its own expense, with counsel chosen by it
and satisfactory to such indemnified party. The indemnified party shall have
the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party
unless (i) the indemnifying party either agrees to pay the same, (ii) the
indemnifying party falls to assume the defense of such action with counsel
satisfactory to the indemnified party, or (iii) the indemnified party has been
advised by counsel that one or more legal defenses may be available to the
indemnifying party that may be contrary to the interest of the indemnified
party, in which case the indemnifying party shall be entitled to assume the
defense of such action notwithstanding its obligation to bear fees and expenses
of such counsel. No indemnifying party shall be liable for any settlement
entered into without its consent, which consent may not be unreasonably
withheld.
- 13 -
<PAGE> 14
If the indemnification provided for in this
subparagraph (e) is unavailable to a party otherwise entitled to be indemnified
in respect of any expenses, losses, claims, damages or liabilities referred to
herein, then the indemnifying party, in lieu of indemnifying such party
otherwise entitled to be indemnified, shall contribute to the amount paid or
payable by such party to be indemnified as a result of such expenses, losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative benefits received by Issuer, all Selling Holders and the
underwriters from the offering of the securities and also the relative fault of
Issuer, all Selling Holders and the underwriters in connection with the
statements or omissions which resulted in such expenses, losses, claims,
damages or liabilities, as well as any other relevant equitable considerations.
The amount paid or payable by a party as a result of the expenses, losses,
claims, damages and liabilities referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim; provided, that
in no case shall any Selling Holder be responsible, in the aggregate, for any
amount in excess of the net offering proceeds attributable to its Option Shares
included in the offering. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. Any obligation by any holder to indemnify shall be several
and not joint with other holders.
In connection with any registration pursuant to
subparagraph (a) or (b) above, Issuer and each Selling Holder (other than
Grantee) shall enter into an agreement containing the indemnification
provisions of this subparagraph (e).
(f) Issuer shall comply with all reporting requirements
and will do all such other things as may be necessary to permit the expeditious
sale at any time of any Option Shares by Holder in accordance with and to the
extent permitted by any rule or regulation promulgated by the SEC from time to
time, including, without limitation, Rules 144 and 144A.
(g) Issuer will pay all stamp taxes in connection with
the issuance and the sale of the Option Shares and in connection with the
exercise of the Option, and will save Holder harmless, without limitation as to
time, against any and all liabilities, with respect to all such taxes.
10. QUOTATION; LISTING. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then authorized for
quotation or trading or listing on the Nasdaq National Market or any other
securities exchange or any automated quotations system maintained by a
self-regulatory organization, Issuer, upon the request of Holder, will promptly
file an application, if required, to authorize for quotation or trading or
listing the shares of Issuer Common Stock or other securities to be acquired
upon exercise of the Option on the Nasdaq National Market or any other
securities exchange or any automated quotations system maintained by a
self-regulatory organization and will use its best efforts to obtain approval,
if required, of such quotation or listing as soon as practicable.
11. DIVISION OF OPTION. This Agreement (and the Option granted
hereby) are exchangeable, without expense, at the option of Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer
for other Agreements providing for Options of
- 14 -
<PAGE> 15
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Issuer Common Stock purchasable
hereunder. The terms "Agreement" and "Option" as used herein include any other
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
12. MISCELLANEOUS.
(a) EXPENSES. Except as otherwise provided in Section 9,
each of the parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) WAIVER AND AMENDMENT. Any provision of this
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended,
altered or supplemented except upon the execution and delivery of a written
agreement executed by the parties hereto.
(c) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARY;
SEVERABILITY. This Agreement, together with the Merger Agreement and the other
documents and instruments referred to herein and therein, between Grantee and
Issuer (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
person other than the parties hereto (other than any transferees of the Option
Shares or any permitted transferee of this Agreement pursuant to Section 12(h)
and other than as provided in the Merger Agreement) any rights or remedies
hereunder. If any term, provision, covenant or restriction of this Agreement
is held by a court of competent jurisdiction or a federal or state governmental
or regulatory agency or authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option does not permit Holder to acquire, or does
not require Issuer to repurchase, the full number of shares of Issuer Common
Stock as provided in Sections 3 and 8 (as adjusted pursuant to Section 7), it
is the express intention of Issuer to allow Holder to acquire or to require
Issuer to repurchase such lesser number of shares as may be permissible without
any amendment or modification hereof.
(d) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Tennessee without regard
to any applicable conflicts of law rules.
- 15 -
<PAGE> 16
(e) DESCRIPTIVE HEADINGS. The descriptive headings
contained herein are for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
(f) NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to the parties at the addresses set forth in
the Merger Agreement(or at such other address for a party as shall be specified
by like notice).
(g) COUNTERPARTS. This Agreement and any amendments
hereto may be executed in two counterparts, each of which shall be considered
one and the same agreement and shall become effective when both counterparts
have been signed, it being understood that both parties need not sign the same
counterpart.
(h) ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except that
Grantee may assign this Agreement to a wholly owned Subsidiary of Grantee and
Grantee may assign its rights hereunder in whole or in part after the
occurrence of a Purchase Event. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
(i) FURTHER ASSURANCES. In the event of any exercise of
the Option by Holder, Issuer and Holder shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
(j) SPECIFIC PERFORMANCE. The parties hereto agree that
this Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection
with the obtaining of any such equitable relief and that this provision is
without prejudice to any other rights that the parties hereto may have for any
failure to perform this Agreement.
- 16 -
<PAGE> 17
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
ATTEST: CAPITAL SAVINGS BANCORP, INC.
By: /s/ MARILYN CURTIT By: /s/ LARRY V. SCHEPERS
------------------------------- --------------------------------
Marilyn Curtit Larry V. Schepers
Secretary Chairman of the Board and
Chief Executive Officer
[CORPORATE SEAL]
ATTEST: UNION PLANTERS CORPORATION
By: /s/ E. JAMES HOUSE, JR. By: /s/ BENJAMIN W. RAWLINS, JR.
------------------------------- --------------------------------
E. James House, Jr. Benjamin W. Rawlins, Jr.
Secretary Chairman and Chief Executive Officer
[CORPORATE SEAL]
- 17 -
<PAGE> 1
EXHIBIT 5.1
-----------
[UNION PLANTERS CORPORATION LETTERHEAD]
May 28, 1998
Union Planters Corporation
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Re: 801,338 SHARES OF THE COMMON STOCK, $5.00
PAR VALUE PER SHARE OF UNION PLANTERS
CORPORATION, A TENNESSEE CORPORATION ("UPC")
Ladies and Gentlemen:
The undersigned has participated in the preparation of a registration
statement on Form S-4 (the "Registration Statement") for filing with the
Securities and Exchange Commission in respect to not more than 801,338 shares
of UPC's common stock, $5.00 par value per share, including accompanying
Preferred Share Rights ("UPC Common Stock") which may be issued by UPC pursuant
to an Agreement and Plan of Reorganization, dated as of November 25, 1997, by
and between UPC and Capital Savings Bancorp, Inc. ("CSB") (the "Agreement").
For purposes of rendering the opinion expressed herein, the
undersigned has examined UPC's corporate charter and all amendments thereto;
UPC's bylaws and amendments thereto; the Agreement and such of UPC's corporate
records as the undersigned has deemed necessary and material to rendering the
undersigned's opinion. The undersigned has relied upon certificates of public
officials and representations of UPC officials, and has assumed that all
documents examined by the undersigned as originals are authentic, that all
documents submitted to the undersigned as photocopies are exact duplicates of
original documents, and that all signatures on all documents are genuine.
Further, the undersigned is familiar with, and has supervised all
corporate action taken in connection with the authorization of the issuance and
offering of the subject securities.
Based upon and subject to the foregoing and subsequent assumptions,
qualifications and exceptions, it is the undersigned's opinion that:
1. UPC is a duly organized and validly existing corporation in good
standing under the laws of the State of Tennessee and has all requisite power
and authority to issue, sell and deliver the subject securities, and to carry on
its business and own its property; and
2. The shares of UPC Common Stock to be issued by UPC pursuant to the
Merger have been duly authorized and when issued by UPC in accordance therewith,
such shares of UPC Common Stock will be fully paid and nonassessable.
3. The opinion expressed above is limited by the following
assumptions, qualifications, and exceptions.
(a) The undersigned is licensed to practice law only in the State
of Tennessee and expresses no opinion with respect to the effect of the laws
other than those of the State of Tennessee and of the United States of America.
<PAGE> 2
Union Planters Corporation
May 28, 1998
(b) The opinion stated herein is based upon statutes, regulations,
rules, court decisions, and other authorities existing and effective as of the
date of this opinion, and the undersigned undertakes no responsibility to update
or supplement said opinion in the event of or in response to any subsequent
changes in the law or said authorities, or upon the occurrence after the date
hereof of events or circumstances that, if occurring prior to the date hereof,
might have resulted in a different opinion.
(c) This opinion is limited to the legal matters expressly set
forth herein, and no opinion is to be implied or inferred beyond the legal
matters expressly so addressed.
The undersigned hereby consents to the undersigned being named as a
party rendering a legal opinion under the caption "Opinions" in the Joint Proxy
Statement constituting part of the Registration Statement and to the filing of
this opinion with the Securities and Exchange Commission as well as all state
regulatory bodies and jurisdictions where qualification is sought for the sale
of the subject securities.
The undersigned is an officer of, and receives compensation from UPC
and therefore is not independent from UPC.
Very truly yours,
UNION PLANTERS CORPORATION
By: /s/ E. James House, Jr.
-------------------------
E. James House, Jr.
<PAGE> 1
EXHIBIT 8.1
ALSTON&BIRD LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
404-881-7000
Fax: 404-881-4777
www.alston.com
PHILIP C. COOK DIRECT DIAL: 404-881-7000
May __, 1998
FORM OF TAX OPINION
Union Planters Corporation
7130 Goodlett Farms Parkway
Memphis, Tennessee 38018
Capital Savings Bancorp, Inc.
425 Madison Street
Jefferson City, Missouri 65101
Re: Plan of Merger Involving Union Planters Corporation and Capital
Bancorp
Ladies and Gentlemen:
We have acted as counsel to Union Planters Corporation ("UPC"), a
corporation organized and existing under the laws of Tennessee, in connection
with the proposed merger (the "Merger") of Capital Savings Bancorp, Inc.
("Capital"), a corporation organized and existing under the laws of Delaware
with and into Union Planters Holding Corporation ("UPHC"), a wholly-owned,
first-tier subsidiary of UPC organized under the laws of Tennessee, pursuant to
the Agreement and Plan of Reorganization by and between Capital and UPC made and
entered into as of November 25, 1997 (the "Agreement"). All capitalized terms
used herein without definition shall have the respective meanings specified in
the Agreement, and unless otherwise specified, all section references herein are
to the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to the
Merger, and as more fully described in the Agreement, each share of Capital
Common Stock issued and outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and exchanged for the right to receive a
certain specified number of shares of UPC Common Stock. Each share of UPC Common
Stock issued pursuant to the Merger will be accompanied by a UPC Right.
In our capacity as counsel to UPC, our opinion has been requested with
respect to certain of the federal income tax consequences of the Merger. In
rendering this opinion, we have examined such documents as we deemed
appropriate, including the Agreement;
601 Pennsylvania
1211 East Morehead Avenue, N.W.
Street 3605 Glenwood Avenue, North Building, 11th
P. O. Drawer 34009 Suite 310 Floor
Charlotte, NC P. O. Drawer 31107 Washington, DC
28234-4009 Raleigh, NC 27622-1107 20004-2601
704-331-6000 919-420-2200 202-756-3300
Fax: 704-334-2014 Fax: 919-881-3175 Fax: 202-756-3333
<PAGE> 2
Union Planters Corporation
Capital Savings Bancorp, Inc.
May __, 1998
Page 2
the Registration Statement on Form S-4 filed by UPC with the Securities and
Exchange Commission under the Securities Act of 1933, on May 28 1998, as
amended, including the Proxy Statement/Prospectus for the Special Meeting of the
shareholders of Capital (together the "Registration Statement"); and such
additional documents as we have considered relevant. In rendering our opinion,
we have assumed that the Agreement and the Registration Statement accurately and
completely describe the Merger and that the Merger will be consummated in
accordance with the Agreement.
In rendering the opinion expressed herein, we have relied, with the
consent of Capital and UPC, upon the accuracy and completeness of the statements
and representations (which statements and representations we have neither
investigated nor verified) contained in the certificates of Capital and UPC to
us dated May ___, 1998, and May ___, 1998, respectively, and have assumed that
such certificates are complete and accurate as of the date hereof, and will be
complete and accurate as of the Effective Time. Our opinions cannot be relied
upon if any of the facts contained in the certificate of Capital or UPC is, or
later becomes, inaccurate.
On the basis of the foregoing, it is our opinion under presently
applicable federal income tax law that:
(1) The Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Code, and each of UPC, UPHC and Capital will be a
party to the reorganization within the meaning of Section 368(b) of the
Code.
(2) No gain or loss will be recognized by Capital, UPC or UPHC as a
result of the Merger.
(3) No gain or loss will be recognized by a shareholder of Capital
upon the receipt of UPC Common Stock and UPC Rights solely in exchange for
all of his or her shares of Capital Common Stock.
(4) The basis of the UPC Common Stock received by a shareholder of
Capital in the Merger will be the same as the basis of the Capital Common
Stock surrendered in exchange therefor less the basis allocated to any
fractional share of UPC Common Stock settled by cash payment.
(5) The holding period of the UPC Common Stock received by a
shareholder of Capital (including the holding period of any fractional
share interest) will include the holding period of the Capital Common
Stock surrendered
<PAGE> 3
Union Planters Corporation
Capital Savings Bancorp, Inc.
May __, 1998
Page 3
in exchange therefor, provided the Capital Common Stock was held as a
capital asset on the date of the exchange.
(6) The payment of cash in lieu of a fractional share of interest in
UPC Common Stock will be treated as if the fractional shares were issued
as part of the exchange and then redeemed by UPC. These cash payments will
be treated under Section 302(a) of the Code as having been received as
distributions in full payment in exchange for the fractional shares of UPC
Common Stock redeemed. Generally, any gain or loss recognized upon such
exchange will be capital gain or loss, provided the fractional share would
constitute a capital asset in the hands of the exchanging shareholder.
Our opinion is based upon existing statutory, regulatory, and judicial
authority, any of which may be changed at any time with retroactive effect. Our
opinion does not address the tax consequences applicable to special classes of
taxpayers including, without limitation, shareholders of Capital who hold their
stock other than as a capital asset, non-U.S. shareholders, tax exempt entities
and persons who acquired the Capital stock as compensation. Our opinion is
limited to the tax matters specifically covered herein, and we have not been
asked to address, nor have we addressed, any other tax consequences of the
Merger, including for example, any issues related to intercompany transactions,
changes in accounting methods resulting from the Merger, or the consequences of
the Merger under state, local or foreign law.
We hereby consent to the use of this opinion and to the references made to
Alston & Bird LLP in the Registration Statement under the captions
"Summary--Certain Federal Income Tax Consequences of the Merger" and
"Description of the Transactions--Certain Federal Income Tax Consequences of the
Merger" and to the filing of the opinion as an exhibit to the Registration
Statement.
Very truly yours,
ALSTON & BIRD LLP
By:________________________
Philip C. Cook, Partner
PCC:SA:mlt
<PAGE> 1
EXHIBIT 23.1
CONSENT OF
INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Union Planters Corporation of our report dated January 15, 1998, except
as to Note 2 which is as of March 3, 1998, which appears on page 41 of
Union Planters Corporation's 1997 Annual Report to Shareholders, which is
incorporated by reference in its Annual Report on Form 10-K of the year ended
December 31, 1997. We also consent to the reference to us under the heading
"EXPERTS" in such Proxy Statement/Prospectus.
/s/ PRICE WATERHOUSE LLP
Memphis, Tennessee
May 29, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF WILLIAMS-KEEPERS LLP
We consent to the inclusion in this Registration Statement of Union
Planters Corporation on Form S-4 of our report dated August 1, 1997 (except
with respect to Note 18 of the Notes to Consolidated Financial Statements as to
which the date is June 1, 1998) which appears on page F-2 of the Registration
Statement, and to the reference to us under the heading "EXPERTS" in this
Registration Statement.
Williams-Keepers LLP
/s/ Williams-Keepers LLP
---------------------------------
June 1, 1998
<PAGE> 1
CONSENT OF ABN AMRO INCORPORATED
We hereby consent: (i) to the use of our name and to the description of our
draft opinion letter, which has been approved by us, under the captions
"SUMMARY - The Merger - Opinion of Financial Advisor" and "DESCRIPTION OF
TRANSACTION - Opinion of Capital's Financial Advisor" in; and (ii) to the
inclusion of such draft opinion letter as Appendix C to, Capital Savings
Bancorp, Inc.'s and Union Planters Corporation's joint Proxy
Statement/Prospectus which is part of Union Planters Corporation's Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
on June 1, 1998, with this consent as an exhibit. Currently, we anticipate
delivering to Capital Savings Bancorp, Inc.'s Board of Directors an opinion of
even date with the Proxy Statement/Prospectus in substantially the same form as
our draft opinion. By giving such consent we do not thereby admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "expert" as used in, or that may come within the category
of persons whose consent is required under, Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
ABN AMRO INCORPORATED
By: /s/ BARRY FORRESTER
-----------------------
Barry I. Forrester
Vice President
Chicago, Illinois
June 1, 1998
<PAGE> 1
EXHIBIT 99.1
CAPITAL SAVINGS BANCORP, INC.
SPECIAL MEETING, ____________, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Larry V. Schepers and Arthur Wanhum, or
either of them in case the other is unable or unwilling to act, as Proxies, each
with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all of the shares of voting stock of
Capital Savings Bancorp, Inc. held of record by the undersigned on
May 29, 1998, at the Special Meeting of Shareholders to be held on
_________, 1998 or any adjournments thereof. The affirmative vote of a majority
of the shares represented at the meeting may authorize the adjournment of the
meeting; provided, however, that no proxy which is voted against the Merger
Agreement will be voted in favor of adjournment to solicit further proxies for
such proposal.
1. Adoption of the Agreement and Plan of Reorganization (the "Merger
Agreement"), dated as of November 25, 1997, by and between Union Planters
Corporation and Capital Savings Bancorp, Inc. and the related Plan of
Merger by and between Capital Savings Bancorp, Inc. and Union Planters
Holding Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER, BUT IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT.
The undersigned acknowledges receipt from Capital Savings Bancorp, Inc.
prior to the execution of this Proxy of Notice of the Special Meeting and the
related Proxy Statement/Prospectus.
DATED: ___________________________, 1998
---------------------------------------
Signature
---------------------------------------
Signature, if held jointly
Please sign exactly as name appears on
this Proxy Card. When shares are held by
joint tenants, both should sign. When
signing as attorney-in-fact, executor,
administrator, personal representative,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by President
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person
<PAGE> 2
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
