<PAGE> 1
As filed with the Securities
and Exchange Commission on __________, 1996 Registration No. 33-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------
UNIONBANCORP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6027 36-3145350
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------
122 WEST MADISON STREET
OTTAWA, ILLINOIS 61350
(815) 434-3900
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------
R. SCOTT GRIGSBY
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
UNIONBANCORP, INC.
122 WEST MADISON STREET
OTTAWA, ILLINOIS 61350
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
With copies to:
JOHN E. FREECHACK, ESQ. RICHARD G. CLEMENS, ESQ.
DENNIS R. WENDTE, ESQ. TRACY D. DAW, ESQ.
BARACK, FERRAZZANO, KIRSCHBAUM & PERLMAN SIDLEY & AUSTIN
333 WEST WACKER DRIVE, SUITE 2700 ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60603
(312) 984-3100 (312) 853-7000
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class Amount to be Offering Price Aggregate Amount of
of Securities to be Registered Registered (1) per Share (2) Offering Price (2) Registration Fee
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Common Stock, $1.00 Par Value 1,265,000 $11.50 $14,547,500 $5,017
- ---------------------------------------------------------------------------------------------------------
Preferred Stock Purchase Rights 1,265,000 (3) (3) (3)
=========================================================================================================
</TABLE>
(1) Includes 165,000 shares of Common Stock subject to the Underwriter's
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) The Preferred Stock Purchase Rights of the Company initially are attached
to and trade with shares of the Company's Common Stock being registered
hereby. No consideration will be received by the Registrant for the
issuance of such securities.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date 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 said Section 8(a),
may determine.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICIATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED ____________, 1996
1,100,000 SHARES
UNIONBANCORP, INC.
COMMON STOCK
All of the shares of Common Stock, par value $1.00 per share (the
"Common Stock"), of UnionBancorp, Inc. (the "Company") being offered hereby
(this "Offering") are being sold by the Company. The Company, which is
headquartered in Ottawa, Illinois, had two subsidiary banks as of June 30,
1996, UnionBank, with its main office located in Streator, Illinois, and
UnionBank/Sandwich, with its main office located in Sandwich, Illinois. In
August, 1996, the Company purchased Prairie Bancorp, Inc., a multi-bank holding
company headquartered in Princeton, Illinois, and its six bank subsidiaries.
See "The Acquisitions -- Prairie Bancorp, Inc. -- Business." Immediately prior
to the closing of this Offering, the Company also expects to complete the
purchase of Country Bancshares, Inc., a bank holding company headquartered in
Macomb, Illinois, and its bank subsidiary, Omni Bank. See "The Acquisitions --
Country Bancshares, Inc. -- Business." The proceeds of this Offering will be
used to retire debt that was incurred or assumed by the Company in connection
with these acquisitions. See "Use of Proceeds" and "The Acquisitions."
The Common Stock is currently quoted on the OTC Bulletin Board, and is
expected to be approved for quotation on the Nasdaq National Market under the
symbol "UBCD" prior to consummation of the Offering. As of August 5, 1996, the
last per share sale price for Common Stock quoted on the OTC Bulletin Board was
$11.00. See "Market for Common Stock and Dividends."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
SEE "INVESTMENT CONSIDERATIONS" BEGINNING ON PAGE 14 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH PROSPECTIVE INVESTOR.
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
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- --------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------
Total(3) $ $ $
========================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the
Company, estimated at $___________________.
(3) The Company has granted the Underwriter a 30-day option
to purchase up to 165,000 additional shares of Common Stock, on
the same terms and conditions as set forth above, solely to cover
over-allotments, if any. See "Underwriting." If the Underwriter
exercises such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be
$________________, $______________ and $________________,
respectively.
The shares of Common Stock are offered by the Underwriter when, as and
if received and accepted by it, subject to its right to reject orders in whole
or in part and subject to certain other conditions. It is expected that
delivery of the certificates for the shares of Common Stock will be made
against payment therefor in Chicago, Illinois, on or about ______________,
1996.
HOEFER & ARNETT
INCORPORATED
_____________, 1996
<PAGE> 3
UNIONBANCORP, INC.
CURRENT AND PROPOSED MARKET AREA
[MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus.
All per share amounts in this Prospectus have been adjusted for a three-for-one
split of the Common Stock in the form of a dividend which took effect on May
20, 1996. Unless the context clearly suggests otherwise, references in this
Prospectus to the Company include all of its direct and indirect subsidiaries.
Except as otherwise indicated, the information contained in this Prospectus
assumes the Underwriter's over-allotment option is not exercised.
THE COMPANY
UnionBancorp, Inc. (the "Company"), is a multi-bank holding company
headquartered in Ottawa, Illinois, located approximately 85 miles southwest of
Chicago. The Company is one of the leading banking and trust institutions in
LaSalle and contiguous counties in north central Illinois as evidenced by its
approximate 11% share of deposits in LaSalle County. The Company conducts a
full service community banking and trust business through its two subsidiary
banks: UnionBank ("UnionBank/Streator") and UnionBank/Sandwich
("UnionBank/Sandwich," and collectively with UnionBank/Streator, the "Union
Banks"). The Company also operates three non-bank subsidiaries engaged in
providing data processing, debt collection and property management services to
the Union Banks and third parties. At June 30, 1996, the Company had
consolidated assets of approximately $296.6 million, deposits of approximately
$259.1 million and stockholders' equity of approximately $23.5 million.
UnionBank/Streator has four locations in Ottawa, three in Streator, and
one in each of Triumph and Peru, Illinois. UnionBank/Sandwich has one location
in each of Sandwich and Plano, Illinois. The Union Banks operate as community
banks that focus on long-term relationships with customers and providing
individualized quality service. Reflecting its community banking heritage, the
Company has a stable deposit base from customers located within its north
central Illinois market area. Its recent financial performance is
characterized by consistent core earnings, an increasingly diversified loan
portfolio and strong asset quality.
On August 6, 1996, the Company acquired six additional bank subsidiaries
through the purchase of Prairie Bancorp, Inc. ("Prairie"), a multi-bank holding
company headquartered in Princeton, Illinois. The main offices of Prairie's
subsidiary banks (collectively, the "Prairie Banks") are located in the
Illinois communities of Ferris, Hanover, Ladd, Manlius, Tampico and Tiskilwa.
The Prairie Banks also have branches in three other Illinois communities.
Immediately prior to the closing of this Offering, the Company also expects to
complete the acquisition of Country Bancshares, Inc., a one-bank holding
company headquartered in Hull, Illinois ("Country"), with offices in six
western Illinois communities not currently served by the Company. The
acquisitions of Prairie and Country (the "Acquisitions") will increase the
total assets of the Company from approximately $296.6 million to $633.3
million, an increase of 114%. See the summary descriptions of the acquisitions
set forth below and "The Acquisitions."
The Company's strategic plan contemplates an increase in profitability and
stockholder value through a significant expansion of the Company's market area,
substantial growth in its asset size and improved operational efficiencies. In
1993, the Company began implementing this plan by realigning its management
structure through the redefinition of certain officers' duties and functions,
hiring additional experienced senior executives and developing among its
employees an aggressive sales culture. The acquisitions of Prairie and Country
are expected to increase significantly the presence of the Company within the
region's banking industry. Because of the reputations of the Company and its
executive officers in the banking industry, the Company believes that it will
be an attractive alternative to future sellers of community banks and thrifts.
The Company believes that it can successfully manage these community-based
institutions to increase their profitability by expanding cross-selling efforts
and emphasizing those products and services offering the highest return on
investment.
The Company's operating strategy is to provide customers with the business
sophistication and breadth of products of a regional financial services
company, while retaining the special attention to personal service and the
local appeal of a community bank. Decentralized decision making authority
vested in the presidents and senior officers of the Company's bank subsidiaries
allows for rapid response time and flexibility in dealing with customer
requests and credit needs. The participation of the Company's directors,
officers and employers in area civic and
3
<PAGE> 5
service organizations demonstrates the Company's continuing commitment to
the communities it serves. Management believes that these qualities
distinguish the Company from its competitors and will allow the Company to
compete successfully in its market area against larger regional and out of
state institutions.
THE ACQUISITIONS
The acquisition of Prairie was completed on August 6, 1996, and the
acquisition of Country is expected to be consummated immediately prior to the
closing of this Offering. The Acquisitions will increase the Company's assets
from $296.6 million to $633.3 million and the number of its banking locations
from 11 to 27.
Prairie is a multi-bank holding company that owns the six Prairie Banks.
In addition to their respective main office locations, the Prairie Banks have
four branch locations in the Illinois communities of Carthage, Elizabeth and
Princeton. Country is a one-bank holding company that owns all of the capital
stock of Omni Bank. Omni Bank's main office is located in Macomb, Illinois,
with branch locations in five nearby Illinois communities. Prairie and Country
had consolidated assets at June 30, 1996, of approximately $226.0 million and
$103.2 million, respectively.
Management of the Company believes that the Acquisitions present an
excellent opportunity for increased earnings. The Prairie Banks have
traditionally maintained a low loan to deposit ratio and instead have
concentrated on attempting to increase earnings through management of their
investment portfolios. Recently, profitability of the Prairie Banks has
declined as interest rates have continued to rise and investment portfolio
values have fallen. The Company intends to increase the profitability of the
Prairie Banks by expanding their loan portfolios. The Company believes that it
can grow the Prairie Banks' loan portfolios by enhancing marketing efforts,
expanding loan products and increasing employee training. The Company also
believes that by following a more conservative investment policy, it will be
able to reduce the size of and better manage the investment portfolios of the
Prairie Banks.
Omni Bank has experienced rapid growth in recent years. In certain
circumstances, this rapid growth has strained Omni Bank's administrative and
data processing capabilities. The Company believes that consolidation of the
administrative operations of Omni Bank and improved management controls will
lead to improved efficiencies and will help to ensure that future expansion is
managed profitably.
In addition to the immediate increase in asset size and the potential for
improved future profitability, the Acquisitions will allow the Company to
expand its market area into what it believes are desirable banking locations.
Most of the Prairie Banks are the sole financial institution in their
communities and many are located in county seats and Omni Bank is based in a
growing college community. Through the Acquisitions, the Company will increase
from two bank subsidiaries with eleven locations in north central Illinois, to
nine bank subsidiaries and twenty seven locations in thirteen counties across
northern, north central and western Illinois. The resulting market area of the
Company will extend from the far western suburbs of the Chicago metropolitan
area across central and northern Illinois to the Mississippi River in western
Illinois. This expansion will increase the geographic diversity of the
Company's loan portfolio which is expected to decrease the Company's overall
lending risks. See "The Acquisitions -- Prairie Bancorp, Inc." and "-- Country
Bancshares, Inc."
4
<PAGE> 6
The table below presents certain unaudited condensed and consolidated
historical financial and operating data for the Company and certain unaudited
pro forma condensed combined financial and operating data for the Company after
giving effect to (i) this Offering, (ii) the Acquisitions as if they had each
occurred as of June 30, 1996 and (iii) the pro forma adjustments described in
the Notes to the Unaudited Pro Forma Combined Condensed Financial Statements of
the Company which appear elsewhere in this Prospectus. The amount of Pro Forma
Combined Net Income for the six-month period ended June 30, 1996, shown below
does not reflect revenue enhancements or cost savings anticipated by management
of the Company as a result of the Acquisitions.
<TABLE>
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, 1996
-----------------------
PRO FORMA
ACTUAL COMBINED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets............................................. $296,605 $633,254
Loans, net of unearned discount.................... 185,840 325,001
Deposits........................................... 259,087 537,773
Stockholders' equity............................... 23,452 41,659
Net income......................................... 1,111 1,526
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Stock being offered hereby....... 1,100,000 shares(1)
Common Stock outstanding after
the Offering..................... 3,951,403 shares(1)
Use of proceeds.................. The net proceeds of the Offering will be
used to facilitate the Acquisitions by
retiring debt that was incurred or
assumed by the Company in connection with
the Acquisitions, thus allowing the
Company to continue to meet its necessary
regulatory capital requirements. See
"Use of Proceeds."
Nasdaq symbol.................... "UBCD"
</TABLE>
- --------------
(1) An additional 165,000 shares of Common Stock may be sold pursuant to an
over-allotment option granted by the Company to the Underwriter. See
"Underwriting."
5
<PAGE> 7
UNIONBANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
STATEMENT OF INCOME DATA 1996 1995 1995 1994 1993 1992 1991
-------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $ 11,278 $ 10,193 $21,368 $ 18,627 $ 18,604 $ 20,127 $ 19,437
Interest expense....................... 5,850 5,217 11,249 8,706 8,798 10,482 11,595
-------- --------- --------- --------- --------- --------- ---------
Net interest income................... $ 5,428 $ 4,976 $10,119 $ 9,921 $ 9,806 9,645 7,842
Provision for loan losses.............. 500 342 684 660 1,268 1,297 650
-------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for loan losses....................... $ 4,928 $ 4,634 $ 9,435 $ 9,261 $ 8,538 $ 8,348 $ 7,192
Noninterest income..................... 1,324 1,187 2,570 2,283 2,512 1,893 1,580
Noninterest expense.................... 4,761 4,413 8,771 8,247 7,841 7,335 6,965
-------- --------- --------- --------- --------- --------- ---------
Net income before income taxes......... $ 1,491 $ 1,408 $ 3,234 $ 3,297 $ 3,209 $ 2,906 $ 1,807
Provision (credit) for income taxes.... 380 365 881 703 747 595 507
-------- --------- --------- --------- --------- --------- ---------
Net income............................. $ 1,111 $ 1,043 $ 2,353 $ 2,594 $ 2,462 $ 2,311 $ 1,300
======== ========= ========= ========= ========= ========= =========
PER SHARE DATA(1)
Net income............................. $ 0.51 $ 0.49 $ 1.09 $ 1.22 $ 1.15 $ 1.08 $ 0.61
Cash dividends......................... 0.07 0.07 0.13 0.12 0.09 0.07 0.07
Dividend payout ratio.................. 12.77% 13.61% 12.06% 9.57% 7.78% 6.13% 10.91%
Book value............................. $ 11.00 $ 10.40 $ 11.01 $ 9.21 $ 8.92 $ 7.83 $ 6.82
Weighted average shares outstanding.... 2,169,012 2,131,737 2,148,897 2,132,712 2,132,760 2,132,760 2,136,195
Period end shares outstanding.......... 2,131,737 2,131,737 2,131,737 2,131,737 2,132,760 2,132,760 2,132,760
BALANCE SHEET DATA
Investments and Federal funds sold..... $ 87,154 $ 89,376 $95,182 $ 86,460 $ 95,098 $ 83,057 $ 90,902
Total loans............................ 185,840 175,227 180,819 161,134 148,371 146,569 131,915
Allowance for loan losses.............. 1,597 1,871 2,014 1,704 1,787 1,586 1,384
Total assets........................... 296,605 282,987 303,533 272,038 266,666 249,121 240,535
Total deposits......................... 259,087 247,939 261,727 232,334 237,455 222,513 214,520
Stockholders' equity................... 23,452 22,164 23,475 19,629 19,026 16,702 14,553
EARNINGS PERFORMANCE DATA
Return on average total assets(2)...... 0.75% 0.76% 0.83% 0.98% 0.97% 0.95% 0.60%
Return on average stockholders'
equity(2)............................. 9.49 10.11 10.83 13.29 13.88 15.00 9.64
Net interest margin ratio.............. 4.23 4.27 4.15 4.38 4.46 4.52 4.18
Efficiency ratio(3).................... 65.60 66.35 64.16 61.87 59.05 60.99 68.49
ASSET QUALITY RATIOS
Nonperforming assets to total assets 0.64% 0.52% 0.95% 0.87% 1.64% 1.64% 2.04%
Nonperforming loans to total loans..... 0.70 0.32 1.22 0.90 2.06 2.32 3.07
Net loan charge-offs to average
loans(2).............................. 1.00 0.10 0.22 0.49 0.71 0.78 0.34
Allowance for loan losses to total
loans................................. 0.86 1.07 1.11 1.06 1.20 1.08 1.05
Allowance for loan losses to
nonperforming loans................... 122.75 337.55 90.93 117.44 58.61 46.56 34.18
CAPITAL RATIOS
Average equity to average assets....... 7.95% 7.62% 7.67% 7.38% 6.98% 6.34% 6.27%
Total capital to risk adjusted assets.. 12.54 12.07 12.35 12.28 10.97 10.23 8.72
Tier 1 leverage........................ 7.92 7.79 7.95 7.68 7.00 6.33 6.33
</TABLE>
- ---------------
(1) Restated to reflect the three-for-one stock split which took effect May 20,
1996.
(2) Interim periods annualized.
(3) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.
6
<PAGE> 8
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
set forth the consolidated balance sheet at June 30, 1996, and the consolidated
income statements for the six month period ended June 30, 1996 and for the year
ended December 31, 1995, for the Company, Prairie and Country, the adjustments
reflecting the August, 1996, acquisition of Prairie and the proposed
acquisition of Country and the pro forma combined information. The
Acquisitions will be accounted for as purchases and the assets acquired and
liabilities assumed in the Acquisitions will be recorded at their estimated
fair market values, with the excess of the respective purchase prices over the
net fair market values recorded as goodwill. None of the information regarding
the Company has been adjusted to reflect the acquisition of LaSalle County
Collections, Inc., a collection agency ("LaSalle Collections"), that was
consummated on August 1, 1996, and which, in the opinion of the Company's
management, did not have a material effect on the Company from a financial
viewpoint. The information with respect to the Company as of June 30, 1996,
and the pro forma information are unaudited. The pro forma balance sheet
assumes that the Acquisitions were consummated on June 30, 1996. The pro forma
income statements assume that the Acquisitions were consummated at the
beginning of the period indicated. The pro forma financial statements should
be read in conjunction with the financial statements and footnotes thereto
appearing elsewhere in this Prospectus. The pro forma combined balance sheet
and statements of income are not necessarily indicative of the combined
financial position at consummation of the Acquisitions or the results of
operations following consummation of the Acquisitions.
7
<PAGE> 9
UNIONBANCORP, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY ADJUSTMENTS PRO FORMA
------------ ----------- -------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.............. $ 11,403 $ 7,967 $ 2,945 11,000 A $ 23,626
(5,235) B
(11,445) C
5,680 D
1,311 E
Federal funds sold................... 225 2,131 2,075 4,431
-------- -------- -------- --------
Total cash and cash equivalents...... 11,628 10,098 5,020 -- 28,057
Securities available for sale........ 58,003 39,459 26,131 -- 123,593
Securities held to maturity.......... 28,926 97,832 -- (2,547) F 124,211
Loans, net of unearned discount...... 185,840 73,834 66,573 (1,246) E 325,001
Less: Allowance for loan losses...... (1,597) (784) (500) -- (2,881)
Net loans............................ 184,243 73,050 66,073 322,120
Premises and equipment, net.......... 6,830 3,184 3,633 271 G 13,853
(65) E
Accrued interest receivable.......... 2,940 2,099 1,215 -- 6,254
Other real estate.................... 346 22 69 -- 437
Goodwill............................. 518 -- 76 3,524 B 8,392
4,274 C
Core deposits........................ 355 -- -- 1,700 H 2,055
Other assets......................... 2,816 288 955 223 I 4,282
-------- -------- -------- ------- --------
Total assets......................... $296,605 $226,032 $103,172 $ 7,445 $633,254
======== ======== ========= ======= ========
LIABILITIES
Deposits
Noninterest-bearing.................. $ 34,515 $ 12,378 $ 10,491 $ 57,384
Interest bearing..................... 224,572 175,462 80,355 480,389
-------- -------- -------- --------
Total deposits....................... 259,087 187,840 90,846 537,773
Federal funds purchased and -------- -------- -------- --------
securities sold under repurchase
agreements.......................... 7,544 8,470 100 16,114
Other borrowings..................... 4,391 3,950 4,150 (4,150) J 15,024
5,680 D
1,003 K
FHLB advances........................ -- 11,721 4,300 16,021
Accounts payable and accrued
liabilities......................... 2,131 1,543 1,336 5,010
-------- -------- -------- --------
Total liabilities.................... 273,153 213,524 100,732 589,942
-------- -------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES..... -- 796 -- 796
MANDATORY REDEEMABLE PREFERRED STOCK.. -- -- -- 857 B 857
STOCKHOLDERS' EQUITY
Preferred stock...................... -- 6,092 314 (6,092) B 500
500 B
(314) C
Common stock......................... 2,400 1 26 1,100 A 4,211
(1) B
711 B
(26) C
Paid-in capital...................... 1,033 1,579 1,058 9,900 A 17,932
4,150 J
(1,579) B
6,999 B
(5,208) C
Retained earnings.................... 21,537 3,874 1,157 (3,874) B 21,537
7 C
Deferred compensation related to ESOP -- -- -- (1,003) K
Unrealized gain (loss) on
securities available for sale....... (997) 166 (115) (166) B (997)
115 C
Less: Treasury stock (521) -- (521)
-------- -------- -------- --------
Total stockholders' equity........... 23,452 11,712 2,440 41,659
Total liabilities and -------- -------- -------- ------- --------
stockholders' equity................ $296,605 $226,032 $103,172 $ 7,445 $633,254
======== ======== ========= ======= ========
</TABLE>
See Notes to Pro Forma Combined Condensed Balance Sheet (Unaudited)
8
<PAGE> 10
UNIONBANCORP, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY ADJUSTMENTS PRO FORMA
------------ -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income......................... $ 11,278 $ 7,527 $ 3,818 150 L $ 22,806
33 M
Interest expense........................ 5,850 4,792 2,449 (172) N 13,153
-------- ------- ------- 234 O --------
Net interest income..................... $ 5,428 $ 2,735 $ 1,369 $ 9,653
Provision for loan losses............... 500 20 145 665
-------- ------- ------- --------
Net interest income after provision for
loan losses............................. 4,928 2,715 1,224 8,988
-------- ------- ------- --------
Noninterest Income
Service charges on deposit accounts..... 151 205 311 667
Other service charges................... 748 -- -- 748
Trust service fees...................... 183 -- -- 183
Other operating income.................. 242 51 290 583
-------- ------- ------- --------
Total noninterest income................ 1,324 256 601 2,181
-------- ------- ------- --------
Noninterest expense
Salaries and employee benefits.......... 2,544 1,206 856 4,606
Net occupancy expense................... 384 351 237 3 P 979
4 M
Equipment expense....................... 331 -- -- 331
Other noninterest expense............... 1,502 660 507 340 Q 3,009
-------- ------- ------- --------
Total noninterest expense............... 4,761 2,217 1,600 8,925
-------- ------- ------- --------
Income before income tax expense........ 1,491 754 225 2,244
Minority interest....................... -- 42 -- 42
Income tax expense...................... 380 215 70 11 K 676
-------- ------- ------- ----- --------
Net income.............................. 1,111 497 155 1,526
-------- ------- ------- --------
Primary earnings per common share....... $ 0.51 $ 0.35
Weighted average number of common shares
outstanding (in thousands).............. 2,169 3,989
-------- --------
</TABLE>
- --------------
See Notes to Pro Forma Combined Condensed Statement of Income (Unaudited)
9
<PAGE> 11
UNIONBANCORP, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY ADJUSTMENTS PRO FORMA
------------ -------- ------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Cash and due from banks.............. $ 16,166 $ 4,458 $ 2,215 11,000 A $ 23,413
(5,235) B
(11,445) C
5,680 D
574 E
Federal funds sold................... 2,265 2,045 10,045 14,355
-------- ------- ------- --------
Total cash and cash equivalents...... 18,431 6,503 12,260 37,768
Securities available for sale........ 63,891 103,826 22,630 190,347
Securities held to maturity.......... 29,026 42,499 -- (2,253) F 69,272
Loans, net of unearned discount...... 180,819 67,133 56,597 (509) E 304,040
Less: Allowance for loan losses...... (2,014) (741) (420) (3,175)
-------- ------- ------- --------
Net loans............................ 178,805 66,392 56,177 300,865
Premises and equipment, net.......... 6,571 3,327 3,749 271 G 13,853
(65) E
Accrued interest receivable.......... 3,386 2,114 1,085 6,585
Other real estate.................... 441 -- 54 495
Goodwill............................. 551 18 124 3,215 B 8,160
4,252 C
Core deposits........................ 391 4 -- 1,700 H 2,095
Other assets......................... 2,040 291 526 109 I 2,966
-------- ------- ------- ------ --------
Total assets......................... $ 303,533 $224,974 $96,605 $7,294 $ 632,406
======== ======= ======= ====== ========
LIABILITIES
Deposits
Noninterest-bearing.................. $ 35,688 $ 13,017 $10,880 $ 59,585
Interest bearing..................... 226,039 170,279 75,666 471,984
-------- ------- ------- --------
Total deposits....................... 261,727 183,296 86,546 531,569
-------- ------- ------- --------
Federal funds purchased and
securities sold under repurchase
agreements.......................... 11,505 6,456 100 18,061
Other borrowings..................... 4,346 3,950 4,150 (4,150) J 14,979
5,680 D
1,003 K
FHLB Advances........................ -- 16,993 2,000 18,993
Accounts payable and accrued
liabilities......................... 2,480 1,663 1,347 5,490
-------- ------- ------- --------
Total liabilities.................... 280,058 212,358 94,143 589,092
-------- ------- ------- --------
MINORITY INTEREST IN SUBSIDIARIES......... -- 775 -- 775
------ --------
MANDATORY REDEEMABLE PREFERRED STOCK...... -- -- 857 B 857
(6,092) B
STOCKHOLDERS' EQUITY 500 B
Preferred stock...................... -- 6,092 315 (315) C 500
Common stock......................... 2,400 1 26 1,100 A 4,211
(1) B
711 B
(26) C
Paid-in capital...................... 1,026 1,579 1,058 9,900 A 17,925
4,150 J
(1,579) B
6,999 B
(5,208) C
Retained earnings.................... 20,568 3,686 1,001 (3,686) B 20,568
(1,001) C
Deferred compensation related to ESOP -- -- -- (1,003) K (575)
Unrealized gain on (483) B
securities available for sale....... 2 483 62 (62) C 2
Less: Treasury stock................. (521) -- -- (521)
-------- ------- ------- --------
Total stockholders' equity........... 23,475 11,841 2,462 41,682
-------- ------- ------- ------- --------
Total liabilities and
stockholders' equity................ $303,533 $224,974 $96,605 $7,294 $ 632,406
======== ======= ======= ======= ========
</TABLE>
See Notes to Pro Forma Combined Condensed Balance Sheet (Unaudited)
10
<PAGE> 12
UNIONBANCORP, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY ADJUSTMENTS PRO FORMA
------------ -------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income......................... $ 21,368 $ 15,123 $ 6,030 300 L $ 42,851
30 M
Interest expense........................ 11,248 10,327 3,532 (317) O 25,259
-------- -------- ------- --------
Net interest income..................... $ 10,120 $ 4,796 $ 2,498 $ 17,592
Provision for loan losses............... 684 (31) 40 693
-------- -------- ------- --------
Net interest income after provision for
loan losses........................... 9,436 4,827 2,458 16,899
-------- -------- ------- --------
NONINTEREST INCOME
Service charges on deposit accounts..... 952 317 494 1,763
Other service charges................... 242 -- -- 242
Trust service fees...................... 330 -- -- 330
Other operating income.................. 1,046 676 94 1,816
-------- -------- ------- --------
Total noninterest income................ 2,570 993 588 4,151
-------- -------- ------- --------
Noninterest expense
Salaries and employee benefits.......... 4,451 2,424 1,511 8,386
Net occupancy expense................... 665 702 493 7 P 1,874
7 M
Equipment expense....................... 584 -- -- 584
Other noninterest expense............... 3,071 1,496 836 680 Q 6,083
-------- -------- ------- --------
Total noninterest expense............... 8,771 4,622 2,840 16,927
-------- -------- ------- --------
Income before income tax expense........ 3,235 1,198 206 4,123
Minority interest....................... -- 95 -- 95
Income tax expense (benefit)............ 882 275 3 R 1,157
-------- -------- ------- --------
Net Income.............................. 2,353 828 209 2,871
-------- -------- ------- --------
Primary earnings per common share
net income............................. $ 1.09 $ .66
Weighted average number of common shares
outstanding (in thousands)............. $ 2,149 3,969
-------- --------
</TABLE>
See Notes to Pro Forma Combined Condensed Statement of Income (Unaudited)
11
<PAGE> 13
UNIONBANCORP, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
The unaudited pro forma combined condensed financial statements
combine the three entities at June 30, 1996, and for the six months then
ended. In combining the entities, the following adjustments were made:
(A) To record the proceeds of the $11.0 million of net capital
estimated to be raised through the Offering based on an assumed sale
by the Company of 1,100,000 shares of Common Stock at a price of
$11.50 per share, net of underwriting discounts, commissions and
other estimated offering expenses.
(B) To record the payment of $5.235 million in cash, the issuance of
710,576 shares of Common Stock valued at $10.85 per share, the
issuance of 2,762.24 shares of Series A Preferred Stock valued at
$500,000 and 857 shares of Series B Preferred Stock of the Company
valued at $1,000 per share to the stockholders of Prairie for 100%
of their outstanding stock, elimination of Prairie's equity accounts
and the recording of goodwill in the amount of $3.524 million.
(C) To record the payment of $11.445 million in cash for 100% of
Country's outstanding shares, elimination of Country's equity
accounts and the recording of goodwill in the amount of $4.274
million.
(D) To record the estimated $5.680 million of debt incurred in
connection with the Acquisitions and funded through loan proceeds.
(E) To record the sale of assets to Country stockholders.
(F) To record the estimated fair value of the investment portfolio of
Prairie.
(G) To record the estimated fair value of fixed assets acquired from
Prairie and Country.
(H) To record the estimated fair value of core deposits acquired from
Prairie and Country.
(I) To record the estimated deferred federal income tax on the net fair
value increases resulting from the Acquisitions.
(J) To record the payment of $4.15 million to retire outstanding
liabilities of Country stockholders in connection with the Country
acquisition.
(K) To record the purchase by the Company's ESOP of 87,200 shares of
the Offering at a price of $11.50 per share.
(L) To record the increase in interest income associated with the fair
market adjustment to the investment portfolio of Prairie. Accretion
of the fair market adjustment to the investment portfolio recorded
in connection with the Prairie Acquisition is estimated to be
approximately $300,000 during each of the years in the five year
period ended December 31, 2000.
(M) To record the effects of sale of assets to Country stockholders.
(N) To record the increase in interest expense associated with
acquisition debt.
(O) To record the elimination of interest expense on distribution of
Country's debt.
(P) To record the depreciation on fair market value increases of
depreciable fixed assets acquired with the Acquisitions.
(Q) To record the amortization of the goodwill and core deposit premium
recorded in connection with the Acquisitions. Amortization of
goodwill and core deposit premiums recorded in connection with the
Acquisitions will be approximately $680,000 during each of the years
in the five year period ended December 31, 2000.
(R) To record the effect of the pro forma adjustments using an
effective tax rate of 38.8% for the six months ended June 30, 1996.
12
<PAGE> 14
UNIONBANCORP, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
The unaudited pro forma combined condensed financial statements
combine the three entities at December 31, 1995, and for the twelve
months then ended. In combining the entities, the following adjustments
were made:
(A) To record the proceeds of the $11.0 million of net capital
estimated to be raised through the Offering based on an assumed sale
by the Company of 1,100,000 shares of Common Stock at a price of
$11.50 per share, net of underwriting discounts, commissions and
other estimated offering expenses.
(B) To record the payment of $5.235 million in cash, the issuance of
710,576 shares of Common Stock valued at $10.85 per share, the
issuance of 2,762.24 shares of Series A Preferred Stock valued at
$500,000 and 857 shares of Series B Preferred Stock of the Company
valued at $1,000 per share to the stockholders of Prairie for 100%
of their outstanding stock, elimination of Prairie's equity accounts
and the recording of goodwill in the amount of $3.215 million.
(C) To record the payment of $11.445 million in cash for 100% of
Country's outstanding shares, elimination of Country's equity
accounts and the recording of goodwill in the amount of $4.252
million.
(D) To record the estimated $5.680 million of debt incurred in
connection with the Acquisitions and funded through loan proceeds.
(E) To record the sale of assets to Country stockholders.
(F) To record the estimated fair value of the investment portfolio of
Prairie.
(G) To record the estimated fair value of fixed assets acquired from
Prairie and Country.
(H) To record the estimated fair value of core deposits acquired from
Prairie and Country.
(I) To record the estimated deferred federal income tax on the net fair
value increases resulting from the Acquisitions.
(J) To record the payment of $4.15 million to retire outstanding
liabilities of Country stockholders in connection with the Country
acquisition.
(K) To record the purchase by the Company's ESOP of 87,200 shares of
the Offering at a price of $11.50 per share.
(L) To record the increase in interest income associated with the fair
market adjustment to the investment portfolio of Prairie. Accretion
of the fair market adjustment to the investment portfolio recorded
in connection with the Prairie Acquisition is estimated to be
approximately $300,000 during each of the years in the five year
period ended December 31, 2000.
(M) To record the effects of sale of assets to Country stockholders.
(N) To record the increase in interest expense associated with
acquisition debt.
(O) To record the elimination of interest expense on distribution of
Country's debt.
(P) To record the depreciation on fair market value increases of
depreciable fixed assets acquired with the Acquisitions.
(Q) To record the amortization of the goodwill and core deposit premium
recorded in connection with the Acquisitions. Amortization of
goodwill and core deposit premiums recorded in connection with the
Acquisitions will be approximately $680,000 during each of the years
in the five year period ended December 31, 2000.
(R) To record the effect of the pro forma adjustments using an
effective tax rate of 38.8% for the year ended December 31, 1995.
13
<PAGE> 15
INVESTMENT CONSIDERATIONS
In addition to other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the
Company, its business and prospects before purchasing any of the shares
of Common Stock offered hereby. The order of the following is not
intended to be indicative of the relative importance of any described
risk, nor is the following intended to be inclusive of all risks of
investment in the Common Stock.
CONSOLIDATION ISSUES -- GENERAL
As a result of the Acquisitions, the Company's asset size has
substantially increased. The Company has not previously consummated an
acquisition on the same scale as the Acquisitions. The future prospects
of the Company will depend, in significant part, on a number of factors,
including, without limitation, the Company's ability to integrate the
Acquisitions; its ability to compete effectively in new market areas in
the western, northwestern and southwestern portions of Illinois; its
success in retaining earning assets, including loans, acquired in the
Acquisitions; its ability to generate new earning assets; and its ability
to attract and retain qualified management and other appropriate
personnel. No assurance can be given with respect to the Company's
ability to accomplish any of the foregoing or that the Company will be
able to achieve results in the future similar to those achieved in the
past or that the Company will be able to manage effectively the growth
resulting from the Acquisitions. See "The Acquisitions."
CONSOLIDATION ISSUES -- CREDIT QUALITY
In connection with the Acquisitions, the Company and its
representatives reviewed the loan portfolios of the Prairie Banks and
Omni Bank. The Company's examinations were made using criteria, analyses
and collateral evaluations that the Company has traditionally used in the
review of its existing business. Nonperforming assets (including
nonaccrual loans 90 days or more past due) at June 30, 1996 totaled
approximately $850,000 at the Prairie Banks and $1,678,000 at Omni Bank.
Nonperforming assets (including loans 90 days or more past due) at
December 31, 1995, totaled approximately $673,000 at the Prairie Banks
and $594,000 at Omni Bank. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Prairie Bancorp, Inc."
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Country Bancshares, Inc."
At June 30, 1996, the Company's allowance for loan losses was 0.86%
of total loans, while on a pro forma basis assuming consummation of the
Acquisitions, the Company's allowance for loan losses would have been
.89% at June 30, 1996. At December 31, 1995, the Company's allowance
for loan losses was 1.11% of total loans, while on a pro forma basis at
December 31, 1995, the Company's allowance for loan losses would have
been 1.04%.
The Company has sought to improve the quality of Omni Bank's loan
portfolio by requiring the sale at book value of certain of Omni Bank's
loans to the principal stockholders of Country as a condition to the
closing of the Country Acquisition. Pursuant to the terms of the Country
Acquisition, the principal stockholders of Country will acquire from Omni
Bank all obligations payable to Omni Bank by certain borrowers whose
loans have been identified by the Company as being loans which bear more
than an average risk of loss. See "The Acquisitions -- Country
Bancshares, Inc. -- Acquisition of Certain Property from Omni Bank."
IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS
The results of operations for financial institutions, including the
Union Banks, the Prairie Banks and Omni Bank (collectively, the "Bank
Subsidiaries"), may be materially and adversely affected by changes in
prevailing economic conditions, including declines in real estate market
values, rapid changes in interest rates and the monetary and fiscal
policies of the federal government. See "Supervision and Regulation --
General" and "-- Recent Regulatory Developments." The profitability of
financial institutions such as the Bank Subsidiaries is in part dependent
on the spread between the interest rates earned on investments and loans
and the interest rates paid on deposits and other interest-bearing
liabilities. The net interest spread and margin of the Bank Subsidiaries
will be affected by general economic conditions and other factors beyond
the control of the Company that influence market interest rates. While
Prairie's investment portfolio has a relatively long duration and is
subject to the risk of the rising cost of interest-sensitive liabilities,
the Company has sought to limit possible losses from certain securities
held for investment by the Prairie Banks. The terms of the Prairie
Acquisition Agreement (as defined below)
14
<PAGE> 16
provide that, under certain circumstances, the conversion value of the shares
of the Company's newly authorized Series A Preferred Stock (the "Series A
Preferred Stock") issued at the closing of the Prairie Acquisition to the
two principal Prairie stockholders (the "Principal Prairie Stockholders") will
be adjusted to offset the amount of any future losses incurred by the Company
in connection with Prairie's consolidated investment portfolio. See "The
Acquisitions -- Prairie Bancorp, Inc. -- Consideration for Prairie Common and
Preferred Stock."
COMPETITION
The Company and the Bank Subsidiaries face strong competition for
deposits, loans and other financial services from numerous Illinois and
out-of-state banks, thrifts, credit unions and other financial
institutions as well as other entities which provide financial services.
Some of the financial institutions and financial services organizations
with which the Bank Subsidiaries compete are not subject to the same
degree of regulation as are the Bank Subsidiaries. In addition, some of
these entities have greater capital resources than the Company or the
Bank Subsidiaries. See "Business -- Market Area" and -- Competition."
Additionally, federal legislation regarding interstate branching and
banking may increase competition in the future from larger out-of-state
banks. See "Supervision and Regulation -- Recent Regulatory
Developments."
NO ASSURANCE OF DIVIDENDS
The Company will be dependent upon dividends paid by the Bank
Subsidiaries for funds to pay dividends on the Common Stock, if and when
such dividends are declared. No assurance can be given that future
earnings of the Bank Subsidiaries, and resulting dividends to the
Company, will continue to be sufficient to permit the legal payment of
dividends to the Company's stockholders at any time in the future.
Moreover, holders of shares of the Preferred Stock issued in connection
with the Acquisitions will first be entitled to receive dividends on the
Preferred Stock before any dividends may be paid on the Common Stock. In
addition, the Company does not currently own 100% of the Common Stock of
certain of the Prairie Banks, thus the Company would not receive the full
amount of any dividends paid by the Prairie Banks in which there are
outstanding minority interests. See "The Acquisitions -- Prairie
Bancorp, Inc. -- General." For a more detailed discussion of the
regulatory and other limitations on the payment of cash dividends by the
Company, see the "Prairie Banks," "Supervision and Regulation -- The
Company -- Dividends" and "Description of Capital Stock -- Preferred
Stock."
DEPENDENCE ON MANAGEMENT
The Company and the Union Banks are dependent upon the services of
R. Scott Grigsby, Chairman of the Board and President of the Company and
Chairman of the Board and Chief Executive Officer of UnionBank/Streator,
Charles J. Grako, Executive Vice President and Chief Financial Officer of
the Company, Wayne L. Bismark, Executive Vice President and Chief Credit
Officer of the Company, and other senior officers of the Company and the
Union Banks. The loss of any of these individuals could adversely affect
the operations of the Company and the Bank Subsidiaries. The Company has
entered into employment agreements (which include certain non-competition
covenants) with Messrs. Grigsby, Grako, Bismark and certain other senior
officers in an effort to assure the continued availability of their
services to the Company. See "Business -- Employees" and "Management --
Employment Agreements."
IMMEDIATE DILUTION
The purchasers of the shares of Common Stock offered hereby will
experience immediate dilution in the pro forma net tangible book value of
their shares in an approximate amount of $3.73 per share as compared to
the per share price of this Offering. In the event the Company issues
additional Common Stock in the future, including shares issued in connection
with future acquisitions, the exercise of outstanding stock options or upon
conversion of the Series A Preferred Stock, purchasers of Common Stock in this
Offering may experience further dilution. See "Dilution."
LIMITATIONS ON CHANGE OF CONTROL
Section 203 of the Delaware General Corporation Law (the "DGCL")
limits the Company's ability to engage in certain business combinations
with interested stockholders. The Company's Certificate of
Incorporation,
15
<PAGE> 17
as amended (the "Certificate of Incorporation"), provides for a staggered Board
of Directors which classifies the Board of Directors into three classes, each
of which is elected for a three year term. The Board of Directors of the
Company is also further authorized to issue preferred stock in one or more
additional series, with such terms, conditions and preferences as it deems
appropriate, without stockholder action. Such shares could be issued in a
manner which could render more difficult or discourage an attempt to obtain
control of the Company by means of a tender offer, merger, proxy contest or
otherwise. In addition, federal law requires the approval of the Board of
Governors of the Federal Reserve System (the "FRB") prior to acquisition of
"control" (as defined in applicable federal statutes and regulations) of a bank
holding company. Furthermore, the Company's Board of Directors has recently
adopted a Stockholders' Rights Plan that entitles the Company's stockholders to
purchase additional shares of Common Stock at a rate that would be
substantially less than the market value of such Common Stock if any person
acquires 15% or more of the outstanding shares of Common Stock. All of the
foregoing may have the effect of delaying or preventing a change in control of
the Company which may prevent a holder of Common Stock from realizing a premium
as a result of a change in control of the Company. See "Description of Capital
Stock -- Certain Anti-Takeover Considerations."
LIMITED TRADING HISTORY FOR COMMON STOCK
The Common Stock is currently quoted on the OTC Bulletin Board and
is expected to be approved for quotation on the Nasdaq National Market
prior to consummation of the Offering. Prior to this Offering, however,
there has been no regular and liquid market for the Common Stock, and
there can be no assurance that a regular and liquid trading market will
develop and continue after this Offering or that the market price of the
Common Stock will not decline below the initial public offering price.
The initial public offering price has been determined through
negotiations between the Company and representatives of the Underwriter
and may not be indicative of the market price of the Common Stock
following this Offering. See "Market for Common Stock and Dividends."
SHARES ELIGIBLE FOR FUTURE SALE; CONCENTRATION OF OWNERSHIP
The Company will have approximately 3,951,403 shares of Common Stock
outstanding following this Offering (assuming 1,100,000 shares are issued in
this Offering and no exercise of options to purchase Common Stock granted
under the Company's 1993 Stock Option Plan, and further assuming that none of
the shares of Series A Preferred Stock issued in the Prairie Acquisition are
converted into Common Stock). The Company's management believes that 1,596,971
of these shares will be held by "affiliates" of the Company, and therefore will
be "restricted securities" and may not be sold unless they are sold pursuant to
an exemption from registration, including an exemption contained in Rule 145
under the Securities Act, or are registered under the Securities Act. Sales of
substantial amounts of Common Stock in the public market pursuant to
registration under the Securities Act, Rule 145 or otherwise, or even the
potential for such sales, could adversely affect the prevailing market prices
for the Common Stock and impair the Company's ability to raise capital through
the sale of its equity securities. See "Shares Eligible for Future Sale."
After the consummation of this Offering, the Principal Prairie
Stockholders will be the Company's largest stockholders, each holding
approximately 9% of the shares of Common Stock outstanding. Each of the
Principal Prairie Stockholders has entered into a "Standstill Agreement"
whereby they have agreed not to take any actions that would increase their
respective percentage ownership above 12.5% of the total number of issued and
outstanding shares of Common Stock, excluding shares obtainable or obtained
through the conversion of Series A Preferred Stock or actions approved by the
Company's Board of Directors, for a four-year period (the "Standstill Period")
following the Prairie Acquisition. Under the Standstill Agreement, each of the
Principal Prairie Stockholders has granted a limited proxy to the President of
the Company to vote their shares of Common Stock with respect to any election
of directors of the Company during the Standstill Period. Notwithstanding the
Standstill Agreement, each of the Principal Prairie Stockholders may
nonetheless be able to exert influence on the Company's future strategic
direction with regard to, among other things, the long-term independence of the
Company. See "The Acquisitions -- Prairie Bancorp, Inc. -- Restrictions
Applicable to Certain Prairie Stockholders."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,100,000
shares of Common Stock offered hereby, after deducting underwriting
discounts and estimated offering expenses, are estimated to be approximately
16
<PAGE> 18
$11,000,000 ($________ if the Underwriter's over-allotment
option is exercised in full). Of such amount, the Company intends to use
approximately $_____________ of the net proceeds to retire indebtedness
incurred by the Company, and approximately $__________ of the net
proceeds to repay indebtedness assumed by the Company, in each case in
connection with the Acquisitions.
With respect to the indebtedness incurred in connection with the
Acquisitions, such indebtedness was obtained through loans from LaSalle
National Bank, Chicago, Illinois, in the form of a term loan in the principal
amount of $26,000,000 and a revolving credit loan in the principal amount of
$500,000. The term loan bears interest, at the Company's option, at a rate of
either: (i) the London Inter-Bank Offered Rate plus 125 basis points, (ii) the
prime rate or (iii) a rate equal to 150 basis points in excess of the then
current rate on U. S. Treasury Bills with the same maturity. The term loan
matures on August 2, 1997, and requires a principal payment in the amount of
$10,000,000 to be made on November 1, 1996. The revolving credit loan bears
interest at the LaSalle National Bank prime rate. The Company's obligations
under the loans are secured by a pledge to LaSalle National Bank of all of the
shares of capital stock of the Bank Subsidiaries held by the Company. The
retirement and repayment of such indebtedness will allow the Company, upon
consummation of the Acquisitions, to continue to meet certain minimum capital
requirements imposed by the FRB.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996, and adjusted capitalization reflecting the
issuance and sale of the Common Stock offered by the Company hereby (assuming
no exercise of the Underwriter's over-allotment option) and the resulting net
proceeds of $11,000,000 after deduction of all estimated expenses of the
Offering. See "Use of Proceeds." The table also reflects the effect of the
Acquisitions. See "The Acquisitions."
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
LONG-TERM DEBT:
Federal Home Loan Bank borrowings................. $ -- $ 16,021
Notes payable..................................... 4,391 15,024
----------- -----------
$ 4,391 $ 31,045
=========== ===========
MINORITY INTEREST IN SUBSIDIARIES................... -- 796
MANDATORY REDEEMABLE PREFERRED STOCK
Series B Preferred Stock.......................... -- 857
STOCKHOLDERS' EQUITY:
Series A Preferred Stock.......................... 500(1)
Common stock, $1.00 par value; 10,000,000 shares
authorized; 2,400,000 issued and outstanding,
4,210,576 issued and outstanding, as adjusted.... 2,400 4,211(2)
Surplus........................................... 1,074 17,973
Retained earnings................................. 21,537 21,537
Deferred compensation related to employee stock
ownership plan................................... -- (1,003)
Unrealized (loss) on securities available for sale (997) (997)
Deferred compensation-stock option plans.......... (41) (41)
Less: treasury stock, at cost; 268,263 shares.... (521) (521)
----------- -----------
Total stockholders' equity........................ $ $23,452 $ 41,659
Total capitalization............................. $ $27,843 $ 74,357
=========== ===========
</TABLE>
- ----------
(1) Valuation of 2,762 shares of Series A Preferred Stock with $75 per share
cumulative dividends is based upon the fair market value of such preferred
stock as determined by an appraisal considering the marketability,
liquidity and convertibility features of such preferred stock.
(2) Excludes 9,090 shares of Common Stock issued in connection with the
acquisition of LaSalle Collections.
17
<PAGE> 19
DILUTION
None of the Company's directors or officers have purchased Common Stock
from the Company during the past five years, although certain of such officers
and directors have received grants of stock options during such time period.
However, in connection with the Prairie Acquisition the Company issued 710,576
shares of Common Stock. See "The Acquisitions -- Prairie Bancorp, Inc." The
following sets forth information, after giving effect to the Acquisitions and
as of June 30, 1996, regarding the dilution to be realized by purchasers in
this Offering as compared to the persons receiving Common Stock in the Prairie
Acquisition.
The net tangible book value of the Company as of June 30, 1996, was
approximately $22,579,000, or $10.59 per share. "Net tangible book value" per
share represents stockholders equity attributable to common stock less
intangible assets, divided by the number of outstanding shares excluding shares
held by the Company as treasury stock. The pro forma net tangible book value
of the Company as of June 30, 1996 after consideration of the effect of the
Acquisitions would have been approximately $20,715,000, or $7.26 per share.
Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in this Offering and the as
adjusted pro forma net tangible book value per share of Common Stock
immediately after completion of this Offering. After giving effect to the sale
of 1,100,000 shares of Common Stock to be sold by the Company in this Offering,
including deductions for underwriting discounts, commissions and the estimated
offering expenses, and after giving effect to the Prairie Acquisition, pro
forma net tangible book value of the Company as of June 30, 1996, would have
been approximately $30,712,000 or $7.77 per share. This represents an
immediate increase in pro forma net tangible book value, after consideration of
the effect of the Prairie Acquisition, of $0.51 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$3.73 per share to new investors purchasing shares of Common Stock in this
Offering, as illustrated in the following table:
<TABLE>
<S> <C>
Initial public offering price per share $11.50
Net tangible book value per share as of June 30, 1996 $10.59
Decrease in net tangible book value per share attributable to acquisition $(3.33)
Increase in pro forma net tangible book value per share attributable
to investors in this Offering $0.51
Pro forma net tangible book value per share after the Offering $7.77
Dilution per share to new investors $3.73
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1996,
assuming the conversion of all outstanding shares of Series A Preferred Stock
issued in connection with the Prairie Acquisition into Common Stock (at a
conversion rate based upon the book value per share of the Company as of June
30, 1996, and assuming no reduction in the conversion ratio), the difference
between the persons who received Common Stock in the Prairie Acquisition and
the purchasers of Common Stock in this Offering regarding the total
consideration paid and the average price per share paid (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE PRICE
PURCHASED CONSIDERATION PER SHARE
------------------ -------------------- ----------------
NUMBER PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Prairie stockholders(1) 847,514 43.5% $ 8,209,750 39.4% $ 9.69
Stockholders purchasing
in this Offering 1,100,000 56.5% $12,650,000 60.6% $11.50
--------- ----- ----------- ------ ------
Totals 1,947,514 100.0% $20,859,750 100.00% $10.71
========= ===== =========== ====== ======
</TABLE>
- --------------
(1) Does not include shares of Common Stock issued by the Company to acquire
LaSalle Collections.
As of June 30, 1996, there were options outstanding to purchase a total of
109,650 shares of Common Stock at a weighted average exercise price of $6.90
per share under the Stock Option Plan. To the extent outstanding options are
exercised, there will be further dilution to new investors. If all outstanding
options were exercised, the pro forma net tangible book value per share
immediately after completion of this Offering would be
18
<PAGE> 20
$7.75. This represents an immediate dilution in net tangible book value of
$0.02 per share to purchasers of Common Stock in this Offering. See
"Management -- Stock Option Plan."
MARKET FOR COMMON STOCK AND DIVIDENDS
The Company's Common Stock has been quoted on the OTC Bulletin Board since
January 1996, and is expected to be approved for quotation on the Nasdaq
National Market under the symbol "UBCD" prior to consummation of this Offering.
Prior to this Offering, however, there has been no regular and liquid market
for the Common Stock, and there can be no assurance that a regular and liquid
trading market will develop or continue after this Offering or that the market
price will not decline below the initial public offering price. On June 30,
1996, the Company estimates that it had approximately 430 stockholders. The
Company currently serves as its own transfer agent and registrar, however, it
is expected that prior to the completion of this Offering, Harris Trust and
Savings Bank will become transfer agent and registrar for the Common Stock. As
of August 5, 1996, the last per share sale price for Common Stock quoted on the
OTC Bulletin Board was $11.00.
The table below indicates the high and low sales prices of the Common
Stock for transactions of which the Company is aware, and the dividends
declared per share for the Common Stock during the periods indicated, in each
case adjusted for the three-for-one stock split which took effect on May 20,
1996. Because the Company is not aware of the price at which certain private
transactions in the Common Stock have occurred, the prices shown may not
necessarily represent the complete range of prices at which transactions in the
Common Stock have occurred during such periods. Such prices also are not
necessarily indicative of the price which may be obtained in a public offering
or an active established market.
<TABLE>
<CAPTION>
STOCK SALES(1)
----------------------------
CASH
HIGH LOW DIVIDENDS(1)
---- --- ------------
<S> <C> <C> <C>
1994
First Quarter............................. $6.75 $6.75 $0.026
Second Quarter............................ 6.75 6.75 0.030
Third Quarter............................. 7.50 6.75 0.030
Fourth Quarter............................ 7.67 7.50 0.030
1995
First Quarter............................. 7.67 7.67 0.033
Second Quarter............................ 8.83 8.33 0.033
Third Quarter............................. 8.83 8.83 0.033
Fourth Quarter............................ 9.00 8.83 0.033
1996
First Quarter............................. 11.33 10.67 0.033
Second Quarter............................ 12.00 10.67 0.033
Third Quarter (7/1-8/5/96) ............... 12.00 11.00 0.035
</TABLE>
- ----------------
(1) Restated to reflect the three-for-one stock split which took effect on
May 20, 1996.
The holders of the Common Stock are entitled to receive dividends as
declared by the Board of Directors of the Company, which considers payment of
dividends quarterly. Upon the consummation of the Prairie Acquisition,
preferential dividends are required to be paid or accrued quarterly with respect
to the outstanding shares of Preferred Stock (as defined below). See
"Description of Capital Stock -- Preferred Stock." The ability of the Company
to pay dividends in the future will be primarily dependent upon its receipt of
dividends from the Bank Subsidiaries. In determining cash dividends, the Board
of Directors considers the earnings, capital requirements, debt and dividend
servicing requirements, financial ratio guidelines it has established, financial
condition of the Company and other relevant factors. The Bank Subsidiaries'
ability to pay dividends to the
19
<PAGE> 21
Company and the Company's ability to pay dividends to its stockholders are also
subject to certain regulatory restrictions. See "Supervision and Regulation --
The Company -- Dividends" and "-- The Bank Subsidiaries -- Dividends."
The Company has paid regular cash dividends on the Common Stock since it
commenced operations in 1982. The Company currently expects to pay cash
dividends on the Common Stock after the Acquisitions at the Company's current
rate. There can be no assurance, however, that any such dividends will be paid
by the Company or that such dividends will not be reduced or eliminated in the
future. The timing and amount of dividends will depend upon the earnings,
capital requirements and financial condition of the Company and the Bank
Subsidiaries as well as the general economic conditions and other relevant
factors affecting the Company and the Bank Subsidiaries. See "Investment
Considerations -- No Assurance of Dividends." The Company entered into a new
loan agreement in connection with the Acquisitions replacing the Company's
prior loan agreement. The new loan agreement contains no direct prohibitions
against the payment by the Company of dividends, but indirectly restricts such
dividends through the required maintenance of minimum capital ratios. In
addition, the terms of the Series A Preferred Stock, and the Company's newly
authorized Series B Preferred Stock issued to certain of Prairie's preferred
stockholders (the "Series B Preferred Stock," and collectively with the Series
A Preferred Stock, the "Preferred Stock"), prohibit the payment of dividends by
the Company on the Common Stock during any period for which dividends on the
respective series of Preferred Stock are in arrears. See "Description of
Capital Stock -- Preferred Stock."
THE ACQUISITIONS
PRAIRIE BANCORP, INC.
BUSINESS
Prairie was organized in 1989 as an Illinois corporation and its main
office is located in Princeton, Illinois. Prairie engages in no significant
activities other than owning and managing the six Prairie Banks. Three of the
Prairie Banks (the Manlius, Ladd and Tiskilwa Banks) are located in Bureau
County. Bureau County is adjacent to and west of LaSalle County, where the
Company is headquartered. The Manlius Bank also operates two branches in
Princeton, the county seat of Bureau County. The Tampico Bank is located in
Whiteside County, which is immediately northwest of Bureau County. The Hanover
Bank is located in Jo Daviess County in the northwest corner of Illinois. The
Ferris Bank is located in western Illinois approximately 25 miles west of
Macomb, Illinois, the headquarters of Omni Bank. See the map on page 2 of this
Prospectus.
At June 30, 1996, Prairie had total consolidated assets of approximately
$226.0 million, total consolidated deposits of approximately $187.8 million and
total consolidated stockholders' equity of approximately $11.7 million.
Each of the Prairie Banks is a community bank located in a predominantly
agricultural area. Each Prairie Bank offers interest and noninterest bearing
deposit accounts and makes consumer, commercial and agricultural loans. As of
June 30, 1996, the combined Prairie Banks' loan portfolios in aggregate book
value and as a percentage of the total consolidated loan portfolio consisted of
$41.0 million of real estate loans (55.5% of total loans), $25.9 million of
commercial loans (35.0% of total loans) and $7.0 million of consumer loans
(9.5% of total loans). As of June 30, 1996, the combined Prairie Banks' total
nonaccrual loans equaled $248,000, or 0.34% of total loans. The allowance for
possible loan losses was $784,000, or 316.1% of total nonaccrual loans and
1.06% of the gross loan portfolio. Other real estate owned by the Prairie
Banks had an aggregate value at June 30, 1996, of $22,000. The combined
Prairie Banks' net income after taxes was $828,000 for 1995 and $497,000 for
the six months ended June 30, 1996. See the consolidated financial statements
of Prairie included in this Prospectus.
Prairie emphasizes operating autonomy at each of its subsidiary banks and
a conservative lending policy. The president of each of the Prairie Banks is
an experienced banker who resides in the vicinity of their banks' respective
communities. Prairie is managed by Robert L. Davidson, whose primary
responsibility is managing the investment portfolio of the Prairie Banks.
ACQUISITION BY THE COMPANY
On January 22, 1996, the Company entered into an Agreement and Plan of
Merger (as subsequently
20
<PAGE> 22
amended the "Prairie Acquisition Agreement") with Prairie pursuant to
which the Company agreed to acquire all of the issued and outstanding shares of
Prairie's common and preferred stock (the "Prairie Common Stock" and "Prairie
Preferred Stock," respectively). Prairie's stockholders approved the Prairie
Acquisition Agreement on February 29, 1996 and the transaction was consummated
on August 6, 1996. As a result of the Prairie Acquisition, Prairie became a
wholly-owned subsidiary of the Company.
As more fully set forth below and subject to certain future possible
adjustments, the total net value of the consideration in connection with the
Prairie Acquisition was $6,599,000, which was paid in a combination of cash and
securities of the Company. Prairie does not own 100% of the capital stock of
each of the Prairie Banks, although Prairie is in all cases the controlling
stockholder of such institutions. The percentage ownership of Prairie, as well
as additional information about each of the Prairie Banks, is set forth in the
following table. The Company intends in the future to acquire all of the
outstanding stock of the Prairie Banks held by minority stockholders and not
currently owned by Prairie. The Company estimates that the total cost to
acquire such minority interests will be approximately $845,000.
<TABLE>
<CAPTION>
PERCENTAGE TOTAL ASSETS
LOCATION OF BRANCH OWNERSHIP AS OF
NAME OF BANK MAIN OFFICE LOCATIONS OF PRAIRIE JUNE 30, 1996
- ------------ ----------- --------- ---------- -------------
<S> <C> <C> <C> <C>
Farmers State Bank of Ferris Carthage Ferris 100.0% $49,368,000
("Ferris Bank")
Hanover State Bank Hanover Elizabeth 100.0% $25,626,000
("Hanover Bank")
Bank of Ladd Ladd 80.0% $42,211,000
("Ladd Bank")
First National Bank of Manlius Manlius Princeton (2) 98.5% $64,618,000
("Manlius Bank")
Tampico National Bank Tampico 99.4% $19,643,000
("Tampico Bank")
Tiskilwa State Bank Tiskilwa 95.0% $24,387,000
("Tiskilwa Bank")
</TABLE>
CONSIDERATION FOR PRAIRIE COMMON STOCK AND PRAIRIE PREFERRED STOCK
At the closing of the Prairie Acquisition (the "Prairie Closing"),
stockholders of Prairie received the following consideration in exchange for
their shares of Prairie's capital stock: holders of Prairie Common Stock and
Prairie's Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock received a total of 710,576 shares of Common Stock, 2,762.24
shares of Series A Preferred Stock and $5,000,000 in cash and holders of
Prairie Series A Preferred Stock received a total of 857 shares of Series B
Preferred Stock and $235,000 in cash. The Company's Series A Preferred Stock is
convertible into Common Stock, subject to certain adjustments intended to
offset the amount of losses incurred by the Company upon the post-closing sale
of certain securities in Prairie's consolidated investment portfolio. See
"Description of Capital Stock of the Company -- Preferred Stock."
The Prairie Acquisition Agreement provides for an adjustment of the
aggregate conversion value of the shares of Series A Preferred Stock. Assuming
that all of Prairie's investment portfolio was held as available for sale
securities, as of June 30, 1996, the aggregate amount of unrealized losses in
Prairie's investment portfolio was $1.9 million. Pursuant to the Prairie
Acquisition Agreement, a portion of the securities in Prairie's consolidated
investment portfolio in the approximate face amount of $61.7 million were
designated as Part B Securities (the "Part B Securities"). In general, the
Prairie Acquisition Agreement provides that any losses recognized by the
Company upon the post-closing sale of any of the Part B securities will have
the effect of reducing the conversion value of the Series A Preferred Stock
held by the Principal Prairie Stockholders and thus reduce the number of shares
of Common Stock into which such Series A Preferred Stock is convertible. See
"Description of Capital Stock of the Company -- Preferred Stock."
21
<PAGE> 23
RESTRICTIONS APPLICABLE TO PRINCIPAL PRAIRIE STOCKHOLDERS
The shares of Common Stock exchanged in the Prairie Acquisition and the
shares of Common Stock which are issuable upon conversion of the Series A
Preferred Stock held by the Principal Prairie Stockholders are subject to the
terms and conditions of a Standstill Agreement between the Company and the
Principal Prairie Stockholders executed at the time of the Prairie Closing.
The Standstill Agreement provides that prior to the fourth anniversary of the
Prairie Closing, each of the Principal Prairie Stockholders may not, either
alone or with any affiliate, increase his holdings of Common Stock to 12.5% or
more of the then issued and outstanding shares of Common Stock.
Notwithstanding the foregoing, each of the Principal Prairie Stockholders is
entitled to exceed such 12.5% ownership limitation as a result of: (i)
acquiring shares of Common Stock upon conversion of shares of Series A
Preferred Stock; (ii) receiving additional shares of Common Stock pursuant to
stock dividends or other offerings made by the Company generally to all holders
of Common Stock; or (iii) actions approved by the Company's Board of Directors
and affecting all holders of the Common Stock generally.
The Standstill Agreement further provides that during the Standstill
Period, the Principal Prairie Stockholders will not make any offer to sell or
transfer any shares of Common Stock to an unrelated third party to the extent
such shares, when aggregated with all other shares of Common Stock transferred
by such individual, represent 5% or more of the then issued and outstanding
shares of Common Stock, without first providing the Company with the
opportunity to purchase such shares on the same terms and conditions offered by
such third party. During the Standstill Period, each of the Principal Prairie
Stockholders has granted a limited proxy to the President of the Company for
all shares of Common Stock held by each of the Principal Prairie Stockholders
with respect to any stockholder vote regarding elections to the Company's Board
of Directors. The proxy granted to the President of the Company will terminate
on the earlier of the expiration of the Standstill Period or at such time, if
any, as any third party or group unaffiliated with any of the Principal Prairie
Stockholders acquires 25% or more of the issued and outstanding Common Stock.
Subject to certain exceptions for issuances of Common Stock under employee
benefit plans, the Standstill Agreement grants each Principal Prairie
Stockholder the right to purchase from the Company additional shares of Common
Stock in the event of certain dilutive actions on the part of the Company.
REGISTRATION AGREEMENT
The Company also has entered into a Registration Agreement that grants to
the Principal Prairie Stockholders certain "piggyback" registration rights with
respect to the Common Stock owned by such stockholders. Pursuant to the
Registration Agreement, whenever the Company proposes to register any of its
securities under the Securities Act and the registration form to be used may be
used for the registration of Common Stock held by the Principal Prairie
Stockholders, the Company must give notice to such stockholders and they may
elect to include in such registration all or any part of the shares of Common
Stock then owned by them. Notwithstanding such election, however, all or any
portion of the shares of Common Stock elected by the Prairie Principal
Stockholders may subsequently be excluded from such registration statement if
the Company's underwriter determines that the number of securities requested to
be registered would exceed the number of securities that can be sold in such
registered offering.
COUNTRY BANCSHARES, INC.
BUSINESS
Country is a one-bank holding company headquartered in Macomb, Illinois.
Country engages in no significant activities other than owning and managing
Omni Bank. The directors of Country are the record and beneficial owners of
approximately 90% of the outstanding common stock of Country.
Country's only subsidiary, Omni Bank, was created by the merger on
December 7, 1994, of three other banks. The First National Bank in
Blandinsville, Blandinsville, Illinois, merged into the Paloma Exchange Bank,
Paloma, Illinois. The Paloma Exchange Bank subsequently purchased the assets
and assumed the liabilities of Omni Bank, Hull, Illinois. The Paloma Exchange
Bank then changed its name to Omni Bank and relocated its main office from
Paloma to Macomb, Illinois.
Macomb, located in the west central part of Illinois in McDonough County,
serves as the county seat and
22
<PAGE> 24
the region's business, educational and entertainment center by providing
retail and manufacturing opportunities, as well as health care,
entertainment and cultural activities for the area's residents. Macomb is the
home of Western Illinois University which has approximately 12,500 students.
Omni Bank's five branches (Blandinsville, Camp Point, East Hannibal, Hull and
Paloma, Illinois) are located in predominantly agricultural areas. Omni Bank
has recently exercised an option to purchase a parcel of real estate in
Hannibal, Missouri for possible future expansion.
At June 30, 1996, Country had total consolidated assets of approximately
$103.2 million, total consolidated deposits of approximately $90.8 million and
total consolidated stockholders' equity of approximately $2.4 million.
Omni Bank is a community bank whose business includes conventional
consumer and commercial products and services, including interest and
noninterest bearing depository accounts, commercial, industrial, consumer, real
estate and agricultural lending. At June 30, 1996, Omni Bank's loan portfolio
in aggregate book value and as a percentage of the total loan portfolio
consisted of $39.2 million in real estate loans (58.3% of total loans), $22.4
million in commercial and industrial loans (33.3% of total loans), and $5.0
million in consumer loans (7.5% of total loans) and $600,000 in other loans
(0.9% of total loans). At June 30, 1996, Omni Bank had total nonaccrual loans
of $1.3 million, representing 1.96% of gross loans. The allowance for loan
losses equaled $500,000, or 38.0% of total nonaccrual loans, and 0.75% of total
loans. Omni Bank reported net income of $155,288 for the first six months of
1996 and net income of $208,598 for the year ended December 31, 1995. See the
consolidated financial statements of Country included in this Prospectus.
ACQUISITION BY THE COMPANY
On March 21, 1996, the Company entered into an Agreement and Plan of
Merger (the "Country Acquisition Agreement") with Country pursuant to which the
Company will acquire all of the issued and outstanding shares of Country's
common and preferred stock (the "Country Common Stock" and the "Country
Preferred Stock," respectively). Country's stockholders approved the Country
Acquisition Agreement and the transactions contemplated thereunder on May 20,
1996. Following the consummation of the Country Acquisition, Country will be a
wholly-owned subsidiary of the Company. The Company filed the necessary
regulatory applications requesting approval from the FRB and the Illinois
Commissioner of Banks and Real Estate (the "Illinois Commissioner"), on May 1,
and May 16, 1996, respectively, and has subsequently received all necessary
approvals to consummate the Country Acquisition. The consideration to be paid
in connection with the Country Acquisition is $11,445,000, which amount is
subject to adjustment based upon the book value of certain of Country's loans
at the closing of the Country Acquisition (the "Country Closing").
CONSIDERATION FOR COUNTRY COMMON AND PREFERRED STOCK
The Country Acquisition Agreement provides that upon consummation of the
Country Acquisition, holders of Country Common Stock and Country Preferred
Stock will receive the following consideration in exchange for their shares of
Country's capital stock. Holders of Series 1 and Series 2 Class A Preferred
Stock of Country will each receive cash equal to $295 plus the amount of any
accrued but unpaid dividends for each such share. Each holder of Country
Common Stock will receive cash in an amount as computed pursuant to a formula
set forth in the Country Acquisition Agreement. The formula provides that the
holders of Country Common Stock will receive an aggregate of $11,445,000 in
cash less the amount paid to the holders of Series 1 and Series 2 Class A
Preferred Stock of Country and less the amount necessary to satisfy in full all
of the outstanding liabilities of Country immediately prior to the Country
Closing. In addition to the foregoing, the cash price per share of Country
Common Stock may be increased if, prior to the Country Closing, Omni Bank
experiences recoveries on certain of its loans in excess of their current book
values. Any such increase in the cash price per share of Country Common Stock
would be equal to the amount by which such recovery, if any, exceeds the book
value of such loans.
NON-COMPETITION AGREEMENTS
At or prior to the Country Closing, non-competition agreements are to be
executed by Ivan and Betty Wharton, the President and the Chairman of Country,
respectively (the "Whartons"), which provide, among other things, that for
three years following the Country Closing neither of the Whartons will compete
directly or indirectly with Omni Bank by becoming an employee, officer,
director or consultant to any financial institution maintaining an office
within a five-mile radius of any of Omni Bank's offices. The Whartons will
each receive $5,000 as consideration for the execution of their respective
non-competition agreements.
23
<PAGE> 25
ACQUISITION OF CERTAIN PROPERTY FROM OMNI BANK
As a condition to the Company's obligation to consummate the Country
Acquisition, the Whartons must acquire from Omni Bank all obligations payable
to Omni Bank by certain borrowers whose loans have been identified by the
Company as bearing more than an average risk of loss. The Whartons have agreed
to acquire any such loans from Omni Bank for cash at or prior to the Country
Closing at the respective book value of each such loan at the time of the
Country Closing. As a further condition to the Company's obligation to close
the Country Acquisition, the Whartons have also agreed to acquire for cash at
their respective book values all parcels of real estate and improvements owned
by Omni Bank in Paloma, Illinois, including Omni Bank's Paloma branch office
and certain other property located adjacent to this branch. Pursuant to the
Country Acquisition Agreement, Omni Bank will lease the Paloma branch office
from the Whartons over a ten-year term. Under the lease agreement, Omni Bank
also has the right to purchase the property at any time during the term of the
lease for a price equal to the then current appraised fair market value of the
property.
INDEMNIFICATION
The Whartons have each agreed to indemnify and hold the Company harmless
against any losses or damages incurred by the Company in connection with any of
the Omni Bank loans to be acquired by them or in connection with certain
contingent liabilities associated with the Paloma, Illinois property. This
indemnity will expire three years after the date of the Country Closing.
ANTICIPATED EFFECTS AND BENEFITS OF THE ACQUISITIONS
Management of the Company believes that the Acquisitions will provide a
cost-effective means for the Company to expand into new markets for financial
services in northwestern, western and southwestern Illinois. The Company's
management believes it can achieve revenue enhancements, operating
efficiencies, loan diversification and additional growth opportunities as a
result of the Acquisitions.
Revenue enhancements, primarily in the form of increased net interest
income, are anticipated from, among other things, expanding the Company's
commercial and retail banking services into new markets. Historically, the
Prairie Banks have maintained a low loan to deposit ratio and have concentrated
on attempting to increase earnings through management of their investment
portfolios. The Company believes that margin gains can be achieved by
converting lower yielding securities at the Prairie Banks into higher yielding
loans through increased marketing efforts. Following the consummation of the
Acquisitions, the Company intends to increase the volume of consumer and
commercial lending by Prairie and to expand the types of loan products offered
to include auto and student loans, loans secured by equipment, inventory and
accounts receivable, letters of credit, Small Business Administration ("SBA")
financing and minority business loans.
The Company also anticipates revising Omni Bank's rate structure and
repricing certain loans, deposits and services to reflect the gross margin
objectives of the Company. In addition, the Company expects to increase
interest and non-interest income by cross-selling products and services to the
customers of Omni Bank. Fee based income is expected to increase through the
offering of new services to customers of all of the newly acquired banks. The
Company intends to offer its corporate cash management services to customers
through the Prairie Banks and Omni Bank.
The Company expects that it will be able to increase significantly the
operating efficiencies at the Prairie Banks and Omni Bank. The Company intends
to consolidate all data processing services within UnionData Corp, Inc., the
Company's data processing subsidiary ("UnionData"). This consolidation should
also enable the Company to track closely the financial operations of each of
its branches and make additional operational changes on a timely basis. The
Company intends to consolidate certain other functions at the holding company
level, including human resources, loan review and audit and property
management.
The Acquisitions will allow the Company to expand its market area into
what it believes are desirable banking locations. Most of the Prairie Banks
are the sole financial institution in their communities and many are located in
county seats. Omni Bank is based in a growing college community. Through the
Acquisitions, the Company will increase from two bank subsidiaries with eleven
locations in north central Illinois, to nine bank subsidiaries and twenty seven
locations in thirteen counties across northern, north central and western
Illinois. The
24
<PAGE> 26
resulting market area of the Company will extend from the far
western suburbs of the Chicago metropolitan area across central and northern
Illinois to the Mississippi River in western Illinois. This expansion will
increase the geographic diversity of the Company's loan portfolio, which is
expected to decrease the Company's overall lending risks.
The Acquisitions are expected to increase significantly the presence of
the Company within the region's banking industry. Because of the reputations
of the Company and its executive officers in the banking industry, the Company
believes that it will be an attractive alternative to future sellers of
community banks and thrifts. The Company believes that it can successfully
manage these community-based institutions to increase their profitability by
expanding cross-selling efforts and emphasizing those products and services
offering the highest return on investment.
25
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information
for the Company for each of the years in the five-year period ended December
31, 1995, and for the six months ended June 30, 1996 and 1995. This summary
should be read in conjunction with the Consolidated Financial Statements of the
Company including the notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company." In the
opinion of management of the Company, the data presented for the six months
ended June 30, 1996 and 1995, which is derived from unaudited consolidated
financial statements, reflects all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations for such periods. Results for the six month period ended
June 30, 1996, are not necessarily indicative of results that may be expected
for any other interim period or the entire year.
26
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income..................... $11,278 $10,193 $21,368 $18,627 $18,604 $20,127 $19,437
Interest expense.................... 5,850 5,217 11,249 8,706 8,798 10,482 11,595
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income................ $5,428 $4,976 $10,119 $9,921 $9,806 $9,645 $7,842
Provision for loan losses........... 500 342 684 660 1,268 1,297 650
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses.......... $4,928 $4,634 $9,435 $9,261 $8,538 $8,348 $7,192
Noninterest income................... 1,324 1,187 2,570 2,283 2,512 1,893 1,580
Noninterest expense.................. 4,761 4,413 8,771 8,247 7,841 7,335 6,965
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income before income taxes....... $1,491 $1,408 $3,234 $3,297 $3,209 $2,906 $1,807
Provision (credit) for income taxes.. 380 365 881 703 747 595 507
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income......................... $1,111 $1,043 $2,353 $2,594 $2,462 $2,311 $1,300
=========== =========== =========== =========== =========== =========== ===========
PER SHARE DATA(1)
Net income........................... $0.51 $0.49 $1.09 $1.22 $1.15 $1.08 $0.61
Cash dividends....................... 0.07 0.07 0.13 0.12 0.09 0.07 0.07
Dividend payout ratio................ 12.77% 13.61% 12.06% 9.57% 7.78% 6.13% 10.91%
Book value........................... $11.00 $10.40 $11.01 $9.21 $8.92 $7.83 $6.82
Weighted average shares
outstanding......................... 2,169,012 2,131,737 2,148,897 2,132,712 2,132,760 2,132,760 2,136,195
Period end shares outstanding........ 2,131,737 2,131,737 2,131,737 2,131,737 2,132,760 2,132,760 2,132,760
BALANCE SHEET DATA
Investments and Federal funds sold... $87,154 $89,376 $95,182 $86,460 $95,098 $83,057 $90,902
Total loans.......................... 185,840 175,227 180,819 161,134 148,371 146,569 131,915
Allowance for loan losses............ 1,597 1,871 2,014 1,704 1,787 1,586 1,384
Total assets......................... 296,605 282,987 303,533 272,038 266,666 249,121 240,535
Total deposits....................... 259,087 247,939 261,727 232,334 237,455 222,513 214,520
Stockholders' equity................. 23,452 22,164 23,475 19,629 19,026 16,702 14,553
EARNINGS PERFORMANCE DATA
Return on average total assets(2).... 0.75% 0.76% 0.83% 0.98% 0.97% 0.95% 0.60%
Return on average stockholders'
equity(2)........................... 9.49 10.11 10.83 13.29 13.88 15.00 9.64
Net interest margin ratio............ 4.23 4.27 4.15 4.38 4.46 4.52 4.18
Efficiency ratio(3).................. 65.60 66.35 64.16 61.87 59.05 60.99 68.49
ASSET QUALITY RATIOS
Nonperforming assets to total
assets.............................. 0.64% 0.52% 0.95% 0.87% 1.64% 1.64% 2.04%
Nonperforming loans to total loans... 0.70 0.32 1.22 0.90 2.06 2.32 3.07
Net loan charge-offs to average
loans(2)............................ 1.00 0.10 0.22 0.49 0.71 0.78 0.34
Allowance for loan losses to total
loans............................... 0.86 1.07 1.11 1.06 1.20 1.08 1.05
Allowance for loan losses to
nonperforming loans................. 122.75 337.55 90.93 117.44 58.61 46.56 34.18
CAPITAL RATIOS
Average equity to average assets..... 7.95% 7.62% 7.67% 7.38% 6.98% 6.34% 6.27%
Total capital to risk adjusted assets 12.54 12.07 12.35 12.28 10.97 10.23 8.72
Tier 1 leverage...................... 7.92 7.79 7.95 7.68 7.00 6.33 6.33
</TABLE>
- --------------
(1) Restated to reflect the three-for-one stock split which took effect on
May 20, 1996.
(2) Interim periods annualized.
(3) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
The following discussion provides additional information regarding the
operations and financial condition of the Company for the six months ended June
30, 1996 and 1995, and the three years ended December 31, 1995. This
discussion should be read in conjunction with "Selected Consolidated Financial
Data," the consolidated statements of financial condition of the Company and
the accompanying notes thereto included elsewhere in this Prospectus.
GENERAL
The Company derives substantially all of its revenues and income from the
operations of its banking subsidiaries, the Union Banks, which provide a full
range of commercial and consumer banking services to businesses and
individuals, primarily in LaSalle and contiguous counties in north central
Illinois. As of June 30, 1996, the Company had total assets of $296.6 million,
net loans of $184.2 million, total deposits of $259.0 million and total
stockholders' equity of $23.5 million. As a result of internal loan and
deposit portfolio growth, coupled with a relatively stable net interest margin,
the Company reported net income of $1,111,000 for the six months ended June 30,
1996, compared with net income of $1,043,000 for the six months ended June 30,
1995.
RESULTS OF OPERATIONS
NET INCOME
Net income was $1,111,000 ($.51 per share) for the six months ended June
30, 1996, compared with net income of $1,043,000 ($.49 per share) for the six
months ended June 30, 1995, an increase of $68,000 or 6.5%. The increase in
earnings in 1996 compared with 1995 was primarily attributable to growth in the
Company's loan and deposit portfolios.
Net income was $2,353,000 for 1995 ($1.09 per share), compared with net
income of $2,594,000 for 1994 ($1.22 per share) and $2,462,000 for 1993 ($1.15
per share). The $241,000 (9.3%) decrease in earnings for 1995 compared to 1994
was primarily attributable to start-up costs related to the opening of two new
banking facilities during that year. The $132,000 (5.4%) increase in 1994 as
compared to 1993 resulted primarily from a $608,000 decrease in the provision
for loan losses which reflected improvement in the quality of the loan
portfolio as evidenced by a reduction in net charge-offs during the same
period.
NET INCOME BEFORE INCOME TAXES
Net income before income taxes was $1,491,000 for the six months ended
June 30, 1996, compared with $1,408,000 for the first six months of 1995, a
5.9% increase. Net income before income taxes was $3,234,000 in 1995, a
decrease of $63,000 or 1.9% compared with $3,297,000 in 1994, which
represented an increase of $88,000, or 2.7%, compared with $3,209,000 in 1993.
The decline in net income before income taxes for 1995 compared to 1994 was
primarily attributable to start-up costs related to the opening of two new
banking facilities during that year.
NET INTEREST INCOME
Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The net yield on total interest-earning assets, also referred to
as interest rate margin or net interest margin, represents net interest income
divided by average interest-earning assets. The Company's principal
interest-earning assets are loans, investment securities and federal funds
sold.
Net interest income was $5,428,000 for the first six months of 1996, an
increase of $452,000 or 9.1% compared with the first six months of 1995,
resulting principally from an increase in average interest-earning assets from
$251.6 million to $274.8 million, a significant portion of which was comprised
of loans. The increase in net interest income resulting from increased
interest-earning assets was partially offset in interest-bearing liabilities
from $221.4 million to $239.4 million. In addition, the Company experienced a
decrease in its net interest margin from 4.27% at June 30, 1995, to 4.23% at
June 30, 1996. The decrease in net interest margin resulted principally from
28
<PAGE> 30
the cost of interest-bearing liabilities increasing more than the yield on
interest-earning assets. The yield on interest-earning assets increased from
8.45% to 8.51%, while the cost of interest-bearing liabilities increased from
4.75% to 4.91% during such period.
Net interest income was $10,119,000 for 1995, an increase of $198,000 or
2.0% compared with net interest income of $9,921,000 for 1994, which
represented an increase of $115,000 or 1.2% compared with net interest income
of $9,806,000 for 1993. The Company's average total interest-earning assets
increased from approximately $242.8 million for 1994 to $261.0 million for
1995, representing a 7.5% increase resulting principally from an increase in
loans. The net interest margin declined to 4.15% at December 31, 1995, from
4.38% at December 31, 1994. Although interest rates on average earning assets
increased to 8.46% in 1995 from 7.96% in 1994, rates on average interest
bearing liabilities increased to 4.90% in 1995 from 4.08% in 1994. The
increase in average earning assets primarily resulted from average rate
increases in the loan portfolio and reflected an overall increase in market
rates of interest. The most significant variances comprising the increase in
interest bearing liabilities were interest rates on NOW Accounts and Money
Market Accounts due to new tiered pricing products introduced by the Company in
1995, as well as interest rates on time deposits reflecting the increase in
market rates of interest.
The following table sets forth for each category of interest-earning
assets and interest-bearing liabilities the average amounts outstanding, the
interest earned or paid on such amounts and the average rate paid for the six
months ended June 30, 1996 and 1995, and for the years ended December 31, 1995,
1994 and 1993. The table also sets forth the average rate earned on all
interest-earning assets, the average rate paid on all interest-bearing
liabilities and the net yield on average interest-earning assets for the same
period.
29
<PAGE> 31
AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS
FOR THE SIX MONTHS ENDED JUNE 30, ENDED DECEMBER 31,
-------------------------------------------------------- ---------------------------
1996 1995 1995
--------------------------- --------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest earning deposits.............. $ 30 $ 1 5.32% $ 22 $ 1 5.33% $ 27 $ 2 5.85%
Investment securities:
Taxable............................... 66,450 1,978 5.99 61,096 1,755 5.79 62,808 3,636 5.79
Non-taxable (1)....................... 24,989 946 7.61 23,852 945 7.99 24,463 1,919 7.84
-------- -------- -------- -------- -------- --------
Total investment securities.......... 91,439 2,924 6.43 84,948 2,700 6.41 87,271 5,555 6.37
-------- -------- -------- -------- -------- --------
Federal funds sold.................... 1,184 32 5.43 1,429 44 6.21 2,577 156 6.05
-------- -------- -------- -------- -------- --------
Loans: (2) (3)
Commercial and industrial............. 58,078 2,791 9.66 54,024 2,659 9.93 55,431 5,524 9.97
Real estate mortgages................. 101,844 4,506 8.89 90,595 3,963 8.82 94,050 8,380 8.91
Installment and other................. 24,328 1,087 8.99 22,424 986 8.87 23,523 2,103 8.94
Fees on loans......................... 0 288 0.00 0 192 0.00 0 362 0.00
Less: Allowance for loan losses....... (2,113) 0 0.00 (1,808) 0 0.00 (1,878) 0 0.00
-------- -------- -------- -------- -------- --------
Net loans (tax equivalent)........... 182,137 8,672 9.57 165,235 7,800 9.52 171,126 16,369 9.57
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-earning assets.......... 274,790 11,629 8.51 251,634 10,545 8.45 261,001 22,082 8.46
-------- -------- -------- -------- -------- --------
NONEARNING ASSETS:
Cash and due from banks................ 10,725 10,064 10,763
Premises and equipment, net............ 6,809 5,839 6,042
Other assets........................... 5,700 5,521 5,585
-------- -------- --------
Total nonearning assets 23,234 21,424 22,390
-------- -------- --------
Total assets......................... $298,024 $273,058 $283,391
======== ======== ========
LIABILITIES
INTEREST-BEARING DEPOSITS:
NOW accounts.......................... $ 30,649 $ 392 2.57 $ 28,547 $ 362 2.56 $ 31,097 $ 843 2.71
Money market accounts................. 22,263 355 3.20 19,132 264 2.78 19,691 584 2.97
Savings deposits...................... 24,029 313 2.62 23,536 308 2.64 23,146 611 2.64
Time, $100,000 and over............... 14,016 407 5.84 12,639 341 5.44 12,040 687 5.71
Other time deposits................... 133,488 3,923 5.91 125,477 3,512 5.64 129,147 7,534 5.84
Federal funds purchased and
repurchase agreements................ 10,499 276 5.29 7,147 212 5.98 9,825 567 5.77
Notes payable......................... 4,416 184 8.38 4,873 218 9.02 4,696 423 9.00
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-bearing liabilities.... 239,360 5,850 4.91 221,351 5,217 4.75 229,642 11,249 4.90
-------- -------- -------- -------- -------- --------
Noninterest-bearing liabilities:
Noninterest-bearing deposits.......... 32,380 29,121 29,950
Other liabilities..................... 2,605 1,789 2,071
-------- -------- --------
Total noninterest-bearing
liabilities.......................... 34,985 30,910 32,021
-------- -------- --------
Stockholders' equity.................. 23,679 20,797 21,728
Total liabilities and stockholders'
equity............................... $298,024 $273,058 $283,391
======== ======== ========
Net interest income (tax equivalent).. $ 5,779 $ 5,328 $ 10,833
======== ======== ========
Net interest income (tax equivalent)
to total earning assets.............. 4.23% 4.27% 4.15%
Interest bearing liabilities to
earning assets....................... 87.11% 87.97% 87.99%
-------- -------- --------
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993
---------------------------- ---------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest earning deposits............. $ -- $ -- 0.00% $ 54 $ 2 3.57%
Investment securities:
Taxable..............................
Non-taxable (1)...................... 68,946 3,937 5.71 63,134 4,024 6.37
22,818 1,869 8.19 17,236 1,540 8.94
Total investment securities......... -------- -------- -------- --------
91,764 5,806 6.33 80,370 5,564 6.92
Federal funds sold................... -------- -------- -------- --------
629 38 6.04 4,667 140 3.00
Loans: (2) (3) -------- -------- -------- --------
Commercial and industrial............
Real estate mortgages................ 57,093 5,074 8.89 56,965 5,056 8.43
Installment and other................ 78,262 6,522 8.33 76,124 6,394 8.40
Fees on loans........................ 16,831 1,552 9.22 17,366 1,799 10.36
Less: Allowance for loan losses...... 0 339 0.00 0 258 0.00
(1,731) 0 0.00 (1,794) 0 0.00
Net loans (tax equivalent).......... -------- -------- -------- --------
150,455 13,487 8.96 148,661 13,507 9.09
Total interest-earning assets......... -------- -------- --------- -------- -------- -------
242,848 19,331 7.96 233,752 19,213 8.22
NONEARNING ASSETS: -------- -------- -------- --------
Cash and due from banks...............
Premises and equipment, net........... 10,867 10,322
Other assets.......................... 5,282 4,572
5,637 5,502
Total nonearning assets -------- --------
21,786 20,396
Total assets........................ -------- --------
$264,634 $254,148
======== ========
LIABILITIES
INTEREST-BEARING DEPOSITS:
NOW accounts......................... $ 27,187 $ 627 2.31 $ 26,786 $ 628 2.34
Money market accounts................ 22,108 590 2.67 22,562 648 2.87
Savings deposits..................... 26,288 723 2.75 26,103 807 3.09
Time, $100,000 and over.............. 15,912 755 4.74 17,190 830 4.83
Other time deposits.................. 112,094 5,398 4.82 108,159 5,483 5.07
Federal funds purchased and
repurchase agreements............... 4,574 242 5.29 2,015 62 3.08
Notes payable........................ 5,135 371 7.22 5,528 340 6.15
-------- -------- --------- -------- -------- -------
Total interest-bearing liabilities... 213,298 8,706 4.08 208,343 8,798 4.22
-------- -------- -------- --------
Noninterest-bearing liabilities:
Noninterest-bearing deposits......... 29,622 26,026
Other liabilities.................... 2,194 2,047
-------- --------
Total noninterest-bearing
liabilities......................... 31,816 28,073
-------- --------
Stockholders' equity................. 19,520 17,732
Total liabilities and stockholders'
equity.............................. $264,634 $254,148
======== ========
Net interest income (tax
equivalent)......................... $ 10,625 $ 10,415
======== ========
Net interest income (tax equivalent)
to total earning assets............. 4.38% 4.46%
Interest bearing liabilities to
earning assets...................... 87.83% 89.13%
-------- --------
</TABLE>
(1) Tax equivalent basis.
(2) Nonaccrual loans are included in the average balances.
(3) Overdraft loans are excluded in the average balances.
30
<PAGE> 32
The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as a "rate change." The following table reflects
the changes in net interest income stemming from changes in interest rates and
from asset and liability volume, including mix. The change in interest
attributable to both rate and volume has been allocated to the changes in the
rate and the volume on a pro rata basis.
RATE/VOLUME ANALYSIS OF
NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996 FOR THE YEARS ENDED DECEMBER 31,
COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993
---------------- --------------------- ---------------------
CHANGE DUE TO CHANGE DUE TO CHANGE DUE TO
---------------------- ------------------------- -------------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ---- --- ------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest earning deposits $ 0 $ 0 $ 0 $ 0 $ 2 $ 2 $ (1) $ (1) $ (2)
Investment securities:
Taxable.................. 160 63 223 (354) 53 (301) (9) (78) (87)
Tax-exempt............... 45 (44) 1 131 (81) 50 466 (137) 329
Federal funds sold....... (7) (5) (12) 118 0 118 (178) 76 (102)
Loans.................... 829 43 872 1,936 946 2,882 0 (20) (20)
------ ------ ------ ------- ------- ------- ------- ------- -------
Total interest income.... $1,027 $ 57 $1,084 $1,831 $ 920 $2,751 $278 $ (160) $118
------ ------ ------ ------- ------- ------- ------- ------- -------
INTEREST EXPENSE:
NOW accounts............. 28 2 30 97 119 216 9 (10) (1)
Money market
accounts................. 47 44 91 (68) 62 (6) (13) (45) (58)
Savings deposits......... 7 (2) 5 (84) (28) (112) 6 (90) (84)
Time, $100,000 and
over..................... 39 27 66 (203) 135 (68) (61) (14) (75)
Other time............... 240 171 411 894 1,242 2,136 196 (281) (85)
Federal funds purchased
and repurchase
agreements............... 91 (27) 64 301 24 325 114 66 180
Notes payable............ (20) (14) (34) (34) 86 52 (26) 57 31
------ ------ ------ ------- ------- ------- ------- ------- -------
Total interest expense... $ 432 $ 201 $ 633 903 $1,640 $2,543 $225 $ (317) $(92)
------ ------ ------ ------- ------- ------- ------- ------- -------
NET INTEREST MARGIN...... $ 595 $ (144) $ 451 $ 928 $ (720) $ 208 $ 53 $ 157 $210
====== ====== ====== ======= ======= ======= ======= ======= =======
</TABLE>
PROVISION FOR LOAN LOSSES
The amount of the provision for loan losses is based on monthly
evaluations of the loan portfolio, with particular attention directed toward
nonperforming and other potential problem loans. During these evaluations,
consideration is also given to such factors as management's evaluation of
specific loans, the level and composition of nonperforming loans, historical
loss experience, results of examinations by regulatory agencies, an internal
asset review process, the market value of collateral, the strength and
availability of guaranties, concentrations of credits and other judgmental
factors.
The Company recorded a $500,000 provision for loan losses during the six
months ended June 30, 1996, compared with $342,000 during the first six months
of 1995. Although the Company's ratio of net charge-offs to average loans
remained unchanged for these periods, the Company made additional provisions to
the allowance to compensate for growth in the loan portfolio and to maintain
the allowance for loan losses at what management believes to be an adequate
level.
31
<PAGE> 33
The 1995 provision for loan losses was $684,000 compared with $660,000 in
1994 and $1,268,000 in 1993. The 3.6% increase in the 1995 provision for loan
losses when compared with 1994 was primarily a result of
a $19,685,000, or 12.2% increase in loans outstanding which was partially
offset by a $369,000 or 49.7% decrease in net charge-offs. The 47.9% decrease
from 1993 to 1994 was primarily a result of a $324,000, or 30.37% decrease in
net charge-offs.
NONINTEREST INCOME
The following table sets forth the various categories of noninterest
income for the six months ended June 30, 1996 and 1995, and for the years ended
December 31, 1995, 1994 and 1993.
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------------------- -------------------------------------------
1996 1995 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Service charges......... $ 488 $ 458 $ 952 $ 895 $ 822
Merchant fee income..... 237 184 418 357 343
Trust income............ 183 150 330 301 200
Gain on sale of loans... 142 45 288 130 574
Securities gains, net... 13 61 98 118 185
Other noninterest income 261 289 484 482 388
------------- ------------- ------------- ------------- -------------
Total noninterest income $1,324 $1,187 $2,570 $2,283 $2,512
============= ============= ============= ============= =============
</TABLE>
Noninterest income is generated primarily from fees associated with
noninterest and interest-bearing accounts. Noninterest income for the first
six months of 1996 was $1,324,000, an increase of $137,000 or 11.5% compared
with noninterest income of $1,187,000 for the first six months of 1995.
Noninterest income was $2,570,000 for 1995, an increase of $287,000 or 12.6%
compared with noninterest income of $2,283,000 for 1994, which represented a
decrease of $229,000 or 9.1% from $2,512,000 in 1993. The growth of the Union
Banks during 1996 increased the number and balance of noninterest and
interest-bearing accounts, resulting in increased noninterest income.
Specifically, service charges increased on demand deposit accounts, the largest
component of noninterest bearing deposit accounts, and charges grew for items
such as insufficient funds and overdrafts primarily on transactional deposit
products such as demand, NOW and Money Market accounts. The increase in
service charge income to $952,000 for the year ended December 31, 1995, from
$895,000 and $822,000 for the years ended December 31, 1994, and 1993,
respectively, was related to increases in deposit account balances and
increases in the service charge schedule during those periods. Merchant fee
income is derived from the Company's credit card operations, comprised
primarily of merchant fees (56% of total merchant fees), interchange fees (18%
of total merchant fees) and annual fees (11% of total merchant fees). Total
merchant fee income has continued to increase as the Company adds new merchants
to its customer list and as credit card activity has grown. Other noninterest
income is primarily derived from fee-based banking services such as loan
servicing fees, and sales of travelers checks and money orders.
The Company, through its affiliates, provides trust services to its
customers by acting as executor, administrator, trustee, agent and in various
other fiduciary capacities for client accounts. Total assets under management
at June 30, 1996, were approximately $80 million. Trust income, which is
predominately comprised of fees assessed based on the market value of managed
client portfolios, increased by $29,000 during 1995, which followed a $101,000
increase in 1994.
A significant contribution to the Company's noninterest income was also
made by its residential real estate mortgage and origination, sales and
servicing operations. In addition, during 1995 the Company implemented a
program in connection with the SBA which guarantees repayment on portions of
loans if a borrower defaults. Revenues from both of these operations are a
substantial component of noninterest income and include commissions and fees
for third party loan servicing, origination and other fees received at closing
and realized gains on the sale of loans into the secondary market.
32
<PAGE> 34
NONINTEREST EXPENSE
The following table shows the Company's noninterest expense for the
periods indicated:
NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
---------------- ----------------------
1996 1995 1995 1994 1993
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits.... $2,544 $2,174 $4,451 $3,868 $3,613
Occupancy expense, net............ 384 336 665 574 550
Furniture and equipment expenses.. 331 274 584 560 576
FDIC deposit assessment........... 3 259 271 526 502
Other noninterest expense......... 1,499 1,370 2,800 2,719 2,600
------- ------- ------ ------ ------
Total noninterest expense....... $4,761 $4,413 $8,771 $8,247 $7,841
======= ======= ====== ====== ======
</TABLE>
Noninterest expense was $4,761,000 for the first six months of 1996, an
increase of $348,000 or 6.9% compared with noninterest expense of $4,413,000
for the first six months of 1995. The growth of UnionBank/Streator resulted in
additional personnel, occupancy and office expenses, due primarily to the
opening of new banking facilities in each of Plano and Peru, Illinois, in May
and October, 1995, respectively.
Noninterest expense was $8,771,000 for 1995, an increase of $524,000 or
6.4% compared with noninterest expense of $8,247,000 for 1994, which
represented an increase of $406,000 or 5.2% compared with noninterest expense
of $7,841,000 for 1993. The increase in noninterest expense for 1995 from 1994
was attributable to a 15.1%, or $583,000, increase in salaries and employee
benefits and a 10.1%, or $115,000, increase in occupancy and equipment
expenses, due primarily to the opening of two banking facilities during 1995.
Deposits held by the Union Banks are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC"), and as
FDIC-insured institutions, the Union Banks are required to pay deposit
insurance premium assessments to the FDIC. The amount an institution pays for
FDIC deposit insurance coverage is determined in accordance with a risk-based
assessment system under which each insured depository institution is placed
into one of nine categories and assessed insurance premiums based upon its
level of capital and the results of supervisory evaluations. The FDIC has
issued refunds to the best-rated institutions for assessments which exceeded
the recapitalization requirements of the BIF. The Union Banks received a total
refund from the FDIC of approximately $148,000. In addition, recent changes in
the deposit insurance assessment rate are expected to significantly reduce the
cost of deposit insurance for the Union Banks. See "Regulation and Supervision
- -- The Bank Subsidiaries -- Deposit Insurance".
INCOME TAXES
During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." The principal
effect of SFAS No. 109 is to provide a tax benefit for cumulative book loss
reserves in excess of tax reserves. SFAS No. 109 provides that deferred tax
assets may be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized. In
accordance with the provisions of SFAS No. 109, the Company elected not to
restate prior years and has determined that the cumulative effect of
implementation was not significant. The Company and its subsidiaries filed a
consolidated tax return for 1995.
The Company has recorded income tax expense of $380,000 on income before
taxes of $1,491,000 for the six months ended June 30, 1996, an effective tax
rate of 25.5%, as compared with income tax expense of $365,000 on income before
taxes of $1,408,000 for the six months ended June 30, 1995, an effective tax
rate of 25.9%. The Company recorded income tax expense of $881,000, $703,000
and $747,000 for the years ended December 31, 1995, 1994 and 1993,
respectively, and effective tax rates were 27.2%, 21.3% and 23.3%,
respectively, for such
33
<PAGE> 35
periods. The Company's effective tax rate is lower than statutory rates
because the Company derives a significant amount of interest income from
municipal securities, which are exempt from federal tax.
INTEREST RATE SENSITIVITY MANAGEMENT
The operating income and net income of the Union Banks depend, to a
substantial extent, on "rate differentials," i.e., the differences between the
income the Union Banks receive from loans, securities and other earning assets,
and the interest expense they pay to obtain deposits and other liabilities.
These rates are highly sensitive to many factors which are beyond the control
of the Union Banks, including general economic conditions and the policies of
various governmental and regulatory authorities. See "Investment
Considerations -- Impact of Interest Rates and Economic Conditions."
The objective of monitoring and managing the interest rate risk position
of the balance sheet is to contribute to earnings and to minimize fluctuations
in net interest income. The potential for earnings to be affected by changes
in interest rates is inherent in a financial institution. Interest rate
sensitivity is the relationship between changes in market interest rates and
changes in net interest income due to the repricing characteristics of assets
and liabilities. An asset sensitive position in a given period will result in
more assets being subject to repricing; therefore, as interest rates rise, such
a position will have a positive effect on net interest income. Conversely, in
a liability sensitive position, where liabilities reprice more quickly than
assets in a given period, a rise in interest rates will have an adverse effect
on net interest income.
One method of analyzing interest rate risk is to evaluate the balance of
the Company's interest rate sensitivity position. A mix of assets and
liabilities that are roughly equal in volume, term and repricing represents a
matched interest rate sensitivity position. Any excess of assets or
liabilities in a particular period results in an interest rate sensitivity gap.
The following table presents the interest rate sensitivity for the Company's
interest-earning assets and interest-bearing liabilities at June 30, 1996:
INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------------------------------
3 MONTHS 3 MONTHS TO 6 MONTHS TO 1 YEAR TO
OR LESS 6 MONTHS 1 YEAR 5 YEARS OVER 5 YRS. TOTAL
------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Investment securities.................... $ 8,260 $ 4,911 $ 3,383 $ 33,034 $37,341 $ 86,929
Loans.................................... 104,239 5,718 17,327 41,233 17,323 185,840
-------- ----------- ----------- --------- ----------- --------
TOTAL INTEREST-EARNING ASSETS............ $112,499 $ 10,629 $ 20,710 $ 74,267 $54,664 $272,769
======== =========== =========== ========= =========== ========
INTEREST-BEARING LIABILITIES.............
NOW accounts............................. $ -- $ -- $ -- $ 30,091 $ -- $ 30,091
Money market accounts.................... 22,140 -- -- -- -- 22,140
Savings.................................. -- -- -- 24,238 -- 24,238
Time, $100,000 and over.................. 6,185 5,362 6,605 6,927 -- 25,079
Other time............................... 16,657 18,428 44,590 43,350 -- 123,025
-------- ----------- ----------- --------- ----------- --------
Total interest-bearing deposits.......... $ 44,982 $ 23,790 $ 51,195 $ 104,606 $ -- $224,573
Federal funds and repurchase agreements.. 6,544 -- 1,000 -- -- 7,544
Notes payable............................ 4,391 -- -- -- -- 4,391
-------- ----------- ----------- --------- ----------- --------
TOTAL INTEREST-BEARING LIABILITIES....... $ 55,917 $ 23,790 $ 52,195 $ 104,606 $ -- $236,508
======== =========== =========== ========= =========== ========
Period interest sensitivity gap.......... $ 56,582 $ (13,161) $(31,485) $ (30,339) $54,664 $ 36,261
Cumulative interest sensitivity.......... $ 56,582 $ 43,421 $ 11,936 $ (18,403) $36,261 $ 36,261
Cumulative gap as a percent of total
assets.................................. 19.08% 14.64% 4.02% (6.20%) 12.73% 12.73%
Cumulative interest-sensitive assets as
a percent of cumulative interest-
sensitive liabilities................... 201.19% 154.48% 109.05% 92.22% 115.33% 115.33%
</TABLE>
The cumulative rate-sensitive gap position at one year was an
asset-sensitive position of $11.9 million, or 4%, which indicates that
the Company is currently in a closely matched interest rate-sensitive
position. In addition,
34
<PAGE> 36
the Company also utilizes a dynamic gap asset-liability model that takes into
account projected future balances or the difference between interest
sensitive assets and interest sensitive liabilities at specific future time
periods. The cumulative dynamic rate-sensitive gap position at one year,
projected as of June 30, 1997, was an asset sensitive position of $4.1 million
or 1%. Accordingly, the Company believes it will not experience a significant
impact in the short term from changes in interest rates.
The Company undertakes this interest rate-sensitivity analysis to monitor
the potential risk to future earnings from the impact of possible future
changes in interest rates on currently existing net assets or net liability
positions. However, this type of analysis is as of a point-in-time, when in
fact the Company's interest rate sensitivity can quickly change as market
conditions, customer needs and management strategies change. Thus, interest
rate changes do not affect all categories of assets and liabilities equally or
at the same time. Pursuant to its investment policy, the Company does not
purchase derivative financial instruments, although the Company currently owns
such instruments as a result of securities acquired in connection with the
Acquisitions.
The preceding table does not necessarily indicate the impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject to
competitive and other pressures. As of June 30, 1996, the Union Banks held
approximately $5.6 million in mortgage-backed securities. Although the
mortgage-backed securities have various stated maturities, it is not uncommon
for mortgage-backed securities to prepay outstanding principal prior to stated
maturities. As a result, assets and liabilities indicated as repricing within
the same period may, in fact, reprice at different times and at different rate
levels.
ANALYSIS OF FINANCIAL CONDITION
LOANS AND ASSET QUALITY
The Company's loans are diversified by borrower and industry group. Loan
growth has occurred every year over the past five years and can be attributed
to acquisitions, increased loan demand and the addition of new loan products.
The following table describes the composition of loans by major categories
outstanding at June 30, 1996 and at December 31, 1995, 1994, 1993, 1992 and
1991.
LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------- ------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- -------
AGGREGATE PRINCIPAL AMOUNT
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial loans.. $ 41,465 $ 38,298 $ 36,802 $ 37,129 $ 36,087 $ 32,098
Agricultural loans............... 14,251 17,079 14,391 14,702 14,121 11,955
Real estate:
Commercial mortgages............. 46,542 44,393 36,727 32,744 30,783 31,236
Construction loans............... 5,924 7,437 5,047 3,018 3,150 1,381
Agricultural loans............... 9,339 10,229 12,169 12,606 11,689 8,464
1-4 family mortgages............. 41,226 36,637 33,623 27,505 28,076 24,760
Installment loans................ 24,682 24,072 19,765 18,262 20,906 20,801
Other loans...................... 2,414 2,681 2,641 2,511 2,043 1,665
-------- -------- -------- -------- -------- --------
Gross loans...................... 185,843 180,826 161,165 148,477 146,855 132,360
Unearned discount................ (3) (7) (31) (106) (286) (445)
-------- -------- -------- -------- -------- --------
Total loans...................... 185,840 180,819 161,134 148,371 146,569 131,915
Allowance for loan losses........ (1,597) (2,014) (1,704) (1,787) (1,586) (1,384)
-------- -------- -------- -------- -------- --------
Loans, net....................... $184,243 $178,805 $159,430 $146,584 $144,983 $130,531
======== ======== ======== ======== ======== ========
<CAPTION>
PERCENTAGE OF TOTAL LOAN PORTFOLIO
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial loans.. 22.31% 21.18% 22.84% 25.01% 24.57% 24.25%
Agricultural loans............... 7.67 9.45 8.93 9.90 9.62 9.03
Real estate:
Commercial mortgages............. 25.04 24.55 22.79 22.05 20.96 23.60
Construction loans............... 3.19 4.11 3.13 2.03 2.14 1.04
Agricultural loans............... 5.03 5.66 7.55 8.49 7.96 6.39
1-4 family mortgages............. 22.18 20.26 20.86 18.53 19.12 18.71
Installment loans.............. 13.28 13.31 12.26 12.30 14.24 15.72
Other Loans.................... 1.30 1.48 1.64 1.69 1.39 1.26
-------- -------- -------- -------- -------- --------
Gross Loans.................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ======== ========
</TABLE>
35
<PAGE> 37
As of June 30, 1996 and December 31, 1995, commitments of the Union
Banks under standby letters of credit and unused lines of credit totaled
approximately $45,834,000 and $43,797,000, respectively.
Stated loan maturities (including variable rate loans reset to market
interest rates) of the total loan portfolio, net of unearned income, as of June
30, 1996 and December 31, 1995 were as follows:
STATED LOAN MATURITIES(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN 1 YEAR AFTER
1 YEAR TO 5 YEARS 5 YEARS TOTAL
------- ---------- ------- --------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Fixed rate....... $30,562 $45,861 $ 8,900 $ 85,323
Variable rate.... 20,362 24,804 54,329 99,495
Nonaccrual....... 267 617 138 1,022
------- ------- ------- --------
Total............ $51,191 $71,282 $63,367 $185,840
======= ======= ======= ========
DECEMBER 31, 1995
Fixed rate....... $30,630 $46,083 $ 7,505 $ 84,218
Variable rate.... 18,000 25,808 51,666 95,474
Nonaccrual....... 734 140 253 1,127
------- ------- ------- --------
Total............ $49,364 $72,031 $59,424 $180,819
======= ======= ======= ========
</TABLE>
(1) Maturities based upon contractual maturity dates
Rate sensitivities of the total loan portfolio, net of unearned income,
as of June 30, 1996 and December 31, 1995 were as follows:
LOAN REPRICING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN 1 YEAR AFTER
1 YEAR TO 5 YEARS 5 YEARS TOTAL
------- ---------- ------- -------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Total Portfolio.. $64,886 $31,734 $2,875 $99,495
DECEMBER 31, 1995
Total Portfolio.. $64,303 $28,763 $2,408 $95,474
</TABLE>
The maturities presented above are based upon contractual maturities.
Many of these loans are made on a short-term basis with the possibility of
renewal at time of maturity. All loans, however, are reviewed on a continuous
basis for creditworthiness.
NONPERFORMING ASSETS
The Company's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is placed on nonaccrual status. Loans are placed on a nonaccrual
status when there are serious doubts regarding the collectibility of all
principal and interest due
36
<PAGE> 38
under the terms of the loan. Amounts received on nonaccrual loans generally
are applied first to principal and then to interest after all principal has
been collected. It is the policy of the Union Banks not to renegotiate the
terms of a loan because of a delinquent status. Rather, a loan is generally
transferred to nonaccrual status if it is not in the process of collection and
is delinquent in payment of either principal or interest beyond 90 days. Loans
which are 90 days delinquent but are well secured and in the process of
collection are not included in nonperforming assets.
Other nonperforming assets consist of real estate acquired through loan
foreclosures or other workout situations and other assets acquired through
repossessions. The following table summarizes nonperforming assets by category
as of June 30, 1996, and as of December 31, 1995, 1994, 1993, 1992 and 1991:
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans...................... $ 1,022 $1,127 $ 891 $1,671 $2,148 $3,712
Loans 90 days past due and still
accruing interest..................... 279 1,088 560 1,378 1,258 337
------- ------ ------ ------ ------ ------
Total nonperforming loans............ 1,301 2,215 1,451 3,049 3,406 4,049
Other real estate owned............... 346 441 672 1,096 664 857
Other nonperforming assets(1)......... 240 240 240 240 -- --
------- ------ ------ ------ ------ ------
Total nonperforming assets........... $ 1,887 $2,896 $2,363 $4,385 $4,070 $4,906
======= ====== ====== ====== ====== ======
Nonperforming loans to total loans.... 0.70% 1.22% 0.90% 2.06% 2.32% 3.07%
Nonperforming assets to total loans... 1.02 1.60 1.47 2.96 2.77 3.71
Nonperforming assets to total assets.. 0.64 0.95 0.87 1.64 1.64 2.04
</TABLE>
(1) Represents a single municipal security in default status.
The classification of a loan as nonaccrual does not necessarily indicate
that the principal is uncollectible, in whole or in part. A determination as
to collectibility is made by the Union Banks on a case-by-case basis. The
Union Banks consider both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect
nonaccrual loans. The final determination as to the steps taken is made based
upon the specific facts of each situation. Alternatives that are typically
considered to collect nonaccrual loans are foreclosure, collection under
guarantees, loan restructuring or judicial collection actions.
Each of the Company's loans is assigned a rating based upon an internally
developed grading system. A separate credit administration department also
reviews grade assignments on an ongoing basis. Management continuously
monitors nonperforming, impaired and past due loans to prevent further
deterioration of these loans. Management is not aware of any material loans
classified for regulatory purposes as loss, doubtful, substandard, or special
mention, that have been excluded from classification under nonperforming assets
or impaired loans. Management further believes that credits classified as
nonperforming assets or impaired loans include any material loans as to which
any doubts exist as to their collectibility in accordance with the contractual
terms of the loan agreement.
On January 1, 1995, the Company adopted guidelines for impaired loans
required by SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
as amended by Statement No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." The adoption of SFAS 114 did not
significantly impact the comparability of the allowance related tables of the
Company included in this Prospectus.
37
<PAGE> 39
The following table sets forth a summary of other real estate owned and
other collateral acquired as of June 30, 1996:
OTHER REAL ESTATE OWNED
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
NUMBER OF NET BOOK
DESCRIPTION PARCELS CARRYING VALUE
- ----------------------- --------- --------------
<S> <C> <C>
Developed property.......... 1 $ 188,000
Vacant land or unsold lots.. 2 158,000
--------- --------------
Total real estate........... 3 $ 346,000
========= ==============
</TABLE>
ALLOWANCE FOR LOAN LOSSES
In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The allowance for loan losses
represents the Company's estimate of the allowance necessary to provide for
losses incurred in the loan portfolio. In making this determination, the
Company analyzes the ultimate collectibility of the loans in its portfolio,
incorporating feedback provided by internal loan staff and provided by
examinations performed by regulatory agencies. The Company makes an ongoing
evaluation as to the adequacy of the allowance for loan losses. To establish
the appropriate level of the allowance, all loans (including nonperforming
loans), commitments to extend credit and standby letters of credit are reviewed
and classified as to potential loss exposure. Specific allowances are then
established for those loans, commitments to extend credit or standby letters of
credit with identified loss exposure, and an additional allowance is maintained
based upon the size, quality and concentration characteristics of the remaining
loan portfolio using both historical quantitative trends and the Company's
evaluation of qualitative factors including future economic and industry
outlooks. The determination by the Company of the appropriate level of its
allowance for loan losses was $1,597,000 at June 30, 1996.
The allowance for loan losses is based on estimates and ultimate losses
will vary from current estimates. These estimates are reviewed monthly and as
adjustments, either positive or negative, become necessary a corresponding
increase or decrease is made in the provision for loan losses. The following
table presents a detailed analysis of the Company's allowance for loan losses
for the six months ended June 30, 1996, and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991.
38
<PAGE> 40
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning balance............................... $ 2,014 $ 1,704 $ 1,787 $ 1,586 $ 1,384 $ 886
-------- -------- -------- -------- -------- --------
Charge-offs:
Commercial and industrial loans................. 726 114 413 577 381 278
Real estate mortgages........................... 70 173 371 445 613 54
Installment and other loans..................... 142 250 240 257 307 202
-------- -------- -------- -------- -------- --------
Total charge-offs............................... 938 537 1,024 1,279 1,301 534
-------- -------- -------- -------- -------- --------
Recoveries:
Commercial and industrial loans................. 5 70 142 144 95 21
Real estate mortgages........................... -- 56 83 2 39 62
Installment and other loans..................... 16 37 56 66 72 56
-------- -------- -------- -------- -------- --------
Total recoveries................................ 21 163 281 212 206 139
-------- -------- -------- -------- -------- --------
Net charge-offs................................. 917 374 743 1,067 1,095 395
-------- -------- -------- -------- -------- --------
Provision for loan losses....................... 500 684 660 1,268 1,297 650
-------- -------- -------- -------- -------- --------
Allowance associated with the
acquisition of Ottawa National Bank............ -- -- -- -- -- 243
-------- -------- -------- -------- -------- --------
Ending balance.................................. $ 1,597 $ 2,014 $ 1,704 $ 1,787 $ 1,586 $ 1,384
======== ======== ======== ======== ======== ========
Period end total loans, net of unearned
interest....................................... $185,840 $180,819 $161,134 $148,371 $146,569 $131,915
======== ======== ======== ======== ======== ========
Average loans................................... $184,242 $173,004 $152,186 $150,455 $140,945 $116,577
======== ======== ======== ======== ======== ========
Ratio of net charge-offs to average loans....... 1.00% 0.22% 0.49% 0.71% 0.78% 0.34%
Ratio of provision for loan losses to
average loans.................................. 0.54 0.40 0.43 0.84 0.92 0.56
Ratio of allowance for loan losses to
ending total loans............................. 0.86 1.11 1.06 1.20 1.08 1.05
Ratio of allowance for loan losses to
total nonperforming loans...................... 122.75 90.93 117.44 58.61 46.56 34.18
Ratio of allowance for loan losses to
total nonperforming assets..................... 84.63 69.54 72.11 40.75 38.97 28.21
Ratio of allowance at end of period to
average loans.................................. 0.87 1.16 1.12 1.19 1.13 1.19
</TABLE>
The following table sets forth an allocation of the allowance for loan
losses among categories as of June 30, 1996, and December 31, 1995, 1994, 1993,
1992 and 1991. The Company believes that any allocation of the allowance for
loan losses into categories lends an appearance of precision which does not
exist. The allowance is utilized as a single unallocated allowance available
for all loans. The following allocation table should not be interpreted as an
indication of the specific amounts or the relative proportion of future charges
to the allowance.
39
<PAGE> 41
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------------- --------------- --------------- --------------- --------------- ----------------
LOAN LOAN LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ ------- ------ ------- ------ -------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
and industrial loans. $ 358 28.75% $ 800 29.43% $ 327 31.89% $ 336 35.03% $ 320 35.22% $ 293 35.20%
Real estate........... 374 56.52 388 55.59 325 53.74 288 50.97 239 49.43 104 49.13
Installment and other
loans................ 233 13.33 235 13.36 194 12.63 173 12.24 191 13.83 154 14.18
Unallocated........... 632 1.40 591 1.62 858 1.74 990 1.76 836 1.53 833 1.49
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................. $1,597 100.00% $2,014 100.00% $1,704 100.00% $1,787 100.00% $1,586 100.00% $1,384 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
INVESTMENT ACTIVITIES
The Company's investment portfolio, which represented 32.2% of
the Company's earning asset base as of June 30, 1996, is managed to
minimize interest rate risk, maintain sufficient liquidity and
maximize return. Investment securities which are classified as
held-to-maturity are purchased with the intent and ability of the
Company to hold them to maturity. Securities classified as
held-to-maturity are carried at historical cost. The Company's
financial planning anticipates income streams based on normal maturity
and reinvestment. Investment securities classified as
available-for-sale are purchased with the intent to provide liquidity
and to increase returns. The securities classified as
available-for-sale are carried at fair value. The Company does not
have any securities classified as trading.
Securities held-to-maturity, carried at amortized cost, were
$28,926,000 at June 30, 1996, compared to $29,026,000 at December 31,
1995, and $28,667,000 at December 31, 1994. The change in the
unrealized position was due to interest rate movements during the
periods. There was an unrealized loss on securities held-to-maturity
of $184,000 at June 30, 1996, compared with an unrealized gain of
$160,000 at December 31, 1995 and an unrealized loss of $1,500,000 at
December 31, 1994.
Securities available-for-sale, carried at fair value, were
$58,003,000 at June 30, 1996, compared with $63,891,000 at December
31, 1995, and $56,593,000 at December 31, 1994.
The following tables describe the composition of investments by
major category and maturity as of June 30, 1996 and as of December 31,
1995, 1994 and 1993:
INVESTMENT PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------------
1996 1995 1994 1993
------------------ ----------------- ------------------ -----------------
% OF % OF % OF % OF
HELD TO MATURITY AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities......... $ 100 0.12% $ 117 0.13% $ -- -- $26,120 30.73%
U.S. government agencies......... 2,000 2.30 2,000 2.15 3,000 3.52 21,232 24.98
U.S. government agency mortgage
backed securities............... -- -- -- -- -- 7,036 8.28
States and political
subdivisions.................... 26,584 30.58 26,660 28.69 25,402 29.79 23,576 27.74
Collateralized mortgage
obligations...................... 2 0.00 9 0.01 25 0.03 72 0.08
Other securities................. 240 0.28 240 0.26 240 0.28 6,962 8.19
------- ----- ------- ----- ------- ----- ------- ------
TOTAL............................ $28,926 33.28% $29,026 31.24% $28,667 33.62% $84,998 100.00%
======= ===== ======= ===== ======= ===== ======= ======
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------------------
1996 1995 1994 1993
----------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF
AVAILABLE FOR SALE AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities......... $13,831 15.91% $18,279 19.67% $24,416 28.64% $-- --%
U.S. government agencies......... 38,141 43.88 36,987 39.81 19,672 23.07 -- --
U.S. government agency mortgage
backed securities............... 5,550 6.38 6,084 6.55 8,232 9.66 -- --
States and political
subdivisions................... 408 0.47 913 0.98 885 1.04 -- --
Collateralized mortgage
obligations..................... 74 0.08 106 0.11 165 0.19 -- --
Other securities................. -- -- 1,522 1.64 3,223 3.78 -- --
------- ----- ------- ----- ------- ----- --- ---
TOTAL............................ $58,004 66.72% $63,891 68.76% $56,593 66.38% $-- --%
======= ===== ======= ===== ======= ===== === ===
</TABLE>
Prior to January 1, 1994, all debt securities were carried at amortized
cost. Effective January 1, 1994, the Company adopted SFAS No. 115, and
classified investments as held-to-maturity or available-for-sale.
The following tables set forth the maturities and yields of investment
securities as of June 30, 1996 and as of December 31, 1995:
INVESTMENT PORTFOLIO
MATURITY REPRICING SCHEDULE
(DOLLARS IN THOUSANDS)
JUNE 30, 1996
<TABLE>
<CAPTION>
MATURING OR REPRICING
----------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS TOTAL
------------- -------------- --------------- -------------- -----
HELD-TO-MATURITY AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............. $ 100 5.45% $ -- --% $ -- --% $ -- - $ 100
U.S. government agencies............. -- -- 1,000 4.52 1,000 3.23 -- -- 2,000
States and political subdivisions
(1)................................. 2,407 8.62 13,659 7.23 8,034 7.34 2,484 8.28 26,584
Collateralized mortgage obligations.. -- -- -- -- 2 9.14 -- -- 2
Other securities..................... -- -- -- -- 240 -- -- -- 240
------ ------- ---- ------ ---- ----- -------
TOTAL................................ $2,507 $14,659 $9,276 $2,484 $28,926
====== ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
MATURING OR REPRICING
----------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS TOTAL
------------- -------------- --------------- -------------- -----
AVAILABLE-FOR-SALE AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............. $7,023 4.60% $ 6,807 5.29% $ -- --% -- --% $13,830
U.S. government agencies............. 495 6.12 7,881 5.46 29,765 6.63 -- -- 38,141
U.S. government agency
mortgage backed securities.......... 293 6.70 3,417 5.72 412 7.30 1,428 6.31 5,550
States and political subdivisions
(1)................................. -- -- 193 6.00 215 9.00 -- -- 408
Collateralized mortgage obligations.. -- -- 74 5.70 -- -- -- -- 74
------ ---- ------- ---- ------- ---- ------ ---- -------
TOTAL................................ $7,811 $18,372 $30,392 $1,428 $58,003
====== ======= ======= ====== =======
</TABLE>
(1) Rates on obligations of States and political subdivisions have been
adjusted to tax equivalent yields using a 34% income tax rate.
41
<PAGE> 43
INVESTMENT PORTFOLIO
MATURITY REPRICING SCHEDULE
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
MATURING OR REPRICING
-------------------------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT
WITHIN WITHIN WITHIN AFTER
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
---------------- --------------- --------------- ---------------- -------
HELD-TO-MATURITY AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------ ----- ------ ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............. $ 117 5.44% $ -- --% $ -- --% $ -- --% $ 117
U.S. government agencies............. -- -- 1,000 3.42 1,000 3.39 -- -- 2,000
States and political
subdivisions (1)..................... 1,665 8.76 14,512 7.32 7,416 7.36 3,067 8.16 26,660
Collateralized mortgage obligations.. -- -- 9 10.01 -- -- -- -- 9
Other securities..................... -- -- -- -- 240 -- -- -- 240
------ ------- ------ ------ -------
TOTAL (1)............................ $1,782 $15,521 $8,656 $3,067 $29,026
====== ======= ====== ====== =======
<CAPTION>
AFTER 1 BUT AFTER 5 BUT
WITHIN WITHIN WITHIN AFTER
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
-------------- ---------------- -------------- ---------------- ------
AVAILABLE-FOR-SALE AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities............. $8,283 4.41% $ 9,488 5.21% $ 508 5.61% $ -- --% $18,279
U.S. government agencies............. -- -- 12,672 5.68 24,315 6.75 -- -- 36,987
U.S. government agency
mortgage backed securities......... -- -- 3,958 5.51 521 7.50 1,605 6.27 6,084
States and political subdivisions (1) 500 6.60 195 6.00 218 9.00 -- -- 913
Collateralized mortgage obligations.. -- -- 106 5.85 -- -- -- -- 106
Other securities..................... -- -- 1,522 6.08 -- -- -- -- 1,522
------ ------- ------- ------ -------
TOTAL (1)............................ $8,783 $27,941 $25,562 $1,605 $63,891
====== ======= ======= ====== =======
</TABLE>
(1) Rates on obligations of States and political subdivisions have been
adjusted to tax equivalent yields using a 34% income tax rate.
DEPOSIT ACTIVITIES
Deposits are attracted through the offering of a broad variety
of deposit instruments, including checking accounts, money market
accounts, regular savings accounts, term certificate accounts
(including "jumbo" certificates in denominations of $100,000 or
more), and retirement savings plans. The Company's average balance
of total deposits was $256,825,000 for the six months ended June 30,
1996, representing an increase of $11,754,000 or 4.8% compared with
the average balance of total deposits for the year ended December
31, 1995. The Company's average balance of total deposits was
$245,071,000 for the year ended December 31, 1995, an increase of
$11,860,000 or 5.06% compared with the average balance of total
deposits outstanding for 1994 of $233,211,000, which represented an
increase of $6,385,000 or 2.8% compared with the average balance of
total deposits outstanding for 1993 of $226,826,000. The increases
in deposits were due to internally generated growth.
The following table sets forth certain information regarding
the Union Banks' average deposits as of June 30, 1996 and December
31, 1995, 1994 and 1993.
42
<PAGE> 44
AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
FOR THE SIX MONTHS ENDED ----------------------------------
JUNE 30, 1996 1995
---------------------------------- ----------------------------------
AVERAGE PERCENT OF AVERAGE RATE AVERAGE PERCENT OF AVERAGE RATE
AMOUNT TOTAL PAID AMOUNT TOTAL PAID
------- --------- ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits........ $ 32,380 12.61% --% $ 29,950 12.22% --%
Savings accounts........ 24,029 9.36 2.62 23,146 9.45 2.64
Interest-bearing demand
deposits............... 52,912 20.60 2.84 50,788 20.72 2.81
Time, less than $100,000 133,488 51.98 5.91 129,147 52.70 5.84
Time, $100,000 or more.. 14,016 5.45 5.84 12,040 4.91 5.71
-------- ------ ---- -------- ------ ----
Total deposits......... $256,825 100.00% 4.24% $245,071 100.00% 4.19%
======== ====== ==== ======== ====== ====
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1994 1993
---------------------------------- ---------------------------------
AVERAGE PERCENT OF AVERAGE RATE AVERAGE PERCENT OF AVERAGE RATE
AMOUNT TOTAL PAID AMOUNT TOTAL PAID
------- --------- ------------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits........ $ 29,622 12.70% --% $ 26,026 11.47% --%
Savings accounts........ 26,288 11.27 2.75 26,103 11.51 3.09
Interest-bearing demand
deposits............... 49,295 21.14 2.47 49,348 21.76 2.59
Time, less than $100,000 112,094 48.07 4.82 108,159 47.68 5.07
Time, $100,000 or more.. 15,912 6.82 4.74 17,190 7.58 4.83
-------- ------ ---- -------- ------ ----
Total deposits......... $233,211 100.00% 3.47% $226,826 100.00% 3.70%
======== ====== ==== ======== ====== ====
</TABLE>
43
<PAGE> 45
As of June 30, 1996, non-brokered time deposits over $100,000 represented
9.7% of total deposits, compared with 9.0% of total deposits as of December 31,
1995, and 9.4% as of December 31, 1994. The Union Banks do not have and do not
solicit brokered deposits.
The following table sets forth the remaining maturities for time deposits
of $100,000 or more at June 30, 1996 and at December 31, 1995:
TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
MATURITY RANGE 1996 1995
- -------------- -------- ------------
<S> <C> <C>
Three months or less................. $ 6,185 $ 6,024
Over three months through six months. 5,362 3,128
Over six months through twelve months 6,605 5,013
Over twelve months................... 6,927 9,487
------- -------
$25,079 $23,652
======= =======
</TABLE>
RETURN ON EQUITY AND ASSETS
The following are various ratios for the Company for the six months ended
June 30, 1996 and the years ended December 31, 1995, 1994, and 1993.
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE YEARS ENDED DECEMBER 31,
ENDED -------------------------------------
JUNE 30, 1996 1995 1994 1993
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Return on average assets... 0.75% 0.83% 0.98% 0.97%
Return on average equity... 9.49 10.83 13.29 13.88
Average equity to
average assets............ 7.95 7.67 7.38 6.98
Dividend payout rates...... 12.77 12.06 9.57 7.78
</TABLE>
LIQUIDITY
The Union Banks' investment securities portfolios, including federal funds
sold, and its cash and due from bank deposit balances serve as the primary
sources of liquidity for the Company. At June 30, 1996, 10.6% of the Union
Banks' interest-bearing liabilities were in the form of time deposits of
$100,000 and over. Substantially all of such large deposits were obtained from
the Union Banks' market areas and none of such deposits are brokered deposits.
Management believes these deposits to be a stable source of funds. However, if
a large number of these time deposits matured at approximately the same time
and were not renewed, the Union Banks' liquidity could be adversely affected.
Currently, the maturities of the Union Banks' large time deposits are spread
throughout the year, with 24.7% maturing in the third quarter of 1996, 21.4%
maturing in the fourth quarter of 1996, 26.3% maturing in the first and second
quarter of 1997, and the remaining 27.6% maturing thereafter. The Union Banks
monitor those maturities in an effort to minimize any adverse effect on
liquidity.
In the longer term, the liquidity of the Company and its ability to meet
its cash obligations will depend substantially upon its receipt of dividends
from the Union Banks, which are limited by banking statutes and regulation.
See "Regulation and Supervision -- The Bank Subsidiaries -- Dividends."
44
<PAGE> 46
CAPITAL RESOURCES
The Union Banks are expected to meet a minimum risk-based capital to
risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in
the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in
the form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of
loan loss allowance that may be included in capital is limited to 1.25% of
risk-weighted assets. The ratio of Tier 1 (core) and the combined amount of
Tier 1 (core) and Tier 2 (supplementary) capital to risk-weighted assets for
the Union Banks were 11.74% and 12.54%, respectively, at June 30, 1996, and
11.34% and 12.35%, respectively, at December 31, 1995. The Union Banks are
currently, and expect to continue to be, in compliance with these guidelines.
See "Regulation and Supervision -- Capital Adequacy Guidelines."
The Board of Governors of the FRB has announced a policy known as the
"source of strength doctrine" that requires a bank holding company to serve as
a source of financial and managerial strength for its subsidiary banks. The
FRB has interpreted this requirement to require that a bank holding company,
such as the Company, stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial stress or
adversity. The FRB has stated that it would generally view a failure to assist
a troubled or failing subsidiary bank in these circumstances as an unsound or
unsafe banking practice or a violation of the FRB's Regulation Y or both,
justifying a cease and desist order or other enforcement action, particularly
if appropriate resources are available to the bank holding company on a
reasonable basis.
The following table sets forth an analysis of the Company's capital
ratios:
RISK-BASED CAPITAL RATIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, MINIMUM WELL-
-------- --------------------------- CAPITAL CAPITALIZED
1996 1995 1994 1993 RATIOS RATIOS
-------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 risk-based capital.. $ 23,617 $ 22,530 $ 20,322 $ 17,801
Tier 2 risk-based capital.. 1,597 2,014 1,704 1,787
Total capital.............. 25,214 24,544 22,026 19,588
Risk-weighted assets....... 201,133 198,731 179,307 178,613
Capital ratios:
Tier 1 risk-based capital.. 11.74% 11.34% 11.33% 9.97% 4.00% 6.00%
Tier 2 risk-based capital.. 12.54 12.35 12.28 10.97 8.00 10.00
Leverage Ratio............. 7.92 7.95 7.68 7.00 3.00 5.00
</TABLE>
ACCOUNTING MATTERS
In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114 "Accounting by Creditors of Impairment of a Loan" as amended by SFAS
No. 118 "Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures." Together, these standards require that when a loan is
impaired, a creditor must measure impairment based upon the present value of
expected future cash flows discounted at the loan's effective interest rate,
the fair value of the collateral if the loan is collateral dependent or the
loan's observable market price. A loan is considered impaired when based upon
current information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. These standards also require certain disclosures regarding impaired
loans. The Company adopted these standards effective January 1, 1995. The
adoption of these accounting standards did not have a material effect on the
Company's consolidated financial position or results of operations because the
Company's recognition and measurement policies regarding nonperforming loans
were materially consistent with these accounting standards.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This Statement requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Measurement of an impairment loss for such long-
lived assets and identifiable intangibles is to be based upon the fair value
of the asset. This Statement is
45
<PAGE> 47
effective for fiscal years beginning after December 15, 1995.
The FASB has issued SFAS No. 122 "Accounting for Mortgage Servicing
Rights" which became effective for years beginning after December 15, 1995.
This Statement amends FASB Statement No. 65 "Accounting for Certain Mortgage
Banking Activities" to require that an entity recognize as separate assets the
rights to service mortgage loans for others, however those rights are acquired.
An entity that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without mortgage servicing
rights) based upon their relative fair values. If it is not practicable to
estimate the fair values separately, the entire cost of purchasing or
originating the loans should be allocated to the mortgage loans (without the
mortgage servicing rights) and no cost should be allocated to the mortgage
servicing rights. This Statement also requires that an entity assess its
capitalized mortgage servicing rights for impairment based upon the fair value
of those rights.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to continue to use the method of accounting specified in
Opinion No. 25 must make pro forma disclosures of net income and, if presented,
earnings per share, as if the fair value method of accounting defined in SFAS
No. 123 had been applied. This Statement is effective for fiscal years
beginning after December 15, 1995.
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
The financial statements and related financial data concerning the Company
presented in this Prospectus 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 changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of the Company,
including the influence of domestic and foreign economic conditions and the
monetary and fiscal policies of the United States government and federal
agencies, particularly the FRB. See "Investment Considerations -- Impact of
Interest Rates and Economic Conditions."
BUSINESS
THE COMPANY
The Company is a multi-bank holding company with its corporate
headquarters located in Ottawa, Illinois, which is approximately 85 miles
southwest of Chicago. As of June 30, 1996, the Company had consolidated assets
of approximately $296.6 million. The Company will have 27 banking locations
with consolidated assets of approximately $625.8 million following consummation
of the Acquisitions, which have been or will be completed prior to the closing
of this Offering.
The Company was incorporated in Delaware in 1981. The Company's principal
executive offices are located at 122 West Madison Street, Ottawa, Illinois
61350, and its telephone number is (815) 434-3900.
THE SUBSIDIARIES
Prior to the Acquisitions, the Company operated through its two
wholly-owned subsidiary banks, UnionBank/Streator, which has its main office
located in Streator, Illinois, and UnionBank/Sandwich, which has
46
<PAGE> 48
its main office located in Sandwich, Illinois. UnionBank/Streator has
nine locations in the Illinois communities of Ottawa, Streator, Triumph and
Peru, while UnionBank/Sandwich has two locations, one each in Sandwich
and Plano, Illinois.
Management of the Company believes that the new branches in Plano and
Peru, Illinois, offer excellent opportunities for the Company to expand its
retail and commercial customer base. The Company's marketing focus at the two
new branches has been to promote mortgages and home equity lines of credit with
additional emphasis being placed on cross selling to customers the full line of
the Company's other financial products and services. In addition, employees at
both of these branches have adopted a proactive business development strategy
which, when coupled with the Company's commercial loan, deposit and other
services, offer opportunities to develop long term relationships with existing
and new commercial customers. At June 30, 1996, the Plano and Peru branches
had grown to approximately $2,731,000 and $1,973,000 of total assets,
respectively.
The Union Banks' full-service banking business includes customary consumer
and commercial products and services, including the following: demand,
savings, time deposit, individual retirement and Keogh accounts; commercial,
industrial, consumer and real estate lending; safe deposit operations; trust
services; and an extensive variety of additional services tailored to meet the
needs of individual customers, such as the acquisition of U.S. Treasury notes
and bonds, the sale of traveler's checks, money orders, cashier's checks and
foreign currency, direct deposit, discount brokerage and other special
services. Commercial and consumer loans are made to corporations, partnerships
and individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, construction, inventory and real estate. Direct and
indirect installment loans are made to consumers and commercial customers and
mortgage loans are originated and serviced.
In connection with the Prairie Acquisition, the Company acquired six
additional bank subsidiaries with a total of ten banking offices located in
portions of north central, northwestern and western Illinois. The Country
Acquisition will result in the addition of another six new banking offices in
western Illinois.
The Company also has three non-bank subsidiaries: UnionData which
provides data processing services to the Union Banks and third parties; Union
Corporation ("Union Corporation"), which primarily serves as an owner and
lessor of banking offices to the Union Banks; and LaSalle Collections, a
recently acquired collection agency which serves the greater LaSalle County
area.
MARKET AREA
Prior to the Acquisitions, the Company served the banking needs of LaSalle
and contiguous counties located in north central Illinois (LaSalle and portions
of Livingston, Grundy, Bureau, Kendall, DeKalb and Kane Counties) through the
Union Banks. The Company has an 11% share of aggregate deposits in its primary
market of LaSalle County, based upon deposit data as of June 30, 1995. The
Company also has more outstanding loans in LaSalle County than any other
financial institution in this area. The Company has recently expanded its
lending and deposit gathering activities from north central Illinois into
certain of the counties surrounding the Chicago metropolitan area, including
Kane and Kendall Counties.
The Company's banking market in north central Illinois is primarily
agricultural, although in the past few years there have been a number of new
businesses and manufacturing facilities that have moved to the area and
commenced operations. Moreover, agricultural lending has played a much smaller
role within the areas located closer to the metropolitan Chicago area. In
response to these changes, the Company has increased its consumer, commercial
and real estate lending in these areas.
The Acquisitions increase the Company's market share within north central
Illinois (primarily in LaSalle and Bureau Counties) and expand the Company's
presence into northwestern Illinois (Jo Daviess and Whiteside Counties) and
western and southwestern Illinois (Hancock, McDonough, Adams and Pike
Counties). The resulting market area of the Company will extend from the
western suburbs of the Chicago metropolitan area across central and northern
Illinois to the Mississippi River and the western border of Illinois.
47
<PAGE> 49
ACQUISITION AND EXPANSION STRATEGY
The Company seeks to diversify both its market area and asset base while
increasing profitability through acquisitions and expansion. One of the
Company's primary goals is to expand through the acquisition of established
financial service organizations, primarily commercial banks or thrifts, to the
extent suitable candidates can be identified and acceptable business terms
negotiated.
Over the past several years, the Company has built an experienced
management team and a sales-driven employee work force that is implementing a
business plan that contemplates a significant expansion of the Company's market
areas and substantial growth in its asset size. Consistent with the Company's
plan, the Company acquired Prairie and has entered into an agreement to acquire
Country. The Acquisitions will increase the total assets of the Company from
approximately $296.6 million to $633.3 million, an increase of 114%. The
Acquisitions are expected to increase the presence of the Company within the
region's banking community. Because of the business reputations of the Company
and its executive officers in the banking industry, the Company believes that
it represents a very attractive acquiror to the owners of other community banks
and thrifts who decide to sell their institutions. The Company believes that
it can successfully manage these community-based institutions to increase their
profitability by expanding cross-selling efforts and placing a greater emphasis
on those products and services offering the highest return on investment.
The Company's current acquisition strategy is focused on traditional
community banks or thrifts located within its expanded market area as a result
of the Acquisitions. A large number of such financial institutions are located
within this geographic area. It is possible that, as a result of consolidation
within the banking industry generally, the Company may in the future also look
beyond these geographic areas for acquisition opportunities. In addition to
price and terms, other factors considered by the Company in determining the
desirability of an acquisition candidate include the financial condition,
earnings potential, quality of management, market area and competitive
environment.
The Company will also consider establishing branches, loan production
offices or other business facilities as a means of expanding its presence in
current or new market areas. In addition, the Company may expand into other
lines of business closely related to banking if it believes these lines could
be profitable without undue risk to the Company. The Company is not, however,
actively involved in any negotiations or discussions regarding any such
acquisitions, the opening of any new branches or entering into any new lines of
business at this time. There can be no assurance that any further acquisitions
will be made or that any branches or other offices will be established.
OPERATING STRATEGY
Corporate policy, strategy and goals are established by the Board of
Directors of the Company. Operational and administrative policies for the
Union Banks are also established by the Company. Within this framework, the
Union Banks focus on providing personalized services and quality products to
their customers to meet the needs of the communities in which they operate.
Recognizing the substantial changes and growth opportunities in its market
area, beginning in 1993, the Company redirected its existing resources and
personnel to create an aggressive sales environment within the organization.
In addition to promotions from within the organization, the Company hired
experienced senior bank executives who were familiar with its market area, with
an emphasis on the commercial lending area. The Company's senior management
group has been carefully built after taking into account each individual's
specific abilities and expertise. The Company believes that the combination of
these talents in one organization provides an encouraging outlook for the
Company's future continued growth.
Each of the Union Banks operates as a traditional community bank with
conveniently located facilities and a professional, highly motivated staff that
focuses on long-term relationships with customers and providing them with
individualized quality service. As part of its community banking approach, the
Company encourages officers of the Union Banks to actively participate in
community organizations. In addition, within credit and rate of return
parameters, the Company attempts to ensure that each of the Union Banks meets
the credit needs of its respective communities and invests in local municipal
securities. The Company attempts to attract and retain customers by building
relationships as opposed to focusing solely on specific transactions. The
Company continually monitors
48
<PAGE> 50
its own performance and levels of customer satisfaction through one-on-one
conversations, customer surveys and focus groups.
The Company uses a variety of marketing strategies to attract and retain
customers, the most important of which is its officer/director call program.
Officers and directors of the Union Banks regularly call on customers and
potential customers to maintain and develop deposit and other special service
relationships, including payroll, discount brokerage, cash management, lock box
and trust services. The importance of this program is highlighted by the fact
that the completion by directors of customer calls can be a significant factor
in the award of director stock options.
The Company has invested substantial time, effort and expense in training
its employees to deliver value to customers by explaining to them how the
Company's products and services can meet the customer's financial needs. This
has led to significant gains in cross-selling the Company's products and
services to its existing customer base. The Company is also evaluating its
employee compensation structure so that the best performing employees can be
compensated commensurate with their contributions to the organization. These
efforts serve to emphasize the Company's shift to a sales culture, with skills,
compensation and environment all supporting that culture.
The Company conducts all of its own data processing for the Union Banks
through its wholly-owned subsidiary, UnionData. The Company believes that
retaining control of its data processing in conjunction with implementing its
acquisition strategy will lead to decreased marginal operating costs, more
effective service to its customers and increased efficiencies. To provide a
high level of customer service and to manage effectively its growth,
acquisition and operating strategies, the Company also focuses on continued
improvement of its internal operating systems. UnionData continuously
evaluates technological innovation that can be used to improve customer service
levels, increase sales effectiveness and enhance staff productivity.
The Company's automated platform system installed in 1995 increases
operating efficiencies which allow customer service representatives to more
easily cross-sell additional products to customers. The Company's UB-24
automated teller machines (ATMs) have helped the Company expand its market
area, enhance customer service and utilize staff more effectively. The Company
is also currently upgrading all of its current banking locations with new
teller terminals to further support the Company's commitment to quality service
and increased efficiencies.
PRODUCTS AND SERVICES
GENERAL
The Union Banks provide a range of commercial and retail lending services
to corporations, partnerships and individuals, including, but not limited to,
commercial business loans, commercial and residential real estate construction
and mortgage loans, loan participations, consumer loans, revolving lines of
credit and letters of credit. The Union Banks make direct and indirect
installment loans to consumers and commercial customers, and originate and
service residential mortgages and handle the secondary marketing of those
mortgages.
The Union Banks aggressively market their services to qualified lending
customers in both the commercial and consumer sectors. The Union Banks'
commercial lending officers actively solicit the business of new companies
entering their respective markets as well as long-standing members of these
communities. Through personalized, professional service and competitive
pricing, the Union Banks have been successful in attracting new commercial
lending customers. At the same time, the Union Banks actively advertise their
consumer loan products and continually attempt to make their lending officers
more accessible. Through convenient locations and regular advertising, the
Union Banks have been successful in capitalizing on the moderate growth in loan
demand in its market area, particularly with respect to residential mortgages,
home equity loans and installment loans.
COMMERCIAL, REAL ESTATE AND AGRICULTURAL LOANS
The Union Banks aggressively seek new commercial, real estate and
agricultural loans in their respective market areas and much of the increase in
these loans in recent years can be attributed to the successful solicitation of
new business. The Union Banks' areas of emphasis include, but are not limited
to, loans to wholesalers, manufacturers, building contractors, agri-businesses,
farmers, developers, business services companies and retailers. The Union
Banks provide a wide range of commercial business loans, including lines of
credit for working capital
49
<PAGE> 51
purposes and term loans for the acquisition of equipment and other purposes.
Collateral for these loans generally includes accounts receivable, inventory,
equipment and real estate. Loans may be made on an unsecured basis when
warranted by the overall financial condition of the borrower. Terms of
commercial business loans generally range from one to five years. The
majority of the Union Banks' commercial business loans either have floating
interest rates or reprice within one year. The primary repayment risk
for commercial loans is the failure of the business due to economic or
financial factors. In most cases, the Union Banks have collateralized these
loans and/or taken personal guarantees to help assure repayment.
The Company has also generated loans which are guaranteed by the SBA.
Management believes that making such loans helps the local communities in which
the Union Banks operate by adding jobs and increasing the tax base, and also
provides the Company with a source of income and solid future lending
relationships as SBA-backed businesses grow and prosper. During 1995,
UnionBank/Streator made 37 SBA loans totalling approximately $4.0 million. The
Company intends to expand the number of these loans in the future.
Agricultural loans, many of which are secured by crops, machinery and real
estate, are made to finance capital improvements and farm operations as well as
acquisitions of livestock and machinery. These loans are expected to be repaid
from cash flows or from proceeds from the sale of selected assets of the
borrowers. The Company's consolidated loan portfolio includes a concentration
of loans to agricultural and agricultural-related industries. These loans
totalled approximately $12.7 million, or 6.8% of total loans, as of June 30,
1996. Credit losses arising from lending transactions with agricultural
entities are similar to the Union Banks' credit loss experience on their loan
portfolios as a whole. The Union Banks' agricultural lending officers attempt
to work closely with their agricultural customers, including companies and
individual farmers, and to assist them in the preparation of budgets and cash
flow projections for the ensuing crop year. These budgets and cash flow
projections are monitored closely during the year and reviewed with customers
on a regular basis.
During recent years, the Company has undertaken several initiatives to
improve asset quality. The Company's Board of Directors reviews, on a monthly
basis, a report of all criticized assets and requests for new loans over
$10,000. Requests for new loans over $500,000 are approved by a directors'
loan committee.
Loan review personnel and commercial lenders interact each month with the
Boards of Directors of the Union Banks. Management has attempted to identify
problem loans at an early stage and to aggressively seek a resolution of these
situations. Management believes that this policy has contributed to the
Company's below average level of problem loans compared to its industry peer
group. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Nonperforming Loans and Assets."
CONSUMER LENDING
The Union Banks provide a wide variety of consumer loans including motor
vehicle, home improvement, home equity, student loans, signature loans and
small personal credit lines. One of the areas of concentration is direct and
indirect automobile financing in the Company's market area. The Union Banks
have been able to compete effectively in this market segment by providing quick
turn-around service to local automobile dealers. Due to the expanded growth
and development along the Illinois and Fox Rivers, the Union Banks have also
recently begun to work with area boat dealerships on financing arrangements.
The Union Banks have been operating as a principal in the MasterCard and
Visa credit card programs since 1988. The Union Banks' primary strategy in
this area has been to solicit credit card business from its existing customer
base. The Company's credit card division has aggressively sought to acquire
merchant processing business as well as credit card receivables. The Company
currently has outstanding over 3,700 cards and is processing card receipts for
340 merchants.
The Company inaugurated a debit card program in 1994, and was the first
organization in its general market area to introduce this service to its
customers. While acceptance of debit cards in the market has developed slowly,
card usage has been steadily increasing. Management believes that the use of
credit and debit cards will provide opportunities for growth and leadership in
its new markets.
50
<PAGE> 52
MORTGAGE BANKING
The Company's mortgage portfolio is currently in excess of $70,000,000
with over 1,400 customers. The Company utilizes Federal Home Loan Mortgage
Corporation and Federal National Mortgage Association programs and several
other government and private sources to satisfy its customers' residential
lending needs. In 1995, the real estate division computerized all of its
operations, allowing outside sales representatives to complete applications
from the customer's home or office. This technological innovation has allowed
the Company's three outside sales representatives to cover a wider market area
in seeking new real estate lending business. The Company believes that its
mortgage product is a core piece of its overall customer relationship. To
solidify this relationship, the Company uses state of the art mortgage
servicing software to be directly responsive to the many needs of its customer
base.
INVESTMENT MANAGEMENT AND TRUST SERVICES
The Company's Investment Management and Trust Division, which is operated
through UnionBank/Streator, increased its assets under management during 1995
by over 50% to a total of $55.7 million. Because of the importance of this
growing segment of its business, the Company has embarked on a strategic
initiative to better position itself to deliver quality financial services to
its customers. To emphasize its commitment, the Company recently added
"Investment Management" to the name of its Trust Department. Management
believes that the new name more accurately reflects the services desired by and
offered to the Company's customer base and the future direction of the
Company's trust and fiduciary activities.
The Company has enhanced its ability to serve its trust customers by
upgrading to a state of the art trust accounting system. The Investment
Management and Trust Services Department can provide on-line, real time
information regarding its customers' accounts. All of this Division's
employees have a personal computer available at their work areas through which
customer account information is immediately accessible. The Company also
maintains over 90% (all that are depository eligible) of its assets with a
third party custodian. The Company has found that such custodial functions can
be more economically and efficiently handled by an outside provider.
Management believes that this allows the Company to devote more time to
providing personalized service to its customers.
Management's focus in the trust area is to build financial relationships
within the community bank environment. The Company expects that the future
needs of its customers may fall within broadly defined areas such as
investment, tax planning, estate management, retirement/financial planning,
fiduciary responsibilities and farm management. The Company intends to
position the Investment Management and Trust Services Department to meet these
future needs and to continue to expand this line of business.
DATA PROCESSING AND DATA MANAGEMENT
Cash management services provided by the Company continue to enhance the
value of relationships with corporate customer accounts. The Company's
corporate cash management services allow business customers to use office
computers to gain immediate access to their accounts and to monitor their
finances in an efficient and convenient manner.
UnionData is also aggressively marketing a new automated payment option
called Direct Payment which is an efficient, electronic payment alternative to
paper checks. With Direct Payment, a customer authorizes a company to
electronically collect a preauthorized amount from the customer's checking
account to pay a bill or make a donation. UnionData has also marketed a direct
deposit program as a convenient and safe way to receive social security, salary
and dividend payments and other similar income items. The Company believes
that UnionData is a leader in operating products technology within its market
area. In 1995, UnionData was awarded a contract with the LaSalle County
Circuit Clerk to electronically process child support payments. Utilizing this
technology has reduced the Circuit Clerk's operating costs while providing a
new revenue source for UnionData.
COMPETITION
The Company's market area is highly competitive. Within the three
Illinois counties served by the Company's banking offices prior to the
Acquisitions, 34 other commercial banks, 8 savings and loan associations
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<PAGE> 53
and 25 credit unions currently operate offices. In addition, many other
financial institutions based in surrounding communities and in Chicago,
Illinois, actively compete for customers within the Company's market area.
The Company also faces competition from finance companies, insurance
companies, mortgage companies, securities brokerage firms, money market
funds, loan production offices and other providers of financial services.
See "Investment Considerations -- Competition."
The Company competes for loans principally through the range and quality
of the services it provides and through competitive interest rates and loan
fees. The Company believes that its long-standing presence in the communities
its serves and personal service philosophy enhance its ability to compete
favorably in attracting and retaining individual and business customers. The
Company actively solicits deposit-related customers and competes for deposits
by offering customers personal attention, professional service and competitive
interest rates.
EMPLOYEES
At June 30, 1996, the Company employed 160 full-time equivalent employees.
The Company places high priority on staff development which involves extensive
training, including customer service training. New employees are selected on
the basis of both technical skills and customer service capabilities. None of
the Company's employees are covered by a collective bargaining agreement with
the Company. The Company offers a variety of employee benefits and management
considers its employee relations to be excellent.
PROPERTIES
At June 30, 1996, the Company operated eleven banking offices in the
Illinois cities of Ottawa, Streator, Sandwich, Triumph, Peru and Plano. The
principal offices of the Company, UnionBank/Streator and UnionBank/Sandwich are
located in Ottawa, Streator and Sandwich, Illinois, respectively. All of the
Company's offices are owned by one of the Union Banks or by Union Corporation,
and are not subject to any mortgage or material encumbrance. The Company
believes that its current facilities are adequate for its existing business.
As a result of the Acquisitions, the Company will increase the number of its
banking offices to a total of 27.
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries, including the Bank
Subsidiaries, are involved in any pending legal proceedings other than routine
legal proceedings occurring in the normal course of business, which, in the
opinion of management, in the aggregate, are not material to the Company's
consolidated financial condition.
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<PAGE> 54
MANAGEMENT
The following table sets forth certain information concerning the
Company's directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
R. Scott Grigsby.... 44 Chairman of the Board, President, Chief
Executive Officer and Director
Richard J. Berry.... 44 Director
Walter E. Breipohl.. 43 Director
L. Paul Broadus..... 61 Director
John Michael Daw.... 49 Director and Senior Agricultural Representative
Jimmie D. Lansford.. 56 Director and Senior Vice President,
Organizational Development and Planning
Lawrence J. McGrogan 58 Director
C. Robert Myers..... 77 Director
I. J. Reinhardt, Jr. 58 Director
H. Dean Reynolds.... 67 Director
John A. Trainor..... 66 Director
Scott C. Sullivan... 44 Proposed Director
Robert J. Doty...... 69 Proposed Director
Wayne L. Bismark.... 52 Executive Vice President
Charles J. Grako.... 42 Executive Vice President and Chief Financial
Officer
Robert B. Pennington 43 President, UnionBank/Sandwich
Everett J. Solon.... 43 President, UnionBank/Streator
</TABLE>
The Company has a classified board of directors currently comprised of
eleven members, with directors serving staggered three-year terms. One class
is elected at each annual meeting of the Company's stockholders. The terms of
Messrs. Broadus, Daw, Lansford and Reinhardt as Class II directors expire in
1997; the terms of Messrs. Grigsby, Myers and Reynolds as Class III directors
expire in 1998; and the terms of Messrs. Berry, Breipohl, McGrogan and Trainor
as Class I directors expire in 1999. There are no family relationships among
any of the directors or executive officers of the Company or its subsidiaries.
Pursuant to the terms of the Prairie Acquisition Agreement, the Company has
agreed to add Messrs. Doty and Sullivan to its Board of Directors.
Each of the Company's directors is paid a fee of $100 for each board
meeting attended and $100 for each committee meeting attended. Each of the
Company's directors also receives an annual grant of options to purchase shares
of Common Stock under the Company's Stock Option Plan. Such grants are
generally made with an exercise price equal to 75% of the most recently
appraised per share fair market value of the Common Stock on the date of grant
and become exercisable in equal portions over five years. During the fiscal
year ended December 31, 1995, each director was granted options to purchase
between 1,800 and 2,550 shares of Common Stock at a price of $6.25 per share.
Beginning in 1997, the Stock Option Plan provides for annual formula grants to
each of the Company's directors of options to purchase up to 3,000 shares of
Common Stock with an exercise price of 75% of the then current market price of
the Common Stock on the date of the grant. See "Management -- Executive
Compensation -- Stock Option Plan."
DIRECTORS
R. SCOTT GRIGSBY is the Chairman of the Board and President of the Company
and the Chairman and Chief Executive Officer of UnionBank/Streator. Mr. Grigsby
also serves as Chairman of the Board of UnionBank/Sandwich and Union
Corporation, as well as a director of UnionData. Mr. Grigsby has been with the
Company since its formation in 1982. He has spent all of his career in the
financial services industry. Mr. Grigsby is a past president of the Illinois
Bankers Association and is currently involved extensively with the American
Bankers Association. He has been active in local and regional economic
development projects. He currently serves as a member of the Board of Directors
of St. Mary's Hospital, Streator, Illinois and as a Trustee of the Illinois
Valley Community College, LaSalle, Illinois.
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<PAGE> 55
RICHARD J. BERRY is a principal and serves as the managing attorney for
the law firm of Myers, Daugherity, Berry & O'Conor, Ltd., with offices in both
Ottawa and Streator, Illinois. His practice is concentrated in the areas of
banking and financial institutions and civil litigation. Mr. Berry is a member
of the LaSalle County, American and Illinois Bar Associations, and of the
American Academy of Healthcare Attorneys. Mr. Berry was a charter member of
the Committee on Bank Counsel of the Illinois Bankers Association and served as
Chairman of that committee in 1988. He is a frequent lecturer and speaker at
various banking seminars and schools. He was granted special recognition in
1995 by the Illinois Bankers Association for his efforts on behalf of the
banking industry in negotiating and drafting of the Grain Code, a comprehensive
revision of Illinois laws relating to grain dealers and grain warehouses. Mr.
Berry is active in numerous civic and community affairs, including serving as a
director of the Streator Area Chamber of Commerce and Streator YMCA. He
presently serves on the board of directors of the New Hope Center and Streator
Unlimited in Streator, Illinois. Mr. Berry has served as a director of the
Company since 1985. He also serves on the Board of Directors and is counsel to
UnionBank/Streator and UnionData. He previously served as a director of
UnionBank/Sandwich.
WALTER E. BREIPOHL is the co-owner of Kaszynski/Breipohl Realtors, a real
estate brokerage and development company located in Ottawa and Peru, Illinois.
Mr. Breipohl's firm performs work throughout the state of Illinois. He is a
founding and charter member of the Illinois Commercial Association of Realtors,
a member of the Illinois Association of Realtors and the National Association
of Realtors. Mr. Breipohl has worked in economic development extensively in
the Ottawa, Illinois, area as a director of the Northern Illinois Development
Corporation, Chairman of the Ottawa Area Industrial Development Corporation and
the Greater Ottawa Area Chamber of Commerce. He is presently serving as a
director of the Heritage Corridor Convention and Visitors Bureau and the
Community Hospital of Ottawa, Illinois. Mr. Breipohl has served as a member of
the Boards of Directors of UnionBank/Streator and the Company since 1993.
L. PAUL BROADUS founded Broadus Oil Corporation, a wholesale and retail
oil company located in Streator, Illinois, in 1963, and he continues to serve
as its president. He is a member of the Illinois Petroleum Marketers
Association and the Illinois Association of Convenience Stores. He is a past
recipient of the Cephas Williams Award for long term service and investment
leadership to the city of Streator, Illinois. Mr. Broadus joined the board of
directors of UnionBank/Streator in 1985 and the Company's Board of Directors in
1986. He also serves as a director of UnionData.
JOHN MICHAEL DAW recently joined the Company as its Senior Agricultural
Representative after serving 27 years as President of Farmers Grain Service in
Grand Ridge, Illinois. He is a member of both the state and federal Grain and
Feed Associations. He is the past secretary of the Grand Ridge Zoning
Commission and a current director of the Grand Ridge Zoning Board. He also
serves as a director of the LaSalle County Health Department. Mr. Daw's
primary responsibility with the Company will be supervising the farm land
management operations of the Investment Management and Trust Services
Department. Mr. Daw has served as a member of the Boards of Directors of
UnionBank/Streator and the Company since 1990 and 1991, respectively. Mr. Daw
also serves as a director of UnionData.
JIMMIE D. LANSFORD recently joined the Company as Senior Vice President
after three decades of employment in the healthcare industry. For the last
nine years, Mr. Lansford served as Chief Executive Officer of St. Mary's
Hospital located in Streator, Illinois, which is a member of the Hospital
Sisters Health System, a thirteen hospital group serving Illinois and
Wisconsin. Mr. Lansford has been active as a member of the committee to bring
a National Veterans Cemetery to Joliet, Illinois, a life member of the VFW,
American Legion, Marine Corp League and AmVets. He has been a past member of
both regional, state and national healthcare associations. Having worked many
years in a multi-hospital organization, management expects Mr. Lansford to make
significant use of the planning and communication skills he brings with him
from his former employment. Mr. Lansford has served on the Boards of Directors
of the Company and UnionBank/Streator since 1988.
LAWRENCE J. MCGROGAN is the Chief Executive Officer of Handy Foods, Inc., a
four grocery chain based in Ottawa, Illinois. Mr. McGrogan has 33 years of
retail grocery experience and has lived in Ottawa, Illinois his entire life. He
has served on the Boards of Directors of the Company and UnionBank/Streator
since 1987. Mr. McGrogan is the past chairman of the Ottawa Area Chamber of
Commerce and Ottawa YMCA. He is a past recipient of the Leo Parkerson Award for
Outstanding Community Service in Ottawa, Illinois.
C. ROBERT MYERS is the retired Chief Executive Officer of Peabody Myers
Corporation. Peabody-Myers
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<PAGE> 56
is a worldwide manufacturing company specializing in agricultural and
municipal pollution control and cleaning equipment with sales in excess of
$30,000,000 in 1989. Since his retirement from active business in 1982,
Mr. Myers has been involved in various civic and community activities. He is
a past recipient of the Cephas Williams Award for long term service and
investment leadership to the city of Streator, Illinois. He has been a
member of many state, national and international manufacturing associations.
He joined the Board of Directors of UnionBank/Streator in 1978 and served as
its Chairman from 1987 to 1994. He has served as a director of the Company
since its formation in 1981.
I. J. REINHARDT, JR. is a director and General Manager of St. Louis
Beverage Company, Ottawa, Illinois, a wholesale beverage distribution company.
After graduation from St. Louis University, Mr. Reinhardt spent two years in
Nepal working with the Peace Corps. He has been a member of the Associated
Beer Distributors of Illinois for 20 years and currently serves as its
president. He joined the Board of Directors of UnionBank/Streator and the
Company in 1990 and 1991, respectively. He also serves as a director of
UnionData.
H. DEAN REYNOLDS is the former owner and manager of Reynolds-West &
Associates, an insurance agency located in Streator, Illinois. Mr. Reynolds
operated the agency for 37 years. He has been active in civic and community
activities for many years, including serving as president of the Streator
Chamber of Commerce. He is a past recipient of the Cephas Williams Award for
long term service and investment leadership to the city of Streator, Illinois.
He has served on the board of the Illinois Chamber of Commerce and held
leadership positions in various state and national insurance associations. Mr.
Reynolds joined the Board of Directors of UnionBank/Streator and the Company in
1971 and 1981, respectively.
JOHN A. TRAINOR is the president and owner of Trainor Grain and Supply
Co., a grain elevator and agricultural supply business located in Forrest,
Illinois. Mr. Trainor has been involved in all aspects of the agriculture
industry since 1954. He has served on the board of both the state and federal
Grain and Feed Associations as well as serving as the State Association
President. He has represented the United States on numerous trips to foreign
countries to assist in their agricultural development. He has consulted with
the United States Department of Agriculture on various matters for many years.
Mr. Trainor joined the Board of Directors of UnionBank/Streator and the Company
in 1985.
OFFICERS
WAYNE L. BISMARK is the Executive Vice President and Chief Credit Officer
of the Company. Mr. Bismark joined the Company in 1994. Prior to joining the
Company, Mr. Bismark had been employed since 1983 in the Financial Institutions
Division of the LaSalle National Bank in Chicago, Illinois. He is responsible
for the overall performance of the Company's lending activities. Mr. Bismark
has worked in the banking industry for almost 25 years, with extensive
experience in lending and product sales at both the wholesale and retail
levels. Mr. Bismark serves as a director of a local social service agency and
is active in many civic organizations. He is also active in regional economic
development associations and professional banking organizations.
CHARLES J. GRAKO has been the Executive Vice President and Chief Financial
Officer of the Company since 1990. He also serves as Secretary of the Company
and UnionBank/Streator, and as a director of UnionBank/Sandwich. Mr. Grako is
a Certified Public Accountant and has spent the majority of his career in the
banking industry. He first joined the Company as Controller in 1986.
ROBERT B. PENNINGTON is the President of UnionBank/Sandwich, a position he
has held since 1981. Mr. Pennington has spent over 20 years in the financial
services industry after beginning his career as a supervisor in the consumer
loan business with Household Finance Company. Mr. Pennington currently serves
as a director of UnionBank/Sandwich. He has been active in community and civic
activities, including serving as President of the Sandwich Chamber of Commerce
and as a member of various economic development committees. He was a charter
member and the first president of the Sandwich Jaycees and the Sandwich Kiwanis
Club.
EVERETT J. SOLON is the President of UnionBank/Streator. Mr. Solon has
been with the Company for 14 years during which time much of his work has
focused on agricultural lending, farm management and marketing. He became
president of UnionBank/Streator in 1994. Mr. Solon has been active in
community activities, especially in the field of education. He has served for
many years as a director of the Streator Township High School District. He has
also worked as a director and instructor for the Illinois Bankers Association
School of Banking. He has
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<PAGE> 57
served on the Board of Directors of UnionBank/Streator since 1994.
PROPOSED DIRECTORS
ROBERT J. DOTY is the retired President and Chief Executive Officer of the
First National Bank, Manlius, Illinois. He has over 36 years of experience in
the banking industry. Prior to the Prairie Acquisition, Mr. Doty had served as
Chairman of the Board of Directors of Prairie since 1989.
SCOTT C. SULLIVAN is a partner of the law firm of Williams & McCarthy,
Rockford, Illinois. Mr. Sullivan has been a practicing attorney since 1979.
He is a member of several national, state and regional bar associations. Prior
to the Prairie Acquisition, he had served as a director of Prairie since 1995,
and he currently serves as a director of two of the Prairie Banks. Mr.
Sullivan is active in numerous civil and community activities in the Rockford
area.
EXECUTIVE COMPENSATION
CASH COMPENSATION
The table below shows the compensation earned during the last three fiscal
years by the Company's President and the other executive officers of the Company
(including those who are employed by the Company's subsidiaries) whose cash
compensation exceeded $100,000 during the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------------
(A) --------------------- (G) (I)
NAME AND SECURITIES ALL OTHER
PRINCIPAL POSITION (B) (C) (D) UNDERLYING COMPENSATION
WITH THE COMPANY YEAR SALARY($) BONUS($) OPTIONS/SARS (#)(1) ($)(2)
=======================================================================================
<S> <C> <C> <C> <C> <C>
R. Scott Grigsby,
Chairman of the
Board, President 1995 $142,000 $12,800 3,036 $21,832
and Chief 1994 127,952 23,725 6,900 24,855
Executive Officer 1993 119,800 24,250 --- 22,231
Charles J. Grako,
Executive Vice 1995 $94,500 $7,676 1,080 $14,929
President and Chief 1994 71,459 9,000 2,500 13,810
Financial Officer 1993 60,000 11,900 --- 11,665
Wayne L. Bismark,
Executive Vice 1995 $94,500 $7,675 1,080 $12,895
President and Chief 1994 75,000 7,500 --- ---
Credit Officer 1993 75,000 8,900 --- ---
</TABLE>
(1) Options vest at a rate of 20% per year on or about each anniversary of
the date of grant.
(2) Amounts shown represent the dollar value of allocations to each officer
under the Company's Employee Stock Ownership Plan for Messrs. Grigsby and
Grako. Such amounts also include annual payments of $2,901 and $2,034 for
premiums for split dollar life insurance policies for Messrs. Grigsby and
Grako, respectively.
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<PAGE> 58
STOCK OPTION INFORMATION
The following table sets forth certain information concerning the number
and value of stock options granted in the last fiscal year to the individuals
named above in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
======================================================================================================================
(A) (B) (C) (D) (E) (F) (G) (H)
% OF TOTAL OPTIONS
NAME AND PRINCIPAL OPTIONS GRANTED TO
POSITION THE GRANTED EMPLOYEES IN FISCAL EXERCISE OR BASE EXPIRATION
COMPANY (#)(1) YEAR PRICE ($/SH) DATE 5%($) 10%($) 0%($)
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
R. Scott Grigsby,
Chairman of the
Board, President
and Chief Executive 1,536 5.1% $8.33 1/15/05 $8,046 $20,391 $ -0-
Officer 1,500 5.0% 6.25 1/15/05 10,978 23,033 3,120
Charles J. Grako,
Executive Vice
President and Chief
Financial Officer 1,080 3.6% $8.33 1/15/05 $5,658 $14,338 $ -0-
Wayne L. Bismark,
Executive Vice
President and Chief
Credit Officer 1,080 3.6% $8.33 1/15/05 $5,658 $14,338 $ -0-
</TABLE>
- ---------------
(1) Options vest at a rate of 20% per year on or about each anniversary of
the date of grant.
STOCK OPTION PLAN
INTRODUCTION
The Board of Directors of the Company has adopted a stock incentive plan
known as the UnionBancorp, Inc. 1993 Stock Option Plan (the "Stock Option
Plan"). The Stock Option Plan is intended to promote equity
ownership of the Company by directors of the Company and selected officers and
employees of the Company and its subsidiaries, to increase their proprietary
interest in the success of the Company and to encourage them to remain in the
employ of the Company. The Stock Option Plan was approved by the Company's
stockholders on April 12, 1993, and an amendment to the Stock Option Plan was
approved on July 19, 1996.
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<PAGE> 59
ADMINISTRATION
The Stock Option Plan is administered by the UnionBancorp, Inc. 1993 Stock
Option Plan Administrative Committee which is comprised of at least two
non-employee directors appointed by the Company's Board of Directors (the
"Stock Option Committee"). The Stock Option Committee has the authority,
subject to approval by the Board of Directors, to select the employees to whom
awards may be granted, to determine the terms of each award and, subject to
approval of the Company's Board of Directors, to interpret the provisions of
the Stock Option Plan and to make all other determinations that it may deem
necessary or advisable for the administration of the Stock Option Plan. The
Stock Option Plan is intended to be administered so as to comply with the
provisions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
The Stock Option Plan provides for the grant of "incentive stock options,"
as defined under Section 422(b) of the Internal Revenue Code of 1986, as
amended, options that do not so qualify (referred to as "nonstatutory options")
and stock appreciation rights ("SARs"), as determined in each individual case
by the Stock Option Committee. The Board of Directors has reserved 600,000
shares of Common Stock for issuance under the Stock Option Plan. In general,
if any award (including an award granted to a non-employee director) granted
under the Stock Option Plan expires, terminates, is forfeited or is cancelled
for any reason, the shares of Common Stock allocable to such award may again be
made subject to an award granted under the Stock Option Plan.
AWARDS
Directors and key policy-making employees of the Company and its
subsidiaries are eligible to receive grants under the Stock Option Plan.
Directors may be granted nonstatutory options and employees may be granted
incentive and nonstatutory options. Awards may be granted subject to a vesting
requirement and in any event will become fully vested upon a merger or change
of control of the Company. The exercise price of incentive stock options
granted under the Stock Option Plan must at least equal the fair market value
of the Common Stock subject to the option on the date the option is granted.
The exercise price of nonstatutory options and SARs are determined by the Stock
Option Committee. The Stock Option Plan provides for an annual formula grant
for each director. The formula used to determine the exact grant to be made to
each director is based upon a series of factors that may be weighted
differently each year depending upon the issues then facing the Company, but in
no event will the formula grant exceed 3,000 shares per year. The Stock Option
Plan provides that option grants to directors will have an exercise price of
75% of the then current market price of Common Stock on the date of the grant.
An incentive stock option granted under the Stock Option Plan to an
employee owning more than 10% of the total combined voting power of all classes
of capital stock of the Company is subject to the further restriction that such
option must have an exercise price of at least 110% of the fair market value of
the shares of Common Stock issuable upon exercise of the option (determined as
of the date the option is granted) and may not have an exercise term of more
than five years. Incentive stock options are also subject to the further
restriction that the aggregate fair market value (determined as of the date of
grant) of Common Stock as to which any such incentive stock option first
becomes exercisable in any calendar year is limited to $100,000. To the extent
options covering more than $100,000 worth of Common Stock become exercisable in
any one calendar year, the excess will be nonstatutory options. For purposes
of determining which, if any, options have been granted in excess of the
$100,000 limit, options will be considered to become exercisable in the order
granted.
Each director and key employee eligible to participate in the Stock Option
Plan is notified by the Stock Option Committee. To receive an award under the
Stock Option Plan, an award agreement must be executed which specifies the type
of award to be granted, the number of shares of Common Stock (if any) to which
the award relates, the terms and conditions of the award and the date granted.
In the case of an award of options, the award agreement also specifies the
price at which the shares of Common Stock subject to the option may be
purchased, the date(s) on which the option becomes exercisable and whether the
option is an incentive stock option or a nonstatutory option.
The full exercise price for all shares of Common Stock purchased upon the
exercise of options granted under the Stock Option Plan must be paid in any one
or a combination of cash, personal check, personal note, award surrender or
Common Stock owned at the time of exercise. Incentive stock options granted to
employees under the Stock Option Plan may remain outstanding and exercisable
for ten years from the date of grant or until the expiration of three months
(or such greater period, up to one year, as the Stock Option Committee may
determine
58
<PAGE> 60
if employment is terminated due to disability) from the date on which
the person to whom they were granted ceases to be employed by the Company.
Nonstatutory options and SARs granted under the Stock Option Plan remain
outstanding and exercisable for such period as the Stock Option Committee may
determine.
Awards of options to purchase an aggregate of 109,650 shares of Common
Stock have been made by the Stock Option Committee pursuant to the Stock Option
Plan as of this date of this Prospectus.
INCOME TAX
No taxable income is recognized by the option holder for income tax
purposes at the time of the grant or exercise of an incentive stock option, nor
is there any income tax deduction available to the Company as a result of such
a grant or exercise. Any gain or loss recognized by an option holder on the
later disposition of shares of Common Stock acquired pursuant to the exercise
of an incentive stock option generally will be treated as capital gain or loss
if such disposition does not occur prior to one year after the date of exercise
of the option, or two years after the date the option was granted.
As in the case of incentive stock options, the grant of nonstatutory stock
options or SARs will not result in taxable income for income tax purposes to
the recipient of the awards, nor will the Company be entitled to an income tax
deduction. Upon the exercise of nonstatutory stock options or SARs, the award
holder will generally recognize ordinary income for income tax purposes equal
to the difference between the exercise price and the fair market value of the
shares of Common Stock acquired or deemed acquired on the date of exercise, and
the Company will be entitled to an income tax deduction in the amount of the
ordinary income recognized by the option holder. In general, any gain or loss
realized by the option holder on the subsequent disposition of such shares will
be a capital gain or loss.
AMENDMENT AND TERMINATION
The Stock Option Plan expires ten years after its adoption, unless sooner
terminated by the Board of Directors. The Board of Directors has authority to
amend the Stock Option Plan in such manner as it deems advisable, except that
the Board of Directors is not permitted without stockholder approval to amend
the plan in a manner which would prevent the grant of incentive stock options
or increase the number of shares of Common Stock available. The Stock Option
Plan provides for appropriate adjustment, as determined by the Stock Option
Committee, in the number and kind of shares and the number, kind and per share
exercise price of shares subject to unexercised options, in the event of any
change in the outstanding shares of Common Stock by reason of a stock split,
stock dividend, combination or reclassification of shares, recapitalization,
merger or similar event.
EMPLOYMENT AGREEMENTS
The Company and certain of its subsidiaries have entered into three-year
employment agreements with Messrs. Grigsby, Bismark, Grako and Solon, and
two-year agreements with Messrs. Daw and Lansford. Unless earlier terminated
by the Company (or the subsidiary, if applicable) or the respective employee,
the employment term under each agreement extends for an additional year on each
anniversary of the agreement. Each agreement specifies a minimum annual salary
for the initial year of the agreement and provides for an automatic minimum
four percent annual increase for each subsequent year. Each agreement also
provides that the respective employee is entitled to participate in any
executive bonus plan and other incentive compensation or benefit plan
established by the Company or the applicable subsidiary.
Each agreement is terminable by the employee upon thirty days' prior
written notice and automatically terminates upon the death or disability of the
employee. The Company may terminate each agreement at any time for "cause"
without incurring any additional obligations. Each agreement provides
severance benefits in the event the employee is terminated without cause or
"constructively discharged," as defined in each agreement. The severance
benefits are equal to the salary and benefits the terminated employee would
have received through the end of the normal term of the agreement. If any of
the employment agreements is terminated in connection with a "change in
control," as defined in each agreement, the employee is entitled to receive
severance compensation equal to three times his annual salary and other
compensation at the rates then in effect at the time of termination. The
terminated employee in such case will also be entitled to continuation of
participation in other benefit plans for the remaining term of his agreement.
If a change of control had occurred on June 30, 1996, based upon 1996 salary
59
<PAGE> 61
and 1995 bonus information, the amount payable with respect to salary and bonus
would have been approximately as follows: Mr. Grigsby, $485,700; Mr. Bismark,
$320,700; Mr. Grako, $320,703; Mr. Daw, $144,000; Mr. Lansford, $240,000; and
Mr. Solon, $260,000. In addition, each officer would be entitled to receive
other benefits for such periods. The employment agreements also require the
Company to provide each employee with indemnification insurance and
indemnification for any expenses arising out of each person's employment with
the Company or the applicable subsidiary.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of August 7, 1996,
concerning the Common Stock beneficially owned by: (i) each person expected by
the Company to beneficially own more than 5% of the outstanding Common Stock
following this Offering; (ii) each of the Company's current and proposed
directors, and those executive officers of the Company named in the Summary
Compensation Table; and (iii) all such directors, proposed directors and
executive officers of the Company as a group. The Company's only class of
voting securities is the Common Stock, except, however, under certain
circumstances the outstanding shares of Preferred Stock may also be entitled to
vote on certain matters.
<TABLE>
<CAPTION>
EXPECTED
PERCENT OF NUMBER OF PERCENT OF
NUMBER OF CLASS PRIOR TO SHARES AFTER CLASS AFTER THIS
NAME OF BENEFICIAL OWNER SHARES(1)(2) THIS OFFERING THIS OFFERING(1)(2) OFFERING
- ------------------------ ------------ ------------- ------------------- -----------------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS
UnionBank/Streator, as Trustee
for the UnionBancorp, Inc.
Employee Stock Ownership Plan
("ESOP")(3)
201 East Main Street
Streator, Illinois 61364........... 450,918 14.4% 538,118 13.6%
Dennis J. McDonnell(4)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181.. 355,288 12.5 355,288 9.0
Wayne W. Whalen(4)
333 W. Wacker Drive, Suite 2100
Chicago, Illinois 60606........... 355,288 12.5 355,288 9.0
DIRECTORS
Richard J. Berry(5)................ 25,023 0.9 30,023 0.8
Walter E. Breipohl................. 9,684 0.3 11,184 0.3
L. Paul Broadus.................... 17,019 0.6 18,019 0.5
John Michael Daw................... 15,960 0.6 17,960 0.5
R. Scott Grigsby(6)................ 771,479 27.0 772,479 19.4
Jimmie D. Lansford................. 12,384 0.4 14,384 0.4
Lawrence J. McGrogan(7)............ 20,508 0.7 22,008 0.6
C. Robert Myers(8)................. 35,520 1.3 35,520 0.9
I. J. Reinhardt, Jr(9)............. 11,370 0.4 13,370 0.3
H. Dean Reynolds(10)............... 24,870 0.9 25,870 0.7
John A. Trainor(11)................ 18,984 0.7 20,484 0.5
PROPOSED DIRECTORS
Robert Doty (12)................... -- -- -- --
Scott Sullivan (12)................ -- -- -- --
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
PERCENT OF NUMBER OF PERCENT OF
NUMBER OF CLASS PRIOR TO SHARES AFTER CLASS AFTER THIS
NAME OF BENEFICIAL OWNER SHARES(1)(2) THIS OFFERING THIS OFFERING(1)(2) OFFERING
- ------------------------ ------------ ------------- ------------------- -----------------
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS
Charles J. Grako................. 21,049 0.7 22,049 0.6
Wayne L. Bismark................. 4,716 0.2 6,016 0.2
All directors, proposed
directors and executive
officers as a group (17
persons)(13)..................... 1,036,053 36.1 1,058,853 26.7
</TABLE>
- -----------------
(1) The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of the
designated group and reflects the three-for-one stock split in the form of
a stock dividend which took effect on May 20, 1996. Amounts reported
include shares held directly as well as shares which are held in
retirement account and shares held by certain members of the named
individuals' families or held by trusts of which the named individual is
a trustee or substantial beneficiary, with respect to which shares the
respective individual may be deemed to have sole or shared voting and/or
investment power. The nature of beneficial ownership for shares shown in
this column is sole voting and investment power, except as set forth in
the footnotes below. Inclusion of shares shall not constitute an
admission of beneficial ownership or voting and investment power over
included shares.
(2) Includes an aggregate of 32,400 shares held by the Filly Street Trust, an
Illinois general partnership (the "Partnership"), the partnership
interests of which are wholly owned by certain of the Company's directors
and officers. Voting and investment power over these shares is shared by
Messrs. Berry, Broadus, Breipohl, Grigsby, Daw, Lansford, McGrogan and
Trainor who, based upon the current holdings of the partners of the
Partnership, each indirectly own 3,564 of such shares. Mr. Grako also has
an interest in the partnership amounting to indirect ownership of 340 of
such shares. The balance of the interests in such shares are held by an
individual who is not a director or officer of the Company. The
information also includes shares presently obtainable through the exercise
of options to purchase shares of common stock granted under the Company's
Stock Option Plan as follows: Mr. Berry - 1,020 shares; Mr. Breipohl -
1,020 shares; Mr. Broadus - 870 shares; Mr. Daw - 1,020 shares; Mr.
Grigsby - 3,367 shares; Mr. Lansford - 1,020 shares; Mr. McGrogan -
1,020 shares; Mr. Myers - 1,020 shares; Mr. Reinhardt - 870 shares; Mr.
Reynolds - 870 shares; Mr. Trainor - 1,020 shares; Mr. Grako - 1,296
shares; and Mr. Bismark - 216 shares. Option holders have the sole power
to exercise their respective options and would also be entitled to
exercise sole voting and investment power over the shares issued upon the
exercise of such options.
(3) Includes 442,467 shares held by the ESOP but which are allocated to
particular participants' accounts, over which shares the trustee of the
ESOP has shared voting and no investment power.
(4) Messrs. McDonnell and Whalen have sole investment power over such shares.
Pursuant to the terms of the Standstill Agreement executed by the Company
and these individuals, the President of the Company has a limited proxy
with respect to such shares until August 6, 2000.
(5) Includes 13,800 shares held jointly by Mr. Berry and his spouse, 3,000
shares held individually by Mr. Berry's spouse and 3,639 shares held in
trusts for which Mr. Berry is a co-trustee, over all of which shares Mr.
Berry has shared voting and investment power.
(6) Includes 710,576 shares over which Mr. Grigsby, as President of the
Company, is entitled to exercise a limited proxy pursuant to the Standstill
Agreement between the Company and the Principal Prairie Stockholders.
Also includes 17,853 shares held by Mr. Grigsby jointly with his spouse,
over which shares Mr. Grigsby has shared voting and investment power, 105
shares held solely by Mr. Grigsby's spouse, over which shares Mr. Grigsby
has no voting or investment power, and 32,412 shares allocated to Mr.
Grigsby under the Company's ESOP.
(7) Includes 11,040 shares held by Mr. McGrogan jointly with his spouse, over
which shares Mr. McGrogan has shared voting and investment power, and also
includes 1,884 shares owned solely by his spouse, over which shares Mr.
McGrogan has no voting or investment power.
(8) Includes 17,250 shares held solely by Mr. Myers' spouse, over which
shares Mr. Myers has no voting or investment power.
(9) Includes 4,500 shares held by Mr. Reinhardt jointly with his spouse and
3,000 shares held in a retirement account, over all of which shares Mr.
Reinhardt has shared voting and investment power.
(10) Includes 1,200 shares held by the mother of Mr. Reynolds, over which
shares Mr. Reynolds has shared voting and investment power.
(11) Includes 1,200 shares held solely by Mr. Trainor's spouse, over which
shares Mr. Trainor has no voting or investment power.
(12) Messrs. Doty and Sullivan will become directors of the Company pursuant
to the terms of the Prairie Acquisition.
(13) Includes 710,576 shares over which Mr. Grigsby, as President of the
Company, is entitled to exercise a limited proxy pursuant to the Standstill
Agreement between the Company and the Principal Prairie Stockholders.
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<PAGE> 63
The directors, executive officers and affiliates of the Company have
indicated their intention to purchase in the aggregate, approximately 110,000
shares or 10% (8.7% if the Underwriter's over-allotment option is exercised in
full) of the Common Stock to be offered in this Offering. The largest total
number of shares expected to be purchased by any single director, executive
officer or affiliate is approximately 5,000 shares or 0.5% (0.4% if the
Underwriters' over-allotment option is exercised in full) of the Common Stock
to be offered in this Offering. If 110,000 shares of Common Stock to be
offered in this Offering are in fact purchased by the directors, executive
officers and affiliates of the Company as a group, they will then own a
combined total of approximately 1,596,971 shares, or 40.4% of Common Stock
outstanding after this Offering (38.8% if the proposed Underwriters'
over-allotment option is exercised in full). The number of shares and
percentages owned as discussed above include certain shares owned by spouses,
children, as custodian or trustee, and options exercisable within 60 days.
SUPERVISION AND REGULATION
GENERAL
The growth and earnings performance of the Company and the Bank
Subsidiaries can be affected not only by management decisions and general
economic conditions, but also by the policies of various governmental
regulatory authorities including, but not limited to, the FRB, the Office of
the Comptroller of the Currency (the "OCC"), the FDIC, the Illinois
Commissioner, the Internal Revenue Service and state taxing authorities and the
Securities and Exchange Commission (the "SEC"). Financial institutions and
their holding companies are extensively regulated under federal and state law.
The effect of such statutes, regulations and policies can be significant, and
cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and the Bank Subsidiaries, regulate, among
other things, the scope of business, investments, reserves against deposits,
capital levels relative to operations, the nature and amount of collateral for
loans, the establishment of branches, mergers, consolidations and dividends.
The system of supervision and regulation applicable to the Company and the Bank
Subsidiaries establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds and the depositors, rather than the stockholders, of financial
institutions.
The following references to material statutes and regulations affecting
the Company and the Bank Subsidiaries are brief summaries thereof and do not
purport to be complete and are qualified in their entirety by reference to such
statutes and regulations. Any change in applicable law or regulations may have
a material effect on the business of the Company and the Bank Subsidiaries.
RECENT REGULATORY DEVELOPMENTS
On August 8, 1995, the FDIC amended its regulations to change the range of
deposit insurance assessments charged to members of the BIF from the
then-prevailing range of .23% to .31% of deposits, to a range of .04% to .31%
of deposits. On November 14, 1995, the FDIC further reduced the deposit
insurance assessments for BIF-member institutions, such that the range of BIF
assessments for the semi-annual assessment period which commenced January 1,
1996, is between 0% and .27% of deposits. BIF-member institutions which
qualify for the 0% assessment category will, however, still have to pay the
$1,000 minimum semi-annual assessment required by federal statute. The Bank
Subsidiaries are all members of the BIF.
Various proposals have been introduced in Congress that, if adopted,
would, among other things, ultimately require federal thrift institutions to
convert to state or national banks and merge the BIF and the Savings
Association Insurance Fund (the "SAIF"), which insures the accounts of savings
associations, into a single deposit insurance fund administered by the FDIC.
This pending legislation would also require the BIF and the SAIF to share, on a
pro rata basis according to the amount of deposits insured by each fund, the
cost of repaying the obligations issued in the late 1980's to recapitalize the
Federal Savings and Loan Insurance Corporation, the SAIF's predecessor
insurance fund. At this time, it is not possible to predict whether, or in
what form, any such legislation will be adopted or the impact such legislation
would have on the Company or the Bank Subsidiaries.
THE COMPANY
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<PAGE> 64
GENERAL
The Company, as the sole stockholder of the Union Banks; Prairie, as the
sole or controlling stockholder of each of the Prairie Banks; and Country, as
the sole stockholder of Omni Bank, are each bank holding companies. As bank
holding companies, each of the Company, Prairie and Country are registered
with, and subject to regulation by, the FRB under the BHCA. Under FRB policy,
a bank holding company is expected to act as a source of financial strength to
its bank subsidiaries and to commit resources to support its bank subsidiaries
in circumstances where the holding company might not do so absent such policy.
Under the BHCA, a bank holding company is subject to periodic examination by
the FRB and is required to file periodic reports of its operations and such
additional information as the FRB may require.
The Company, Prairie and Country are also subject to the requirements of
the Illinois Bank Holding Company Act.
INVESTMENTS AND ACTIVITIES
Under the BHCA, a bank holding company must obtain FRB approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting
shares of another bank or bank holding company if, after such acquisition, it
would own or control more than 5% of such shares (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially all
of the assets of another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company.
Prior to September 29, 1995, the BHCA prohibited the FRB from approving
any direct or indirect acquisition by a bank holding company of more than 5% of
the voting shares, or of all or substantially all of the assets, of a bank
located outside of the state in which the operations of the bank holding
company's banking subsidiaries were principally located unless the laws of the
state in which the bank to be acquired is located specifically authorized such
an acquisition. Pursuant to amendments to the BHCA which took effect September
29, 1995, a bank holding company may now acquire banks located in any state of
the United States without regard to geographic restrictions or reciprocity
requirements imposed by state law, subject to certain conditions, including
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and all of its insured depository institution
affiliates.
The BHCA also prohibits, with certain exceptions noted below, a bank
holding company from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any company which is not a bank and from
engaging in any business other than that of banking, managing and controlling
banks or furnishing services to banks and their subsidiaries, except that bank
holding companies may engage in, and may own shares of companies engaged in,
certain businesses found by the FRB to be "so closely related to banking . . .
as to be a proper incident thereto." Under current regulations of the FRB, such
banking-related businesses include the operation of a thrift, sales and consumer
finance, equipment leasing, the operation of a computer service bureau,
including software development, and mortgage banking and brokerage.
CAPITAL REQUIREMENTS
The FRB uses capital adequacy guidelines in its examination and regulation
of bank holding companies. If capital falls below minimum guideline levels, a
bank holding company, among other things, may be denied approval to acquire or
establish additional banks or non-bank businesses. Such ratios do not apply to
a bank holding company with less than $150 million of consolidated assets, such
as Country.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1 capital (which consists
principally of stockholders' equity). The leverage requirement consists of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated
companies, with minimum requirements of 4% to 5% for all others.
The risk-based and leverage standards presently used by the FRB are
minimum requirements and higher capital levels will be required if warranted by
the particular circumstances or risk profiles of individual banking
63
<PAGE> 65
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
As of June 30, 1996, the Company and Prairie each had regulatory capital
in excess of the FRB's minimum requirements, as set forth below.
<TABLE>
<CAPTION>
LEVERAGE RISK-BASED
RATIO RATIO
----- -----
<S> <C> <C>
Company.......... 7.92% 12.54%
Prairie.......... 5.11% 14.76%
</TABLE>
DIVIDENDS
The FRB has issued a policy statement on the payment of cash dividends by
bank holding companies. In the policy statement, the FRB expressed its view
that a bank holding company experiencing earnings weakness should not pay cash
dividends exceeding its net income or which could only be funded through
methods which would weaken the bank holding company's financial health, such as
borrowing. Additionally, the FRB possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies.
In addition to the restrictions on dividends imposed by the FRB, the DGCL
only permits the Company to pay dividends out of its surplus, or if the Company
has no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Under the Illinois
Business Corporation Act, as amended, an Illinois corporation such as Prairie
or Country is prohibited from paying dividends if, after giving effect to the
dividend, the corporation would be insolvent or the net assets of the
corporation would be less than zero or less than the maximum amount then
payable to stockholders of the corporation who would have preferential
distribution rights if the corporation were liquidated.
THE BANK SUBSIDIARIES
GENERAL
Each of the Ferris Bank, the Hanover Bank, the Ladd Bank, the Tiskilwa
Bank and Omni Bank (collectively the "State Banks") is an Illinois-chartered
bank, the deposit accounts of which are insured by the BIF. As BIF-insured and
Illinois-chartered banks, the State Banks are subject to the examination,
supervision, reporting and enforcement requirements of the FDIC, as
administrator of the BIF, and the Illinois Commissioner, as the chartering
authority for Illinois banks.
The Union Banks are Illinois-chartered banks, the deposit accounts of
which are insured by the BIF, and are also members of the Federal Reserve
System. As Illinois-chartered and FDIC-insured member banks, the Union Banks
are subject to the examination, supervision, reporting and enforcement
requirements of the Illinois Commissioner, as the chartering authority for
Illinois banks, the FRB, as the primary federal regulator of its member banks,
and the FDIC, as administrator of the BIF.
The Manlius Bank and Tampico Bank (collectively the "National Banks") are
national banks, chartered by the OCC under the National Bank Act. The deposit
accounts of the National Banks are insured by the BIF, and each of the National
Banks is a member of the Federal Reserve System. As BIF-insured national
banks, the National Banks are subject to the examination, supervision,
reporting and enforcement requirements of the OCC, as the chartering authority
for national banks, and the FDIC, as administrator of the BIF.
DEPOSIT INSURANCE
As FDIC-insured institutions, the Bank Subsidiaries are required to pay
deposit insurance premium assessments
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<PAGE> 66
to the FDIC. The amount an institution pays for FDIC deposit insurance
coverage is determined in accordance with a risk-based assessment system
under which each insured depository institution is placed into one of nine
categories and assessed insurance premiums based upon its level of capital
and the results of supervisory evaluations. Institutions classified as
well-capitalized (as defined by the FDIC) and considered healthy are assessed
at the lowest rate while institutions that are less than adequately
capitalized (as defined by the FDIC) and considered of substantial
supervisory concern are assessed at the highest rate. For the semi-annual
assessment period ended December 31, 1995, BIF assessments for all insured
institutions ranged from 0.04% to 0.31% of deposits. For the semi-annual
assessment period which began January 1, 1996, BIF assessments ranged from a
minimum of $1,000 to 0.27% of deposits. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order or any condition imposed in writing by, or included in a
written agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of any Bank Subsidiaries.
CAPITAL REQUIREMENTS
Under federal regulations, the Bank Subsidiaries are subject to the
following minimum capital standards: a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated
banks with minimum requirements of 4% to 5% for all others, and a risk-based
capital requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, federal regulations
provide that additional capital may be required to take adequate account of the
risks posed by concentrations of credit and nontraditional activities, interest
rate risk and the institution's ability to manage such risks.
None of the Bank Subsidiaries has been required by its primary federal
regulator to increase its capital to an amount in excess of the minimum
regulatory requirement. As of June 30, 1996, each of the Bank Subsidiaries
exceeded its minimum regulatory capital requirements, as set forth below:
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<PAGE> 67
<TABLE>
<CAPTION>
LEVERAGE RISK-BASED
RATIO RATIO
-------- ----------
<S> <C> <C>
UnionBank/Streator 9.17% 14.37%
UnionBank/Sandwich 7.06% 11.60%
Ferris Bank....... 6.81% 17.39%
Hanover Bank...... 8.43% 20.66%
Ladd Bank......... 7.57% 14.65%
Manlius Bank...... 7.09% 15.75%
Tampico Bank...... 6.96% 17.48%
Tiskilwa Bank..... 7.43% 15.46%
Omni Bank......... 6.59% 11.09%
</TABLE>
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the
submission of a capital restoration plan; placing limits on asset growth and
restrictions on activities; requiring the institution to issue additional
capital stock (including additional voting stock) or to be acquired;
restricting transactions with affiliates; restricting the interest rate the
institution may pay on deposits; ordering a new election of directors of the
institution; requiring that senior executive officers or directors be
dismissed; prohibiting the institution from accepting deposits from
correspondent banks; requiring the institution to divest certain subsidiaries;
prohibiting the payment of principal or interest on subordinated debt; and
ultimately, appointing a receiver for the institution.
Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions or
any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.
DIVIDENDS
Under the Illinois Banking Act, Illinois-chartered banks may not pay,
without prior regulatory approval, dividends in excess of their adjusted
profits. Federal law also imposes limitations on the amount of dividends that
a state member bank, such as one of the Union Banks, or a national bank, such
as one of the National Banks, may pay without prior regulatory approval.
Generally, the amount is limited to the current year's net earnings of the bank
plus the adjusted retained earnings for the two preceding years.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations. As described above,
the Company, Prairie, Country and the Bank Subsidiaries each exceeded its
minimum capital requirements under applicable guidelines as of June 30, 1996.
As of such date, approximately $6.78 million was available to be paid as
dividends by the Bank Subsidiaries.
INSIDER TRANSACTIONS
The Bank Subsidiaries are subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the Company, Prairie,
Country and their subsidiaries, on investments in the stock or other securities
of the Company, Prairie, Country and their subsidiaries and the acceptance of
the stock or other securities of the Company, Prairie, Country and their
subsidiaries as collateral for loans. Certain limitations and reporting
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requirements are also placed on extensions of credit by the Bank Subsidiaries
to their respective directors and officers, to directors and officers of the
Company, Prairie, Country and their subsidiaries, to principal stockholders of
the Company, Prairie and Country, and to "related interests" of such directors,
officers and principal stockholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a director or
officer of the Company, Prairie, Country or one of their subsidiaries or a
principal stockholder of the Company may obtain credit from banks with which
one of the Bank Subsidiaries maintains a correspondent relationship.
SAFETY AND SOUNDNESS STANDARDS
On July 10, 1995, the federal banking regulators published final
guidelines establishing operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines, which took effect on August 9, 1995, establish standards for
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. In general, the guidelines prescribe the
goals to be achieved in each area and each institution is responsible for
establishing its own procedures to achieve those goals. If an institution
fails to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an
institution where the failure to meet one or more of the standards is of such
severity that it could threaten the safe and sound operation of the
institution. Failure to submit an acceptable compliance plan, or failure to
adhere to a compliance plan that has been accepted by the appropriate
regulator, constitutes grounds for further enforcement action. The federal
banking agencies have also published for comment proposed asset quality and
earnings standards which, if adopted, would be added to the safety and
soundness guidelines. This proposal, like the final guidelines, would
establish the goals to be achieved with respect to asset quality and earnings,
and each institution would be responsible for establishing its own procedures
to meet such goals.
BRANCHING AUTHORITY
Illinois-chartered banks, such as the Union Banks and the State Banks,
have the authority under Illinois law to establish branches anywhere in the
state of Illinois, subject to receipt of all required regulatory approvals.
Federal law grants the same branching authority to the National Banks.
Effective June 1, 1997 (or earlier if expressly authorized by applicable state
law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") allows banks to establish interstate branch networks
through acquisitions of other banks, subject to certain conditions, including
certain limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Illinois has enacted
legislation permitting interstate bank mergers beginning on June 1, 1997.
STATE BANK ACTIVITIES
Under federal law, as implemented by final regulations adopted by the
FDIC, FDIC insured state banks are prohibited, subject to certain exceptions,
from making or retaining equity investments of a type, or in an amount, that
are not permissible for a national bank. Federal law, as implemented by FDIC
regulations, also prohibits FDIC insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless
the bank meets, and continues to meet, its minimum regulatory capital
requirements and the FDIC determines the activity would not pose a significant
risk to the deposit insurance fund of which the bank is a member.
Impermissible investments and activities must be divested or discontinued
within certain time frames set by the FDIC. These restrictions have not had,
and are not currently expected to have, a material impact on the operations of
the Bank Subsidiaries.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The authorized capital stock of the Company presently consists of
10,000,000 shares of Common Stock, par value $1.00 per share, and 200,000
shares of Preferred Stock, no par value.
COMMON STOCK
As of June 30, 1996, the Company had issued and outstanding 2,131,737
shares of Common Stock. All outstanding shares of Common Stock are, and the
shares offered hereby will be, fully paid and nonassessable. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters to be voted upon by stockholders and may not cumulate votes for the
election of directors. Thus, the owners of a majority of the shares of Common
Stock outstanding may elect all of the directors up for election in any given
year, if they choose to do so, and the owners of the balance of such shares
would not be able to elect any directors. Subject to certain preferences
applicable to the shares of Preferred Stock to be issued in connection with the
Prairie Acquisition, each share of outstanding Common Stock is entitled to
participate equally in any distribution of net assets made to the stockholders
in liquidation, dissolution or winding up of the Company and is entitled to
participate equally in dividends as and when declared by the Company's Board of
Directors. There are no redemption, sinking fund, conversion or preemptive
rights with respect to the shares of Common Stock. All shares of Common Stock
have equal rights and preferences. The Company currently acts as the transfer
agent and registrar for the Common Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes its Board of
Directors to fix or alter the rights, preferences, privileges and restrictions
of any wholly unissued series of Preferred Stock, including the dividend
rights, original issue price, conversion rights, voting rights, terms of
redemption, liquidation preferences and sinking fund terms thereof, and the
number of shares constituting any such series and the designation thereof and
to increase or decrease the number of shares of such series subsequent to the
issuance of shares of such series (but not below the number of shares then
outstanding). Pursuant to this authority, the Board of Directors has
established and authorized the issuance of 2,762.24 shares of Series A
Preferred Stock and 1,092 shares of Series B Preferred Stock in connection with
the Prairie Acquisition. See "The Acquisitions -- Prairie Bancorp, Inc." The
Board of Directors has also established and authorized the issuance of 4,500
shares of the Company's Series C Junior Participating Preferred Stock (the
"Series C Preferred Stock"). See " -- Certain Anti-Takeover Considerations --
Stockholders' Rights Plan." Because the terms of the Preferred Stock can be
fixed by the Board of Directors without stockholder action, the Preferred Stock
could be issued with terms calculated to defeat a proposed takeover of the
Company or to make the removal of management more difficult. The Board of
Directors, without stockholder approval, could issue Preferred Stock with
dividend, voting and conversion rights which could adversely affect the rights
of the holders of Common Stock.
The following statements with respect to the Preferred Stock are subject
to the detailed provisions of the Certificate of Incorporation, the Certificate
of Designations and Preferences for the Series A Preferred Stock (the "Series A
Preferred Certificate of Designations") and the Certificate of Designations and
Preferences for the Series B Preferred Stock (the "Series B Preferred
Certificate of Designations"), each as filed with the Delaware Secretary of
State, and the bylaws of the Company (the "Bylaws"). These statements do not
purport to be complete and are subject to and qualified in their entirety by
reference to the terms of the Certificate of Incorporation, the Series A
Preferred Certificate of Designations, the Series B Preferred Certificate of
Designations and the Bylaws, copies of each of which are available from the
Company upon request.
DIVIDENDS
Preferential cumulative cash dividends are payable on the Series A
Preferred Stock quarterly at an annual rate of $75.00 per share. Preferential
cumulative cash dividends are payable on the Series B Preferred Stock quarterly
at an annual rate of $60.00 per share. No dividends, other than those payable
solely in the form of Common Stock, may be paid during any fiscal year of the
Company with respect to shares of Common Stock or any other security issued by
the Company (other than with respect to the Series A Preferred Stock or the
Series B Preferred Stock)
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until dividends in the total annual amounts of $75.00 per share and $60.00
per share, respectively, are paid on the outstanding shares of Series A
Preferred Stock and the Series B Preferred Stock. Dividends accrue on each
share of Preferred Stock from the date of issuance and from day to day
thereafter, whether or not earned or declared. Dividends on the Preferred
Stock are cumulative, so that if such dividends are not fully paid when due,
any deficiency for any prior year and the amount owed in the current year
must be fully paid before any dividend or other distribution may be paid
on or set apart for the shares of Common Stock.
RIGHTS TO CONVERSION
Pursuant to the Prairie Acquisition Agreement, the Aggregate Conversion
Value (as defined below) of the shares of Series A Preferred Stock issued to
the Principal Prairie Stockholders will depend upon the aggregate, after-tax
loss, if any, incurred by the Company upon the sale of the Part B Securities.
See "The Acquisitions -- Consideration for Prairie Common Stock and Prairie
Preferred Stock." Such after-tax loss, if any, is computed by subtracting the
aggregate net sale proceeds realized upon a sale by the Company of the Part B
Securities from their aggregate book value and applying an effective tax rate
to such sale of 38.8% (the "Securities Loss"). The shares of Series A
Preferred Stock are convertible into the number of shares of Common Stock that
results from multiplying $1,000 by the number of such shares (the "Aggregate
Conversion Value") and dividing the product by the conversion price (1.075
times the Common Stock per share book value). Therefore, a reduction of the
Aggregate Conversion Value will reduce the number of shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock.
The Company must sell the Part B Securities no later than the fourth
anniversary of the Prairie Closing, but may sell them earlier if at any time
the anticipated Securities Loss, based upon a valuation of the Part B
Securities, is greater than the aggregate stated value ($1,000 per share), plus
accrued but unpaid dividends, of the shares of Series A Preferred Stock issued
to the Principal Prairie Stockholders at the Prairie Closing, after taking into
account tax effects of a sale of such securities. If the Securities Loss is
greater than such amount, the Company must sell the Part B Securities as soon
as is reasonably practicable. In either of these cases, the Principal Prairie
Stockholders will have no liability for the Securities Loss beyond the
Aggregate Conversion Value of the Series A Preferred Stock.
The Company may also request permission from the Principal Prairie
Stockholders for other sales of all or part of the Part B Securities. If the
Principal Prairie Stockholders consent to such sale, the after-tax loss or gain
will be aggregated with all other losses and gains upon the sale of the final
portion of the Part A Securities to determine if there will be a reduction in
the Aggregate Conversion Value. If permission for the sale of any Part B
Securities is refused, the Principal Prairie Stockholders will incur special
additional obligations with respect to those securities for which permission to
sell was refused (the "Subject Securities"). Upon the sale of all the Part B
Securities, the Company will aggregate all after-tax gains and losses (other
than those resulting from sales of Subject Securities). The aggregate amount is
then added to the aggregate after-tax gain or loss upon the sale of Subject
Securities. If the result is a net after-tax loss that is in excess of the
Aggregate Conversion Value, the Principal Prairie Stockholders have agreed to
pay to the Company in cash the amount of any such after-tax loss to the extent
of the net after-tax loss on the sales of Subject Securities.
RIGHTS TO REDEMPTION
The Series A Preferred Stock is not redeemable for cash. Each original
holder of Series B Preferred Stock (or upon such holders' deaths, their
respective executors or personal representatives) will have the option,
exercisable at their sole discretion, to sell, and the Company will be
obligated to redeem, such holder's shares of Series B Preferred Stock upon the
earlier to occur of the death of the respective original holder of Series B
Preferred Stock or ten years after the original issuance date of the Series B
Preferred Stock. The per share price payable by the Company for such shares of
Series B Preferred Stock will be equal to $1,000 per share, plus any accrued
but unpaid dividends. Notwithstanding the foregoing, the Company will not be
obligated to redeem for cash any shares of Series B Preferred Stock if such
redemption would cause it to be in violation of any statute, rule, or
regulation or agreement to which it is a party relating to minimum capital
requirements, provided that the Company is required to use its best efforts
promptly to remedy any such violation and shall promptly complete the
redemption of such shares after such violation has been cured.
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LIQUIDATION RIGHTS
On dissolution, winding up or liquidation of the Company, voluntary or
otherwise, holders of Preferred Stock will be entitled to receive, out of the
assets of the Company available for distribution to stockholders, the amount of
$1,000 per share, plus any accrued but unpaid dividends, before any payment or
distribution may be made on shares of Common Stock or any other securities
issued by the Company which rank junior to the Preferred Stock. If the assets
of the Company available for distribution to the holders of shares of Preferred
Stock upon any dissolution, liquidation or winding up of the Company are
insufficient to pay in full all amounts to which such holders are entitled,
then all of the assets of the Company to be distributed will be distributed
ratably to the holders of Preferred Stock.
VOTING RIGHTS
Holders of shares of Series A Preferred Stock are not entitled to vote
except: (i) as required by law; (ii) to approve the authorization or issuance
of any shares of any class or series of stock which ranks senior or on a parity
with the Series A Preferred Stock in respect of dividends and distributions
upon the dissolution, liquidation or winding up of the Company; (iii) during
any period of time when two dividend payments on shares of Series A Preferred
Stock have accrued but have not been paid; (iv) upon conversion of the shares
of Series A Preferred Stock into shares of Common Stock; or (v) if the holders
of Common Stock vote on a proposal to merge or otherwise enter into a
transaction with a third party pursuant to which the Company is not the
surviving entity. Holders of shares of Series B Preferred Stock are not
entitled to vote except as required by law. If holders of Preferred Stock are
entitled to vote on any matter as described above, they will be entitled to
receive notice of any stockholders' meeting at which such matter will be
considered and will be entitled to vote as a class.
CERTAIN ANTI-TAKEOVER CONSIDERATIONS
GENERAL
The Certificate of Incorporation contains certain provisions that may be
perceived as having an "anti-takeover" effect. The purpose of these provisions
is to encourage any party seeking to acquire control of the Company to
negotiate the transaction, in advance, with the Company's Board of Directors
and to present any proposed transaction approved by the Company's Board of
Directors to all of the Company's stockholders. These provisions may also have
the effect of discouraging takeovers, including takeovers that a majority of
the stockholders of the Company may deem to be desirable and in which the
stockholders may receive a substantial premium over market value in payment for
their shares. In addition, the provisions may make it more difficult or
time-consuming for the stockholders to change the management of the Company,
even if a majority of the stockholders believe that such a change would be
beneficial.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with each
director serving a staggered three-year term. With a staggered board of
directors, at least two annual meetings are required to effect a change in the
composition of a majority of the board of directors. Without a staggered board
of directors, a person or entity which acquired a simple majority of Common
Stock would have the power to change the composition of the board of directors
at a single annual meeting.
NUMBER OF DIRECTORS, FILLING OF BOARD OF DIRECTORS' VACANCIES AND REMOVAL
OF DIRECTORS
The Certificate of Incorporation provides that the number of directors of
the Company will be fifteen, or such other number as is determined from time to
time by the affirmative vote of at least 70% of all shares of the Company
entitled to vote in the election of directors, or of at least two-thirds of the
directors of the Company. Under the DGCL and the Certificate of Incorporation,
a majority of the Board of Directors, though less than a quorum, or the sole
remaining director, may fill vacancies on the Board of Directors or newly
created directorships resulting from any increase in the authorized number of
directors. Under the DGCL and the Certificate of Incorporation, a director
serving on a staggered board may only be removed for cause. Neither the DGCL
nor the Company's Certificate of Incorporation define "cause." The
circumstances under which directors may be removed are therefore judicially
determined and would generally be expected to include fraud, criminal conduct
or gross
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abuse of office amounting to a breach of fiduciary duty to the Company.
The provisions relating to the fixing of the number of directors, the
filling of vacancies on the board and the removal of directors are intended to
prevent a substantial stockholder from circumventing the purposes of a
staggered board by increasing the number of directors on the board or removing
incumbent directors without cause and then filling the newly created
directorships or vacancies with such stockholder's own nominees. Such
provisions may, however, make it more difficult to remove a director in the
event of dissatisfaction with the director's performance.
STOCKHOLDER ACTION
The Certificate of Incorporation provides that stockholder action may be
taken only at an annual or special meeting of stockholders and not by written
consent without a meeting. This prohibition could be used to delay the taking
of any action requiring stockholder approval which is not approved by the Board
of Directors, whether or not a majority of the stockholders believes such
action may be desirable. Under such circumstances, stockholders may be
required to wait until the next annual meeting of stockholders to take action
which does not have the support of a majority of the entire Board of Directors.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS
The Certificate of Incorporation provides that the Company is to be
governed by Section 203 of the DGCL ("Section 203"). Section 203 restricts
certain forms of business combinations by Delaware corporations with an
"Interested Stockholder" for a period of three years from the date that such a
person became an "Interested Stockholder" unless: (i) prior to such date, the
corporation's board of directors approved either the business combination or
the transaction which resulted in the stockholder becoming an "Interested
Stockholder;" (ii) upon consummation of the transaction, the Interested
Stockholder owns at least 85% of the voting stock of the corporation (excluding
shares held by persons who are directors and also officers and under certain
types of employee stock plans); or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock, other than
stock owned by the "Interested Stockholder." An "Interested Stockholder" is
defined as any individual, corporation, partnership, unincorporated association
or other entity which: (x) owns 15% or more of the outstanding voting stock of
the corporation; (y) is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an Interested Stockholder; or
(z) is an affiliate or associate of such a person.
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Article XI of the Certificate of Incorporation also provides that any
amendment, alteration, change or repeal of Articles VI or X of the Certificate
of Incorporation, which pertain to the authority of the Board of Directors and
the number, election, classification, filling of vacancies and removal of
directors, respectively, as well as any amendment to Article XI itself, may
occur only by the affirmative vote of not less than 70% of all shares of stock
of the Company then entitled to vote in the election of directors or a majority
of such shares if the action is approved by two-thirds of all directors.
Article XI requires similar approval for the adoption of any agreement
regarding the merger or consolidation of the Company with or into any other
corporation, the authorization of any sale, lease or exchange of all or
substantially all of the Company's assets or the authorization of the
dissolution of the Company.
LIMITATION OF DIRECTORS' LIABILITY
As permitted by the provisions of the DGCL, the Certificate of
Incorporation eliminates in certain circumstances the monetary liability of
directors of the Company to the Company or its stockholders for a breach of
their fiduciary duty as directors. These provisions do not eliminate or limit
the liability of a director for: (i) a breach of the director's duty of
loyalty to the Company or its stockholders; (ii) acts or omissions by a
director not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) liability arising under Section 174 of the DGCL
(relating to the declaration of dividends and purchase or redemption of shares
in violation of the DGCL); or (iv) any transaction from which the director
derived an improper personal benefit. In addition,
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these provisions do not limit the rights of the Company or its stockholders,
in appropriate circumstances, to seek equitable remedies such as injunctive
or other forms of non-monetary relief.
INDEMNIFICATION
As permitted by Section 145 of the DGCL, the Certificate of Incorporation
requires the Company to indemnify all persons who it may indemnify pursuant
thereto. Under such provisions, any director, officer, employee or agent who,
in his or her capacity as such, is made or threatened to be made a party to any
suit or proceeding, must be indemnified if such director, officer, employee or
agent acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Company. The DGCL further
provides that such indemnification is not exclusive of any other rights to
which such individuals may be entitled under the Certificate of Incorporation,
any agreement, insurance policies, vote of stockholders or disinterested
directors or otherwise.
STOCKHOLDERS' RIGHTS PLAN
The Company has adopted a Stockholders' Rights Plan pursuant to which the
Company declared on July 17, 1996, a dividend distribution of one right for
each share of Common Stock then or subsequently outstanding (the "Rights").
Under the plan, until such time as a "triggering event" occurs, each Right
entitles the holder thereof to purchase from the Company one one-thousandth of
a share of a newly authorized Series C Preferred Stock at a purchase price of
$50, subject to adjustment for stock splits, recapitalizations and other
similar transactions. Each Right is transferrable only together with its
underlying share of Common Stock. The Rights will be triggered as a result of
any person (other than a specifically permitted person) becoming the beneficial
holder of 15% or more of the then outstanding shares of Common Stock. Upon
such occurrence, each Right, other than rights held by the person or affiliated
group whose holdings exceeded such threshold, will permit the holder thereof to
purchase that number of shares of Common Stock having a market value equal to
$100. The Rights will also be triggered if the Company is acquired in a merger
or other business combination (in which any shares of the Common Stock are
converted into or exchanged for other securities or assets), or if more than
50% of the assets or earning power of the Company and its subsidiaries (taken
as a whole) are sold or transferred in one or a series of related transactions.
In such event, each Right, other than Rights held by the person or affiliated
group whose holdings exceeded the 15% threshold, will entitle its holder to
purchase that number of shares of common stock of the acquiring company having
a market value at the time of such transaction equal to $100. Following the
occurrence of any triggering event, each Right becomes separated from its
underlying share of Common Stock and may thereafter be separately transferred.
Under the plan, at any time prior to ten days following the occurrence of any
triggering event the Board of Directors may cause the Company to redeem the
Rights in whole, but not in part, at a
price of $0.01 per Right, subject to adjustment. The Board may also extend the
period during which the Rights may be redeemed.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have 3,951,403
shares of Common Stock outstanding (4,116,403 shares if the Underwriter's
over-allotment option is exercised in full). Of these shares, the 1,100,000
shares of Common Stock sold in this Offering (1,265,000 shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradeable by persons other than affiliates of the Company, without restriction
under the Securities Act. Of the remaining 2,842,314 shares of Common Stock,
the 710,576 shares of Common Stock issued in connection with the Prairie
Acquisition and the approximately 886,395 shares of Common Stock held by other
affiliates of the Company will be "restricted" securities within the meaning of
Rule 144 under the Securities Act and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemptions contained in Rule 144. Commencing 90 days
after the date of this Prospectus, the shares beneficially owned by persons who
are affiliates of the Company would be eligible for public sale pursuant to
Rule 144, subject to the volume restrictions discussed below. However, the
directors and executive officers of the Company and owners of 5% or more of
Common Stock have agreed not to sell, contract to sell or otherwise dispose of
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Underwriter. Additionally,
the Company has a right of first refusal with respect to the transfer by the
Principal Prairie Stockholders of more than 5% of the Company's shares to a
single purchaser. See "The Acquisition -- Prairie Bancorp, Inc. --
Restrictions Applicable to Principal Prairie Stockholders."
In general, Rule 144 as currently in effect provides that a person (or
persons whose shares are aggregated),
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including an affiliate of the Company, who has beneficially owned his or her
shares for at least two years (including the prior holding period of any prior
owner other than an affiliate) is entitled to sell within any three-month
period that number of shares which does not exceed the greater of 1% of the
outstanding shares of the Common Stock or the average weekly trading volume
during the four calendar weeks preceding each such sale. Sales under Rule 144
also are subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not or has not been
deemed an "affiliate" of the Company for at least three months, and who has
beneficially owned shares for at least three years (including the holding
period of any prior owner other than an affiliate) would be entitled to sell
such shares under Rule 144 without regard to the limitations discussed above.
Prior to this Offering, there has been no regular and liquid market for
the Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
the Company and the Underwriter, the Underwriter has agreed to purchase from
the Company, and the Company has agreed to sell to the Underwriter, 1,100,000
shares of Common Stock.
The Underwriting Agreement provides that the obligations of the
Underwriter thereunder are subject to the satisfaction of certain conditions
precedent. The Underwriter is committed to purchase and pay for all 1,100,000
shares of Common Stock if any are purchased. The Company has been advised that
the Underwriter proposes to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain securities dealers at such price less a concession
not in excess of $.___ per share, and that the Underwriter and such dealers may
allow to other dealers including any underwriter, a discount not in excess of
$.___ per share. After commencement of this Offering, the offering price and
concession and discounts may be changed by the Underwriter. The Company has
agreed to pay the Underwriter an expense allowance not to exceed 1.5% of the
aggregate offering price.
The Underwriter has informed the Company that it does not intend to make
sales to any accounts over which it exercises discretionary authority.
At the request of the Company, the Underwriter has reserved up to
approximately 110,000 shares (the "Reserved Shares") of Common Stock for sale
to directors, executive officers and affiliates of the Company who have
expressed an interest in purchasing shares of Common Stock in this Offering.
The Reserved Shares will be sold to such directors, executive officers and
affiliates through brokerage accounts opened specifically for such purpose
through the Underwriter. The price for such Reserved Shares will be the
initial public offering price. The number of shares available to the general
public will be reduced to the extent such persons purchase the Reserved Shares.
Any Reserved Shares that are not so purchased by such persons at the initial
closing of this Offering will be sold by the Underwriter to the general public
on the same terms as the other shares of Common Stock offered hereby.
The Underwriter has obtained an option from the Company exercisable for a
period of 30 days following the offering date, under which the Underwriter may
purchase up to 15% of the total number of shares of Common Stock offered at the
same price per share which the Company will receive for the shares offered
herein. The Underwriter may exercise such option only once to cover
over-allotments.
The Company and its executive officers and directors, as well as the
Company's 5% stockholders, have agreed not to offer, sell, contract or
otherwise dispose of any Common Stock for at least 180 days after this
Offering, without the written consent of the Underwriter.
Prior to this Offering, there has been a limited market for the Common
Stock. The initial public offering price was determined by negotiation among
the Company and the Underwriter. The factors considered in determining the
initial public offering price include the history of and prospects for the
business in which the Company operates, past and present operations, revenues
and earnings of the Company and the trend of such earnings, the prospects for
such earnings, the general condition of the securities markets at the time of
the offering and the demand for
73
<PAGE> 75
similar securities of reasonably comparable companies.
The Company and the Underwriter have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities under the Securities Act.
The Underwriter has from time to time performed various investment banking
and other services for the Company for which customary compensation has been
received. The Underwriter has rendered financial advisory and investment
banking services in connection with the Prairie Acquisition. The Company paid
the Underwriter a fee of $ for providing such services.
LEGAL OPINIONS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Barack, Ferrazzano, Kirschbaum & Perlman, Chicago,
Illinois. Certain legal matters will be passed upon for the Underwriter by
Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
and Prairie and its subsidiaries as of December 31, 1995 and 1994, and for each
of the years in the three-year period ended December 31, 1995, as well as the
consolidated financial statements of Country and its subsidiary as of December
31, 1995 and 1994 and each of the years in the two-year period ended December
31, 1995, have been included herein in reliance upon the report of McGladrey &
Pullen, LLP, independent certified public accountants, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the Common
Stock being offered pursuant to this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto. Statements contained in this Prospectus concerning the
provisions of such documents are necessarily summaries of such documents and
each such statement is qualified in its entirety by reference to the copy of
the applicable document filed with the SEC.
Following the commencement of this Offering, the Company will be subject
to the informational requirements of the Exchange Act and in accordance
therewith will file reports, proxy and information statements and other
information with the SEC. Such reports, proxy statements and other information
concerning the Company can be inspected and copied at the public reference
facilities of the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, as well as the SEC's Regional Offices at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 75 Park Place, Room 1400, New York, New York
10007. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Company is required to file electronic versions of
these documents with the SEC through the SEC's Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC.
74
<PAGE> 76
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL INFORMATION
UNIONBANCORP, INC.
PRAIRIE BANCORP, INC.
COUNTRY BANCSHARES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNIONBANCORP, INC.
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and December 31, 1995 F-2
Consolidated Statements of Income (Unaudited) for the Six Months Ended June 30, 1996 and 1995 F-3
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 1996 and 1995 F-4
Notes to Unaudited Consolidated Financial Statements F-5
Independent Auditor's Report F-10
Consolidated Balance Sheets at December 31, 1995 and 1994 F-11
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 F-12
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-14
Notes to Consolidated Financial Statements F-16
PRAIRIE BANCORP, INC.
Selected Consolidated Financial Data F-37
Management's Discussion and Analysis of Financial Condition and Results of Operations F-38
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and December 31, 1995 F-64
Consolidated Statements of Income (Unaudited) for the Six Months Ended June 30, 1996 and 1995 F-65
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 1996 and 1995 F-66
Notes to Unaudited Consolidated Financial Statements F-67
Independent Auditor's Report F-71
Consolidated Balance Sheets at December 31, 1995 and 1994 F-72
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 F-73
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 F-74
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-76
Notes to Consolidated Financial Statements F-78
COUNTRY BANCSHARES, INC.
Selected Consolidated Financial Data F-93
Management's Discussion and Analysis of Financial Condition and Results of Operations F-94
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and December 31, 1995 F-117
Consolidated Statements of Income (Unaudited) for the Six Months Ended June 30, 1996 and 1995 F-118
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 1996 and 1995 F-119
Notes to Unaudited Consolidated Financial Statements F-120
Independent Auditor's Report F-123
Consolidated Balance Sheets at December 31, 1995 and 1994 F-124
Consolidated Statements of Income for the Years Ended December 31, 1995 and 1994 F-125
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1994 F-126
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1994 F-127
Notes to Consolidated Financial Statements F-129
</TABLE>
F - 1
<PAGE> 77
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
- ----------------------------------------------------------------- -------------
<S> <C>
ASSETS
Cash and due from banks $ 11,403,209 $ 16,166,689
Federal funds sold 225,000 2,265,000
Securities held to maturity (fair value
$28,742,172 in 1996; $29,186,580 in 1995) 28,925,982 29,026,216
Securities available for sale 58,003,129 63,890,813
Loans (net of allowance for loan losses of
$1,596,965 in 1996 and $2,013,996 in 1995) 184,243,005 178,805,012
Premises and equipment, net 6,829,352 6,570,710
Intangible assets 894,581 943,126
Deferred income taxes 748,866 --
Accrued interest and other assets 5,331,888 5,865,773
------------- -------------
Total assets $ 296,605,012 $ 303,533,339
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand $ 34,514,560 $ 35,688,034
Savings and NOW 76,469,008 80,871,775
Other time 123,025,044 121,515,122
Time deposits of $100,000 or more 25,078,691 23,652,388
------------- -------------
Total deposits 259,087,303 261,727,319
Securities sold under agreements to repurchase 7,544,134 11,505,134
Short-term borrowings 4,391,250 4,346,250
Deferred income taxes -- 9,587
Accrued interest and other liabilities 2,130,430 2,470,057
------------- -------------
Total liabilities 273,153,117 280,058,347
============= =============
Stockholders' Equity
Common stock, $1 par value; 10,000,000 shares
authorized; 2,400,000 issued and outstanding 2,400,000 2,400,000
Surplus 1,074,272 1,074,272
Retained earnings 21,537,352 20,567,981
Unrealized gain (loss) on securities available
for sale (997,242) 1,918
Deferred compensation - stock option plans (41,290) (47,982)
------------- -------------
23,973,092 23,996,189
Less treasury stock, at cost; 268,263 shares 521,197 521,197
------------- -------------
Total stockholders' equity 23,451,895 23,474,992
------------- -------------
Total liabilities and stockholders' equity $ 296,605,012 $ 303,533,339
============= =============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F - 2
<PAGE> 78
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Interest income:
Loans and fees on loans $ 8,642,619 $ 7,768,780
Securities:
U.S. Treasury securities 401,451 588,300
U.S. Government agencies and
corporations 1,474,920 985,996
States and political subdivisions 676,382 692,687
Mortgage-backed securities 2,785 5,820
Corporate bonds 8,694 68,898
Other securities 38,014 37,513
Federal funds sold 33,333 44,515
----------- -----------
Total interest income 11,278,198 10,192,509
----------- -----------
Interest expense:
Deposits 5,389,555 4,786,937
Securities sold under
agreements to repurchase 275,865 211,607
Short-term borrowings 184,475 217,965
----------- -----------
Total interest expense 5,849,895 5,216,509
----------- -----------
Net interest income
5,428,303 4,976,000
Provision for loan losses 500,000 342,000
----------- -----------
Net interest income
after provision for
loan losses
4,928,303 4,634,000
----------- -----------
Noninterest income:
Trust department 183,498 150,000
Service charges and fees 899,264 800,134
Gain on sale of assets 1,500 60,572
Gain on sale of securities 12,998 61,038
Gain on sale of loans 142,321 44,692
Other 84,777 70,165
----------- -----------
1,324,358 1,186,601
----------- -----------
Noninterest expenses:
Salaries and wages 2,018,362 1,750,096
Employee benefits 525,362 423,594
Occupancy and equipment rental 715,235 609,471
Other 1,501,893 1,629,501
----------- -----------
4,760,852 4,412,662
----------- -----------
Income before income
taxes 1,491,809 1,407,939
Income taxes 380,523 365,403
----------- -----------
Net income
$ 1,111,286 $ 1,042,536
=========== ===========
Earnings per share
of common stock
$ 0.51 $ 0.49
=========== ===========
Weighted average
number of shares
outstanding
2,169,012 2,131,737
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F - 3
<PAGE> 79
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
--------- ---------
(Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 1,111,286 $ 1,042,536
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 297,215 238,534
Amortization of intangibles 48,545 96,144
Amortization of deferred compensation - stock options 6,692 --
Provision for loan losses 500,000 342,000
Provision for deferred income taxes (125,000) (301,307)
(Gain) on sales of securities (12,998) (61,038)
(Gain) on sales of loans (142,321) (44,692)
(Gain) on sale of equipment (1,500) --
Amortization of bond premiums, net 238,833 236,514
(Gain) on sale of real estate acquired in settlement of loans (2,524) (41,089)
Change in assets and liabilities:
Decrease in accrued interest and other assets 1,853,331 921,596
Increase (decrease) in accrued interest and other liabilities (339,627) 1,162,000
=========== ============
Net cash provided by operating activities 3,431,932 3,591,198
=========== ============
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls and maturities 782,285 1,125,713
Purchases (875,525) (2,494,534)
Available for sale:
Proceeds from sales 11,820,096 10,209,448
Proceeds from calls and maturities 2,750,000 1,269,763
Purchases (11,584,987) (11,329,088)
Net decrease in federal funds sold 2,040,000 300,000
Net (increase) in loans (5,937,993) (13,925,000)
Purchase of premises and equipment (556,057) (1,053,523)
Proceeds from sale of real estate acquired in settlement of loans 153,000 499,000
Proceeds from sale of equipment 1,700 --
=========== ============
Net cash (used in) investing activities (1,407,481) (15,398,221)
=========== ============
Cash Flows from Financing Activities
Net (decrease) in demand deposits, NOW accounts and savings
accounts (5,576,241) (2,014,661)
Net increase in time deposits 2,936,225 17,620,096
Net (decrease) in securities sold under agreements to repurchase (3,961,000) (7,008,924)
Payments on short-term borrowings (45,000) (598,459)
Dividends paid (141,915) (141,916)
----------- ------------
Net cash provided by financing activities (6,787,931) 7,856,136
----------- ------------
Net increase (decrease) in cash and due from banks (4,763,480) (3,950,887)
Cash and due from banks:
Beginning 16,166,689 12,997,888
----------- ------------
End $ 11,403,209 $ 9,047,001
=========== ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F - 4
<PAGE> 80
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The financial information of UnionBancorp, Inc. and subsidiaries included
herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.
NOTE 2. SECURITIES
Amortized costs and fair values of securities are summarized as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY June 30, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 99,610 $ -- $ -- $ 99,610
U.S. Government agencies
and corporations 2,000,000 -- 280,000 1,720,000
States and political
subdivisions 26,584,564 376,412 271,240 26,689,736
Mortgage backed securities 1,808 -- -- 1,808
Corporate bonds 240,000 -- 8,982 231,018
------------ ---------- ---------- ------------
$ 28,925,982 $ 376,412 $ 560,222 $ 28,742,172
============ ========== ========== ============
<CAPTION>
December 31, 1995
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 117,307 $ -- $ -- $ 117,307
U.S. Government agencies
and corporations 2,000,000 -- 120,855 1,879,145
States and political
subdivisions 26,660,119 496,019 214,800 26,941,338
Mortgage backed
securities 8,790 -- -- 8,790
Corporate bonds 240,000 -- -- 240,000
------------ ------------ ------------- ------------
$ 29,026,216 $ 496,019 $ 335,655 $ 29,186,580
------------ ------------ ------------- ------------
</TABLE>
(Continued)
F - 5
<PAGE> 81
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AVAILABLE FOR SALE June 30, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 13,972,631 $ -- $ 142,839 $ 13,829,792
U.S. Government agencies
and corporations 39,483,790 3,065 1,345,695 38,141,160
States and political
subdivisions 393,973 14,852 1,153 407,672
Mortgage backed
securities 5,682,968 12,717 145,135 5,550,550
Collateralized mortgage
obligations 74,246 -- 291 73,955
Other 25,000 -- 25,000
---------- ---------- ----------- ------------
$ 59,632,608 $ 30,634 $ 1,660,113 $ 58,003,129
========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 18,329,568 $ 24,352 $ 75,165 $ 18,278,755
U.S. Government agencies
and corporations 36,908,777 303,127 225,033 36,986,871
States and political
subdivisions 893,372 19,780 -- 913,152
Mortgage backed
securities 6,218,441 30,314 58,920 6,189,835
Corporate bonds 1,512,522 9,678 1,522,200
Other 25,000 25,000
----------- --------- --------- ------------
$ 63,887,680 $ 387,251 $ 384,118 $ 63,890,813
=========== ========= ========= ============
</TABLE>
(Continued)
F - 6
<PAGE> 82
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities classified as held to maturity
and available for sale at June 30, 1996 and December 31, 1995, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD TO MATURITY
June 30, December
1996 31, 1995
------------ ------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C>
Due in one year
or less $ 2,506,693 $ 2,527,164 $ 1,781,958 $ 1,910,134
Due after one year
through five years 14,658,598 14,579,020 15,521,431 15,522,016
Due after five
years through ten 9,276,608 9,091,067 8,655,643 8,583,561
years
Due after ten 2,484,083 2,544,921 3,067,184 3,170,869
years
------------ ------------ ------------ ------------
$ 28,925,982 $ 28,742,172 $ 29,026,216 $ 29,186,580
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE June 30, 1996 December 31, 1995
------------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Due in one year or
less $ 7,541,292 $ 7,518,400 $ 8,825,478 $ 8,782,725
Due after one year
through five years 15,429,302 14,954,121 24,168,022 23,983,759
Due after five
years through ten
years 30,979,046 29,980,058 24,782,767 25,040,870
Due after ten years - - - -
Mortgage backed
securities 5,682,968 5,550,550 6,111,413 6,083,459
------------ ------------ ------------ ------------
$ 59,632,608 $ 58,003,129 $ 63,887,680 $ 63,890,813
============= ============ ============ ============
</TABLE>
Securities with carrying values of approximately $41,079,000 and $50,338,000 at
June 30, 1996 and December 31, 1995, respectively, were pledged to secure
public deposits, to secure securities sold under agreements to repurchase and
for other purposes as required or permitted by law.
(Continued)
F - 7
<PAGE> 83
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
NOTE 3. LOANS
The major classifications of loans follow:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Commercial $ 53,431,532 $ 53,225,736
Real estate 105,024,022 100,505,607
Installment 24,776,731 24,166,864
Other 2,611,100 2,928,008
------------ ------------
185,843,385 180,826,215
------------ ------------
Deduct:
Unearned interest 3,415 7,207
Allowance for loan losses 1,596,965 2,013,996
------------ ------------
1,600,380 2,021,203
------------ ------------
$184,243,005 $178,805,012
============ ============
</TABLE>
NOTE 4. ALLOWANCE FOR LOAN LOSSES
An analysis of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Balance, January 1 $ 2,013,996 $ 1,704,281
Provision for loan losses 500,000 342,000
Recoveries 20,839 92,153
Loans charged off (937,870) (267,873)
------------ ------------
Balance, end of period $ 1,596,965 $ 1,870,561
============ ============
</TABLE>
(Continued)
F - 8
<PAGE> 84
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 5. SHORT TERM BORROWINGS
Short term borrowings include a note payable to a third party lender and
securities sold under agreements to repurchase.
Average and maximum balances and rates on notes payable and securities sold
under agreements to repurchase were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Maximum month end balance $16,168,000 $13,349,000
Average month end balance 13,708,333 10,758,000
Weighted average interest rate for the period 6.06% 6.76%
Weighted average interest rate at end of period 6.33% 7.04%
</TABLE>
NOTE 6. CONTINGENT LIABILITIES
At June 30, 1996 and December 31, 1995, loan commitments, including standby
letters of credit, were as follows:
<TABLE>
<CAPTION>
Range of Rates
Variable Rate Fixed Rate Total on Fixed Rate
Commitments Commitments Commitments Commitments
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
June 30, 1996 $40,118,000 $ 5,716,000 $ 45,834,000 6.25% - 11.25%
December 31, 1995 $40,686,000 $ 3,111,000 $ 43,797,000 6.25% - 11.25%
</TABLE>
NOTE 7. STOCK SPLIT
On May 20, 1996, the Company effected a three-for-one stock split in the form
of a stock dividend. All references in the accompanying financial statements
to number of shares and per share amounts have been retroactively restated to
reflect the stock split.
F - 9
<PAGE> 85
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
UnionBancorp, Inc.
Ottawa, Illinois
We have audited the accompanying consolidated balance sheets of UnionBancorp,
INC. AND SUBSIDIARIES as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. 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 above present
fairly, in all material respects, the financial position of UnionBancorp, INC.
AND SUBSIDIARIES as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As described in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for investment securities in 1994.
McGLADREY & PULLEN, LLP
Champaign, Illinois
January 17, 1996 (except for Note 15 for
which the date is May 20, 1996)
F - 10
<PAGE> 86
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,166,689 $ 12,997,888
Federal funds sold 2,265,000 1,200,000
Securities held to maturity (fair value
$29,186,580 in 1995; $27,167,255 in 1994) 29,026,216 28,667,104
Securities available for sale 63,890,813 56,592,941
Loans (net of allowance for loan losses of
$2,013,996 in 1995 and $1,704,281 in 1994) 178,805,012 159,429,967
Premises and equipment 6,570,710 5,687,817
Intangible assets 943,126 1,063,274
Deferred income taxes - 967,396
Accrued interest and other assets 5,865,773 5,431,645
------------- -------------
Total assets $ 303,533,339 $ 272,038,032
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits :
Demand $ 35,688,034 $ 32,216,560
Savings and NOW 80,871,775 72,687,101
Other time 121,515,122 105,489,487
Time deposits of $100,000 or more 23,652,388 21,940,417
------------- -------------
Total deposits 261,727,319 232,333,565
Securities sold under agreements to repurchase 11,505,134 13,118,187
Short-term borrowings 4,346,250 5,026,250
Deferred income taxes 9,587 -
Accrued interest and other liabilities 2,470,057 1,931,433
------------- -------------
Total liabilities 280,058,347 252,409,435
------------- -------------
Commitments, Contingencies and Credit Risk
Stockholders' Equity
Common stock, $1 par value;
10,000,000 shares authorized; 2,400,000
issued and outstanding 2,400,000 2,400,000
Surplus 1,074,272 1,007,352
Retained earnings 20,567,981 18,498,987
Unrealized gain (loss) on securities
available for sale 1,918 (1,756,545)
Deferred compensation - stock option plans (47,982) -
------------- -------------
23,996,189 20,149,794
Less treasury stock, at cost; 268,263 shares 521,197 521,197
------------- -------------
Total stockholders' equity 23,474,992 19,628,597
------------- -------------
Total liabilities and stockholders'
equity $ 303,533,339 $ 272,038,032
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 11
<PAGE> 87
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans and fees on loans $ 16,321,505 $ 13,418,765 $ 13,420,804
Securities:
U.S. Treasury securities 1,062,279 1,571,375 1,474,998
U.S. Government agencies and
corporations 2,202,236 1,796,107 1,795,948
States and political subdivisions 1,404,076 1,396,783 1,240,966
Mortgage backed securities 9,526 9,986 14,121
Corporate bonds 114,983 346,326 458,559
Other securities 97,052 49,967 58,144
Federal funds sold 156,350 38,128 140,328
------------ ------------ ------------
Total interest income 21,368,007 18,627,437 18,603,868
------------ ------------ ------------
Interest expense:
Deposits 10,257,286 8,093,166 8,363,475
Securities sold under agreements
to repurchase 522,469 233,742 61,545
Short-term borrowings 468,852 379,317 373,005
------------ ------------ ------------
Total interest expense 11,248,607 8,706,225 8,798,025
------------ ------------ ------------
Net interest income 10,119,400 9,921,212 9,805,843
Provision for loan losses 684,000 660,000 1,268,000
------------ ------------ ------------
Net interest income after
provision for loan losses 9,435,400 9,261,212 8,537,843
------------ ------------ ------------
Noninterest expenses:
Trust department 330,130 300,837 200,306
Service charges and fees 1,194,062 1,127,596 1,017,892
Gain on sale of assets 36,736 2,145 -
Gain on sale of securities 97,940 117,618 185,369
Gain on sale of loans 287,562 130,163 573,773
Other 623,375 604,437 534,585
------------ ------------ ------------
2,569,805 2,282,796 2,511,925
------------ ------------ ------------
Noninterest expenses:
Salaries and wages 3,580,455 3,064,940 2,875,946
Employee benefits 870,270 802,681 736,886
Occupancy and equipment rental 1,248,711 1,133,926 1,126,169
FDIC assessment 270,966 525,956 502,322
Other 2,800,357 2,719,955 2,599,379
------------ ------------ ------------
8,770,759 8,247,458 7,840,702
------------ ------------ ------------
Income before income taxes 3,234,446 3,296,550 3,209,066
Income taxes 881,620 703,025 747,399
------------ ------------ ------------
Net income $ 2,352,826 $ 2,593,525 $ 2,461,667
============ ============ ===========-
Earnings per share of
common stock $ 1.09 $ 1.22 $ 1.15
============ ============ ===========-
Weighted average number of
shares outstanding 2,148,897 2,132,712 2,132,760
============ ============ ===========-
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 12
<PAGE> 88
<TABLE>
<CAPTION>
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
- ---------------------------------------------------------------------------------------------
Unrealized
Gain (Loss) on
Securities
Common Retained Available
Stock Surplus Earnings for Sale
---------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $2,400,000 $ 996,488 $13,883,330 $ -
Net income - - 2,461,667 -
Cash dividends, $.09 per share - - (191,414) -
Realized loss included in
net income - - - -
Change in unrealized loss on
marketable equity securities - - - -
---------- ----------- ----------- --------------
Balance, December 31, 1993 $2,400,000 $ 996,488 $16,153,583 $ -
Effect of adoption of change
in method of accounting
for securities - - - 831,467
Net income - - 2,593,525 -
Cash dividends, $.12 per share (248,121) -
Issuance of 1,977 shares of
treasury stock - 10,864 - -
Redemption of 3,000 shares of
qualifying directors' stock - - - -
Change in unrealized loss on
securities available for sale - - - (2,588,012)
---------- ---------- ----------- -------------
Balance, December 31, 1994 $2,400,000 $1,007,352 $18,498,987 $ (1,756,545)
Net income - - 2,352,826 -
Cash dividends, $.13 per share - - (283,832) -
Issuance of Nonqualifying
stock options - 66,920 - -
Amortization of unearned
compensation on Nonqual-
ifying stock options - - - -
Change in unrealized gain
(loss) on securities
available for sale - - - 1,758,463
---------- ---------- ----------- -------------
Balance, December 31, 1995 $2,400,000 $1,074,272 $20,567,981 $ 1,918
========== ========== =========== =============
<CAPTION>
Unrealized Deferred
Loss on Compen-
Marketable sation
Equity Stock Treasury
Securities Option Plans Stock Total
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $ (53,007) $ - $(524,490) $16,702,321
Net income - - - 2,461,667
Cash dividends, $.09 per share - - - (191,414)
Realized loss included in
net income 50,968 - - 50,968
Change in unrealized loss on
marketable equity securities 2,039 - - 2,039
---------- ----------- --------- -----------
Balance, December 31, 1993 $ - $ - $(524,490) $19,025,581
Effect of adoption of change
in method of accounting
for securities - - - 831,467
Net income - - - 2,593,525
Cash dividends, $.12 per share - - - (248,121)
Issuance of 1,977 shares of
treasury stock - - 4,293 15,157
Redemption of 3,000 shares of
qualifying directors' stock - - (1,000) (1,000)
Change in unrealized loss on
securities available for sale - - - (2,588,012)
---------- ----------- --------- -----------
Balance, December 31, 1994 $ - $ - $(521,197) $19,628,597
Net income - - - 2,352,826
Cash dividends, $.13 per share - - - (283,832)
Issuance of Nonqualifying
stock options - (66,920) - -
Amortization of unearned
compensation on Nonqual-
ifying stock options - 18,938 - 18,938
Change in unrealized gain
(loss) on securities
available for sale - - - 1,758,463
---------- ----------- --------- -----------
Balance, December 31, 1995 $ - $ (47,982) $(521,197) $23,474,992
========== =========== ========= ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 13
<PAGE> 89
<TABLE>
<CAPTION>
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
- --------------------------------------------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,352,826 $ 2,593,525 2,461,667
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation 525,689 528,722 530,628
Amortization of intangibles 120,148 162,191 141,170
Amortization of deferred
compensation - stock options 18,938 -- --
Provision for loan losses 684,000 660,000 1,268,000
Provision for deferred income taxes (137,860) (31,733) (208,841)
(Gain) on sales of securities (97,940) (117,618) (236,337)
Loss on sale of marketable equity
securities, net -- -- 50,968
(Gain) on sales of loans (287,562) (130,163) (573,773)
(Gain) on sale of equipment (36,736) (2,145) --
Amortization of bond premiums, net 448,276 639,575 500,233
(Gain) loss on sale of real estate
acquired in settlement of loans (32,577) 65,396 37,800
Change in assets and liabilities:
(Increase) decrease in accrued
interest and other assets (666,548) 11,606 (461,645)
Increase (decrease) in accrued
interest and other liabilities 538,624 346,240 (489,646)
----------- ---------- ----------
Net cash provided by
operating activities 3,429,278 4,725,596 3,020,224
----------- ---------- ----------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls and maturities 3,858,289 1,279,344 12,198,225
Purchases (4,300,502) (6,197,199) (38,747,790)
Available for sale:
Proceeds from sales 17,318,490 21,561,650 --
Proceeds from maturities 6,230,000 6,620,607 --
Purchases (28,240,291) (27,357,269) --
Proceeds from sales of
investment securities -- -- 21,051,185
Proceeds from sales of
marketable equity securities -- -- 896,027
Net (increase) decrease in federal
funds sold (1,065,000) 8,900,000 (7,600,000)
Net (increase) in loans (20,306,173) (13,894,291) (3,238,150)
Purchase of premises and equipment (1,430,773) (1,200,591) (1,425,190)
Proceeds from sale of real estate
acquired in settlement of loans 799,687 727,290 623,340
Proceeds from sale of equipment 58,927 40,630 --
----------- ---------- ----------
Net cash (used in)
investing activities (27,077,346) (9,519,829) (16,242,353)
----------- ---------- ----------
(Continued)
</TABLE>
F - 14
<PAGE> 90
UNIONBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------- ------------- ------------
<S> <C> <C> <C>
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $11,656,148 $ (6,853,365) $ 10,691,779
Net increase in time deposits 17,737,606 1,732,124 4,249,936
Net increase (decrease) in securities sold
under agreements to repurchase (1,613,053) 9,976,139 1,497,708
Payments on short-term borrowings (680,000) (253,750) (520,000)
Dividends paid (283,832) (248,121) (191,414)
Proceeds from issuance of treasury stock -- 14,157 --
----------- ------------ -------------
Net cash provided by financing activities 26,816,869 4,367,184 15,728,009
----------- ------------ -------------
Net increase (decrease) in cash and
due from banks 3,168,801 (427,049) 2,505,880
Cash and due from banks:
Beginning of year 12,997,888 13,424,937 10,919,057
=========== ============ =============
End of year $16,166,689 $ 12,997,888 $ 13,424,937
=========== ============ =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest - depositors $ 9,977,772 $ 7,912,371 $ 8,585,723
=========== ============ =============
- repurchase agreements $ 371,155 $ 170,773 $ 59,604
=========== ============ =============
- short-term borrowings $ 576,273 $ 356,620 $ 324,315
=========== ============ =============
Income taxes $ 993,757 $ 832,862 $ 482,695
=========== ============ =============
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfer of loans to real estate acquired in
settlement of loans $ 534,690 $ 518,934 $ 942,517
Change in unrealized gain (loss) on securities =========== ============ =============
available for sale $ 2,873,306 $ (2,870,173) $ --
Increase (decrease) in deferred taxes attributable =========== ============ =============
to the unrealized gain (loss) on securities
available for sale $(1,114,843) $ 1,113,628 $ --
Decrease in unrealized loss on marketable =========== ============ =============
equity securities -- -- 2,039
=========== ============ =============
Issuance of nonqualifying stock options 66,920 -- --
=========== ============ =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 15
<PAGE> 91
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry.
The significant accounting and reporting policies for UnionBancorp, Inc. and
its subsidiaries (the "Company") follow:
Nature of Business
The Company is a two bank holding company with two nonbank subsidiaries. The
Company provides a full range of banking services to individual and corporate
customers in the North Central Illinois area. The Company is subject to
competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, the Company and its bank
subsidiaries are subject to regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.
Basis of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, UnionBank, UnionBank/Sandwich (collectively, the
"Union Banks"), UnionData Corp., Inc. and Union Corporation. All material
intercompany accounts and transactions have been eliminated in consolidation.
Basis of accounting
In preparing the consolidated financial statements, Company management is
required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements. Significant
estimates which are particularly susceptible to change in a short period of
time include the determination of the allowance for loan losses and valuation
of real estate and other properties acquired in connection with foreclosures or
in satisfaction of amounts due from borrowers on loans. Actual results could
differ from those estimates.
Assets held in an agency or fiduciary capacity, other than trust cash on
deposit with the Union Banks, are not assets of the Union Banks and,
accordingly, are not included in the accompanying consolidated financial
statements.
Securities held to maturity
Securities classified as held to maturity are those debt securities the Company
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed using the interest method over their
contractual lives.
(Continued)
F - 16
<PAGE> 92
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Securities available for sale
Securities classified as available for sale are those debt securities that the
Company intends to hold for an indefinite period of time, but not necessarily
to maturity. Any decision to sell a security classified as available for sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. The difference
between fair value and cost, adjusted for amortization of premium and accretion
of discounts, results in an unrealized gain or loss. Unrealized gains or
losses are reported as increases or decreases in stockholders' equity, net of
the related deferred tax effect. Gains or losses from the sale of securities
are determined using the specific identification method.
Loans
Loans are stated at the principal amount outstanding, net of unearned interest
and the allowance for loan losses.
Unearned interest on certain installment loans is credited to income over the
term of the loan using the interest method. For all other loans, interest is
credited to income as earned using the simple interest method applied to the
daily balances of the principal outstanding.
The Company's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Interest income on these loans
is recognized to the extent interest payments are received and the principal is
considered fully collectible.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience. The
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers'
ability to pay. While management uses the best information available to make
its evaluation, future adjustments to the allowance may be necessary if there
are significant changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Union Banks' allowances for loan losses, and may require additions to the
allowance based on their judgment about information available to them at the
time of their examinations.
(Continued)
F - 17
<PAGE> 93
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On January 1, 1995, the Company adopted Financial Accounting Standards Board
Statement No. 114 (Statement No. 114), "Accounting by Creditors for the
Impairment of a Loan," as amended by Statement No. 118, which requires loans to
be considered impaired when, based on current information and events, it is
probable that the bank will not be able to collect all amounts due. The
portion of the allowance for loan losses applicable to impaired loans has been
computed based on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective interest rate or on
the fair value of the collateral for collateral dependent loans. The entire
change in present value of expected cash flows of impaired loans or of
collateral value is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the accelerated and straight-line methods over the
estimated useful lives of the assets.
Intangible assets
The excess of the purchase price over the fair value of identifiable tangible
and intangible assets acquired is amortized using the straight-line method over
fifteen years.
Deferred income taxes
Deferred taxes are provided on a liability method. Deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Per share data
Earnings per share are calculated on the weighted average number of shares
outstanding, including common stock equivalents, outstanding during the year.
Shares held by the employee stock ownership plan are considered to be
outstanding shares regardless of whether they are allocated to participants or
held as unallocated shares.
Statements of cash flows
For purposes of reporting cash flows, cash and due from banks includes cash on
hand and amounts due from banks (including cash items in process of clearing).
(Continued)
F - 18
<PAGE> 94
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Accounting for mortgage servicing rights
The FASB has issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (Statement No.
121) which becomes effective for years beginning after December 15, 1995.
Statement No. 121 generally requires long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment is recognized.
Management believes that adoption of this Statement will not have a material
effect on Union's financial statements.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of
In May 1995 , the Financial Accounting Standards Board issued Statement No.
122 , "Accounting for Mortgage Servicing Rights" (Statement No. 122).
Statement No. 122 requires the Union Banks to recognize as separate assets
rights to service mortgage loans for others, however those servicing rights are
acquired. If the Union Banks acquire mortgage servicing rights through either
the purchase or origination of mortgage loans and sell or securitize those
loans with servicing rights retained, the Union Banks should allocate the total
cost of the mortgage loans to mortgage servicing rights and the loans (without
the mortgage servicing rights) based on their relative fair values. The
mortgage servicing rights should be amortized in proportion to and over the
period of estimated net servicing income.
Statement No. 122 is effective for years beginning after December 15, 1995.
The Company believes the adoption of Statement No. 122 will not have a material
impact on its consolidated financial statements.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" (Statement No. 123). Statement
No. 123 establishes a fair value based method of accounting for stock options
and other equity instruments.
Statement No. 123 permits the continued use of the intrinsic value method
included in Accounting Principle Board Opinion 25, "Accounting for Stock Issued
to Employees", but regardless of the method used to account for the
compensation cost associated with stock option or similar plans, it requires
employers to disclose information required by Statement No. 123.
Statement No. 123 is effective for fiscal years beginning after December 15,
1995. The Company believes the adoption of Statement No. 123 will not have a
material impact on its consolidated financial statements.
NOTE 2. CASH AND DUE FROM BANKS
The Union Banks are required to maintain legal reserves composed of funds on
deposit with the Federal Reserve Bank and cash on hand. The required balances
as of December 31, 1995 and 1994, were $1,973,000 and $1,816,000, respectively.
(Continued)
F - 19
<PAGE> 95
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. SECURITIES
The Company adopted Financial Accounting Standards Board Statement No. 115
(Statement No. 115), "Accounting for Certain Investments in Debt and Equity
Securities" as of January 1, 1994. The effect of adopting Statement No. 115 on
the accompanying balance sheet as of January 1, 1994 was an increase in
stockholders' equity of $831,467, net of the related income tax effect of
$527,138, to recognize the net unrealized gain in securities available for sale
at that date.
Amortized costs and fair values of securities are summarized as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY December 31, 1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 117,307 $ -- $ -- $ 117,307
U.S. Government agencies and
corporations 2,000,000 -- 120,855 1,879,145
States and political subdivisions 26,660,119 496,019 214,800 26,941,338
Mortgage backed securities 8,790 -- -- 8,790
Corporate bonds 240,000 -- -- 240,000
------------ --------- --------- ------------
$ 29,026,216 $ 496,019 $ 335,655 $ 29,186,580
============ ========= ========= ============
<CAPTION>
December 31, 1994
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government agencies and
corporations $ 3,000,000 $ -- $ 343,290 $ 2,656,710
States and political
subdivisions 25,401,667 95,862 1,252,421 24,245,108
Mortgage backed securities 25,437 -- -- 25,437
Corporate bonds 240,000 -- -- 240,000
------------ ---------- ----------- -------------
$ 28,667,104 $ 95,862 $ 1,595,711 $ 27,167,255
============ ========== =========== =============
</TABLE>
(Continued)
F - 20
<PAGE> 96
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVAILABLE FOR SALE December 31, 1995
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 18,329,568 $ 24,352 $ 75,165 $ 18,278,755
U.S. Government agencies and
corporations 36,908,777 303,127 225,033 36,986,871
Mortgage backed securities 6,218,441 30,314 58,920 6,189,835
States and political subdivisions 893,372 19,780 -- 913,152
Corporate bonds 1,512,522 9,678 -- 1,522,200
Other 25,000 -- 25,000 --
------------ --------- --------- ------------
$ 63,887,680 $ 387,251 $ 384,118 $ 63,890,813
============ ========= ========= ============
<CAPTION>
December 31, 1994
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 25,607,492 $ -- $ 1,191,856 $ 24,415,636
U.S. Government agencies and
corporations 20,945,060 1,087 1,274,353 19,671,794
Mortgage backed securities 8,713,702 86,992 403,438 8,397,256
States and political
subdivisions 893,152 -- 7,937 885,215
Corporate bonds 3,278,708 -- 55,668 3,223,040
Other 25,000 -- 25,000 --
------------ -------- ----------- ------------
$ 59,463,114 $ 88,079 $ 2,958,252 $ 56,592,941
============ ======== =========== ============
</TABLE>
The amortized cost and fair value of securities classified as held to maturity
and available for sale at December 31, 1995, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
(Continued)
F - 21
<PAGE> 97
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------
Available
Held to Maturity for Sale
-----------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,781,958 $ 1,910,134 $ 8,825,478 $ 8,782,725
Due after one year through five years 15,521,431 15,522,016 24,168,022 23,983,759
Due after five years through ten years 8,655,643 8,583,561 24,782,767 25,040,870
Due after ten years 3,067,184 3,170,869 -- --
Mortgage backed securities -- -- 6,111,413 6,083,459
------------ ------------ ------------ ------------
$ 29,026,216 $ 29,186,580 $ 63,887,680 $ 63,890,813
============ ============= ============ ============
Securities with carrying values of approximately $50,338,000 and $37,064,000 at
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits, to secure securities sold under agreements to repurchase and for
other purposes as required or permitted by law.
Realized gains and losses from securities available for sale during 1995 and
1994 and investment securities during 1993 follow:
Years Ended
December 31,
------------------------------------------
1995 1994 1993
------------ ------------ -------------
Securities:
Gross gains $ 171,882 $ 228,672 $ 315,712
Gross losses (73,942) (111,054) (79,375)
--------- --------- ---------
Net gain $ 97,940 $ 117,618 $ 236,337
Marketable equity securities:
Gross gains $ -- $ -- $ --
Gross losses -- -- (50,968)
--------- --------- ---------
Net gain $ -- $ -- $ (50,968)
--------- --------- ---------
$ 97,940 $ 117,618 $ 185,369
========= ========= =========
</TABLE>
(Continued)
F - 22
<PAGE> 98
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS
The major classifications of loans follow:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Commercial $ 53,225,736 $ 51,401,761
Real estate 100,505,607 86,625,493
Installment 24,166,864 20,350,626
Other 2,928,008 2,787,697
------------- -------------
180,826,215 161,165,577
------------- -------------
Deduct:
Unearned interest 7,207 31,329
Allowance for loan losses 2,013,996 1,704,281
------------- -------------
2,021,203 1,735,610
------------- -------------
$ 178,805,012 $ 159,429,967
------------- -------------
</TABLE>
The Company's opinion as to the ultimate collectibility of these loans is
subject to estimates regarding future cash flows from operations and the value
of property, real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic prospects of
borrowers.
The following table presents data on impaired loans at December 31, 1995:
<TABLE>
<S> <C>
Impaired loans for which an allowance has been provided $733,294
Impaired loans for which no allowance has been provided $ --
--------
Total loans determined to be impaired $733,294
========
Allowance for loan loss for impaired loans included in allowance for loan losses $500,000
========
Average recorded investment in impaired loans $422,539
========
Interest income recognized from impaired loans $ --
========
Cash basis interest recognized from impaired loans $ --
========
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced
amounted to $1,060,750 and $1,683,402, at December 31, 1994 and 1993,
respectively, which had the effect of reducing interest income approximately
$167,000 and $231,000, for the years ended December 31, 1994 and 1993,
respectively.
(Continued)
F - 23
<PAGE> 99
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company and its subsidiaries conduct most of their business activities,
including granting agribusiness, commercial, residential and installment loans
with customers in the Illinois counties of LaSalle, Livingston, Grundy, Bureau,
Kendall, DeKalb and Kane. The loan portfolio includes a concentration of loans
to agricultural and agricultural-related industries amounting to approximately
$27,308,000 and $26,560,000 as of December 31, 1995 and 1994, respectively.
Generally those loans are collateralized by assets of those entities. The
loans are expected to be repaid from cash flows or from proceeds from the sale
of selected assets of the borrowers. Credit losses arising from lending
transactions with agricultural entities compare favorably with the Company's
credit loss experience on the loan portfolio as a whole.
In the normal course of business, loans are made to employees, executive
officers, directors and principal stockholders of the Company and its
subsidiaries and to parties which the Company or its directors, executive
officers and stockholders have the ability to significantly influence its
management or operations (related parties). In the opinion of management, the
terms of these loans, including interest rates and collateral, are similar to
those prevailing for comparable transactions with other customers and do not
involve more than a normal risk of collectibility. Changes in such loans
during the year ended December 31, 1995:
<TABLE>
<S> <C>
Balance at the beginning of year $ 8,178,000
New loans, extensions and modifications 8,936,000
Repayments (5,776,000)
------------
Balance at end of year $ 11,338,000
============
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans were
$47,777,424, $46,546,355, and $43,062,391 at December 31, 1995, 1994 and 1993,
respectively.
During 1995, 1994 and 1993, the Company sold residential mortgages with
balances of approximately $13,122,711, $9,158,620 and $29,485,699,
respectively, to the Federal Home Loan Mortgage Corporation. Gains of
$137,456, $130,163 and $573,773, respectively, were realized on those sales. In
addition, during 1995, the Company sold mortgage loans with balances of
approximately $103,030 to the Illinois Housing Development Authority for a
gain of $2,435 and commercial loans with balances of approximately $1,446,777
to the Small Business Administration for a gain of $86,467. The Company also
realized a gain of $61,204 on the sale of its entire portfolio of student loans
during 1995.
(Continued)
F - 24
<PAGE> 100
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. ALLOWANCE FOR LOAN LOSSES
An analysis of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------------------
1995 1994 1993
------------ ----------- -------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,704,281 $ 1,786,953 $ 1,586,416
Provision for loan losses 684,000 660,000 1,268,000
Recoveries 162,580 281,334 211,566
Loans charged off (536,865) (1,024,006) (1,279,029)
----------- ----------- -----------
Balance at end of year $ 2,013,996 $ 1,704,281 $ 1,786,953
=========== =========== ===========
</TABLE>
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment consisted of:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1995 1994
--------------------- ---------------------
<S> <C> <C>
Land $ 746,699 $ 733,447
Buildings 6,022,219 5,858,466
Furniture and equipment 5,586,126 4,464,933
----------- -----------
12,355,044 11,056,846
Less accumulated depreciation 5,784,334 5,369,029
----------- -----------
$ 6,570,710 $ 5,687,817
=========== ===========
</TABLE>
(Continued)
F - 25
<PAGE> 101
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. DEPOSITS
A maturity distribution of time certificates of deposit in denominations of
$100,000 or more was as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ -------------
<S> <C> <C>
3 months or less $ 6,024,323 $ 10,204,186
Over 3 months through 6 months 3,127,908 2,646,656
Over 6 months through 12 months 5,012,932 4,873,892
Over 12 months 9,487,225 4,215,683
------------ ------------
$ 23,652,388 $ 21,940,417
============ ============
</TABLE>
NOTE 8. SHORT-TERM BORROWINGS
Short-term borrowings included a note payable to a third party lender and
securities sold under agreements to repurchase. Average and maximum balances
and rates on aggregate short-term borrowings outstanding were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1995 1994 1993
--------- ------------ ---------
<S> <C> <C> <C>
Maximum month-end balance $ 20,007,000 $ 18,213,000 $ 8,990,000
Average month-end balance 13,944,000 10,644,000 7,417,000
Weighted average interest rate for the year 7.38% 5.47% 4.57%
Weighted average interest rate at year end 7.33% 6.69% 4.51%
</TABLE>
The note payable for $4,321,250 contains certain covenants which limit the
amounts of dividends paid, the purchase of other banks and/or businesses, the
purchase of investments not in the ordinary course of business, the changes in
capital structure and the guarantees of other liabilities and obligations. In
addition, the Company must maintain certain financial ratios. The Company was
in compliance with all covenants for the year ended December 31, 1995.
(Continued)
F - 26
<PAGE> 102
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 9. INCOME TAXES
<TABLE>
<CAPTION>
Income taxes consisted of:
Years ended December 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $ 879,002 $ 684,038 $ 918,169
Deferred (133,850) (30,796) (192,350)
--------- --------- ---------
745,152 653,242 725,819
--------- --------- ---------
State:
Current 140,478 50,720 38,071
Deferred (4,010) (937) (16,491)
--------- --------- ---------
136,468 49,783 21,580
--------- --------- ---------
$ 881,620 $ 703,025 $ 747,399
========= ========= =========
</TABLE>
The Company's income tax expense differed from the statutory federal rate of
34% as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------- ---------------
<S> <C> <C> <C>
Expected income taxes $ 1,099,712 $ 1,120,827 $ 1,091,082
Income tax effect of:
Interest earned on tax free investments and loans (471,483) (464,804) (402,382)
Nondeductible interest expense incurred to
carry tax-free investments and loans 62,775 48,746 39,993
Tax-exempt dividends (396) (8,854) (13,799)
Nondeductible amortization 23,060 23,060 23,060
State income taxes, net of federal tax benefit 90,069 32,857 14,243
Other 77,883 (48,807) (4,798)
------------ ----------- -----------
$ 881,620 $ 703,025 $ 747,399
=========== =========== ===========
</TABLE>
(Continued)
F - 27
<PAGE> 103
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The deferred income taxes in the accompanying balance sheets include the
following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Deferred tax liability $ (482,768) $ (467,261)
Deferred tax asset 473,181 1,434,657
---------- -----------
Net deferred tax asset (liability) $ (9,587) $ 967,396
========== ===========
</TABLE>
The tax effects of principal temporary differences are shown in the following
table:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------------ ---------
<S> <C> <C>
Allowance for loan losses $ 446,966 $ 331,033
Deferred compensation 26,215 11,898
Premises and equipment basis (311,720) (243,713)
Core deposits (151,778) (180,237)
Securities available for sale (1,215) 1,113,628
Leases (4,037) (12,783)
Other (14,018) (52,430)
--------- ----------
$ (9,587) $ 967,396
========= ==========
</TABLE>
NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN
The Company's Employees' Stock Ownership Plan (the "ESOP") covers all full-time
employees who have completed six months of service and have attained the
minimum age of twenty and one-half years. Vesting in the ESOP is based on
years of continuous service. A participant is 100 percent vested after seven
years of credited service.
The ESOP operates as a leveraged employee stock ownership plan. The ESOP owns
450,945 shares of the Company's common stock. These shares are held in trust
and are allocated to participant's accounts in the ESOP as the related loan
obligation is repaid. At December 31, 1995, 416,232 shares were allocated to
ESOP participants. Principal and interest on the loan are required to be paid
in quarterly installments through April 1996. The loan, with an outstanding
balance of $46,875, bears interest at 88% of prime, with an effective rate of
7.48% as of December 31, 1995.
(Continued)
F - 28
<PAGE> 104
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Company contributions, when aggregated with the ESOP's dividend and interest
earnings, are, at a minimum, equal to the amount required by the ESOP to pay
the principal and interest on the loan, plus the sum required to purchase
allocated shares from terminated participants. The Company expenses all cash
contributions made to the ESOP. Contributions were $236,959, $250,576 and
$244,020 for the years ended December 31, 1995, 1994 and 1993, respectively.
NOTE 11. STOCK OPTION PLAN
In April 1993, the Company adopted the 1993 Stock Option Plan (the "Option
Plan"). Under the Option Plan, non-qualified options, incentive stock options,
and/or stock appreciation rights may be granted to employees and outside
directors of the Company and its subsidiaries to purchase the Company's common
stock at an exercise price to be determined by the Option Plan's administrative
committee. Pursuant to the Option Plan, 600,000 shares of the Company's
unissued common stock have been reserved and are available for issuance upon
the exercise of options and rights granted under the Option Plan.
A summary of the activity in the Option Plan follows:
<TABLE>
<CAPTION>
Exercise
Granted Vested Forfeited Exercisable Outstanding Price
------------ ------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
December 31,
1993 - - - - -
December 31,
1994 38,100 7,620 - 7,620 38,100 $5.04 - $6.75
December 31,
1995 30,300 - - - 30,300 $6.75 - $8.33
---------- ------ --------- ----------- ----------
Total 68,400 7,620 - 7,620 68,400
========== ====== ========= =========== ==========
</TABLE>
The Company recognizes compensation expense on non-qualified stock options over
the stated vesting period for the difference between fair value and the
exercise price of the options granted. The Company recognized compensation
expense of $18,938 during 1995 related to non-qualified stock options.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures about Fair
Value of Financial Instruments" (Statement No. 107), requires disclosure of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
(Continued)
F - 29
<PAGE> 105
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
Cash and due from banks
The carrying amounts reported in the balance sheet for cash and due from banks
approximate their fair values.
Federal funds sold
The stated carrying amounts of federal funds sold approximate their fair
values.
Securities
Fair values for securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying amount of accrued
interest receivable approximates its fair value.
Loans
For variable-rate loans that reprice frequently and with no significant change
in credit risk, fair values are based on carrying values. The fair values for
fixed-rate loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. The carrying amount of accrued interest
receivable approximates its fair value.
Off-balance-sheet instruments
Fair values for the Company's off-balance-sheet instruments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair value of these items is not material.
Deposit liabilities
The fair values for demand deposits equal their carrying amounts, which
represents the amount payable on demand. The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits. The
carrying amount of accrued interest payable approximates its fair value.
Short-term borrowings
The stated carrying amounts of borrowings under agreements to repurchase, and
other short-term borrowings approximate their fair values.
(Continued)
F - 30
<PAGE> 106
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1995 1994
------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 16,166,689 $ 16,166,689 $ 12,997,888 $ 12,997,888
Federal funds sold 2,265,000 2,265,000 1,200,000 1,200,000
Securities 92,917,029 93,077,393 85,260,045 83,760,196
Loans 178,805,012 178,927,747 159,429,967 159,290,869
Financial Liabilities:
Deposits 261,727,319 262,490,548 232,333,565 232,040,448
Short-term borrowings 15,851,384 15,851,384 18,144,437 18,144,437
</TABLE>
In addition, other assets and liabilities of the Company that are not defined
as financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the earnings potential of the trust operations, the
trained work force, customer goodwill and similar items.
NOTE 13. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal action, which are not reflected in the
consolidated financial statements. In the opinion of management, no material
losses are anticipated as a result of these actions or claims.
The Union Banks are parties to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance
sheet. The contractual amounts of those instruments reflect the extent of
involvement in particular classes of financial instruments.
(Continued)
F - 31
<PAGE> 107
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 and
standby letters of credit written, is represented by the contractual amount of
those instruments. The Union Banks use the same credit policies in making
commitments and conditional obligations as they do for on-balance-sheet
instruments. Financial instruments whose contract amounts represent credit risk
at December 31, 1995 follow:
<TABLE>
<CAPTION>
Range of Rates
Variable Rate Fixed Rate Total on Fixed Rate
Commitments Commitments Commitments Commitments
--------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Commitments to extend credit and
standby letters of credit $ 40,686,000 $ 3,111,000 $ 43,797,000 6.25%-11.25%
</TABLE>
The Company has employment agreements with its executive officers and certain
other management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for continued salary and
benefits to the executive under certain circumstances. The agreements provide
the employees with additional rights after a change of control of the Company
occurs.
The Company does not engage in the use of interest rate swaps, or futures,
forwards or option contracts.
NOTE 14. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The primary source of funds for the Company is dividends from its subsidiaries.
Certain regulatory requirements restrict the amount of dividends that may be
paid by the Union Banks to the Company. As a practical matter, dividend
payments are restricted to maintain prudent capital levels.
(Continued)
F - 32
<PAGE> 108
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Condensed financial information for UnionBancorp, Inc. follows:
<TABLE>
<CAPTION>
BALANCE SHEETS (PARENT COMPANY ONLY) December 31,
ASSETS 1995 1994
- ------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Cash and due from banks $ 34 $ 6,065
Investment in subsidiaries 27,558,293 24,079,645
Premises and equipment 152,060 118,775
Intangible assets 75,799 99,877
Other assets 76,324 514,062
------------ ------------
$ 27,862,510 $ 24,818,424
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities
Short-term borrowings $ 4,346,250 $ 5,026,250
Deferred income taxes 11,985 --
Other liabilities 29,283 163,577
----------- ------------
4,387,518 5,189,827
----------- ------------
Stockholders' Equity
Common stock, $1 par value; 10,000,000 shares authorized; 2,400,000
issued and outstanding 2,400,000 2,400,000
Surplus 1,074,272 1,007,352
Retained earnings 20,567,981 18,498,987
Unrealized gain (loss) on securities available for sale 1,918 (1,756,545)
Deferred compensation - stock option plans (47,982) --
------------ ------------
23,996,189 20,149,794
Less treasury stock, at cost; 268,263 shares 521,197 521,197
------------ ------------
23,474,992 19,628,597
------------ ------------
$ 27,862,510 $ 24,818,424
------------ ------------
</TABLE>
(Continued)
F - 33
<PAGE> 109
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME STATEMENTS (PARENT COMPANY ONLY)
Years Ended December 31,
----------------------------------------
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
Dividends from subsidiaries $ 1,532,126 $ 1,149,052 $ 1,010,176
Management fees and other 981,309 652,384 659,715
----------- ----------- -----------
Total income 2,513,435 1,801,436 1,669,891
----------- ----------- -----------
Interest expense 422,462 371,299 339,998
Other expenses 1,275,215 883,090 691,630
------------ ----------- -----------
Total expenses 1,697,677 1,254,389 1,031,628
------------ ----------- -----------
Income before income tax benefit and equity
in undistributed earnings of subsidiaries 815,758 547,047 638,263
Income tax benefit (216,883) (251,040) (214,853)
------------ ----------- -----------
Income before equity in undistributed
earnings of subsidiaries 1,032,641 798,087 853,116
Equity in undistributed earnings of subsidiaries 1,320,185 1,795,438 1,608,551
------------ ----------- -----------
Net income $ 2,352,826 $ 2,593,525 $ 2,461,667
============ =========== ===========
</TABLE>
(Continued)
F - 34
<PAGE> 110
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) Years Ended December 31,
----------------------------------------------
1995 1994 1993
------------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,352,826 $ 2,593,525 $ 2,461,667
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 17,494 9,656 2,150
Undistributed earnings of subsidiaries (1,320,185) (1,795,438) (1,608,551)
Amortization of intangible 24,078 24,078 24,077
Amortization of deferred compensation -
stock options 18,938 - -
Provision for deferred income taxes 11,985 - -
Change in assets and liabilities:
Decrease in other assets 437,738 224,186 2,804
Increase (decrease) in other liabilities (134,294) 30,748 (146,770)
------------ ------------ -----------
Net cash provided by operating activities 1,408,580 1,086,755 735,377
------------ ------------ -----------
Cash Flows from Investing Activities
Investment in subsidiary (400,000) (500,000) -
Purchases of premises and equipment (50,779) (123,456) (4,359)
------------ ------------ -----------
Net cash (used in) financing activities (450,779) (623,456) (4,359)
------------ ------------ -----------
Cash Flows from Financing Activities
Payments on short-term borrowings (680,000) (253,750) (520,000)
Dividends paid (283,832) (248,121) (191,414)
Proceeds from issuance of treasury stock - 14,157 -
------------ ------------ -----------
Net cash (used in) financing activities (963,832) (487,714) (711,414)
------------ ------------ -----------
Net increase (decrease) in cash and
due from banks (6,031) (24,415) 19,604
Cash and due from banks:
Beginning of year 6,065 30,480 10,876
------------ ------------ -----------
End of year $ 34 $ 6,065 $ 30,480
============ ============ ===========
Supplemental Schedule of Noncash Investing
and Financing Activities
Change in unrealized gain (loss) on securities
available for sale $ 1,758,463 $ (1,756,545) $ -
Issuance of nonqualifying stock options 66,920 - -
</TABLE>
(Continued)
F - 35
<PAGE> 111
UNIONBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUBSEQUENT EVENTS
On May 20, 1996, the Company effected a three-for-one stock split in the form
of a stock dividend. All references in the accompanying financial statements
to number of shares and per share amounts have been retroactively restated to
reflect the stock split.
F - 36
<PAGE> 112
PRAIRIE BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of Prairie Bancorp, Inc.
should be read in conjunction with the Consolidated Financial Statements of
Prairie Bancorp, Inc. and the Notes thereto appearing elsewhere in this
Prospectus and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Prairie Bancorp,
Inc." The selected historical consolidated financial data as of and for the
three years in the period ended December 31, 1995 are derived from Prairie's
Consolidated Financial Statements which have been audited by independent public
accountants. The selected historical consolidated financial data as of and for
the years ended December 31, 1992 and 1991 and the six months ended June 30,
1996 and June 30, 1995 is unaudited.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1996 1995
----------- ----------
INCOME STATEMENT DATA: (unaudited)
<S> <C> <C>
Interest income $ 7,527 $ 7,477
Interest expense 4,792 5,127
---------- ----------
Net interest income 2,735 2,350
Provision for loan losses 20 (22)
---------- ----------
Net interest income after
provision for loan losses $ 2,715 $ 2,372
Noninterest income 256 683
Noninterest expense 2,217 2,374
Minority interest 42 44
Net income before income taxes 712 637
Income taxes 215 156
---------- ----------
Net income $ 497 $ 481
========== ==========
Preferred stock dividends 309 229
Net income applicable to common stock 188 252
COMMON SHARE DATA:
Net income $ 188 $ 252
Book value 5,620 5,214
Weighted average common shares outstanding 1 1
Period end shares outstanding 1 1
BALANCE SHEET DATA:
Total assets $ 226,032 $ 225,470
Loans, net 73,050 65,243
Allowance for loan losses 784 750
Total deposits 187,840 172,464
Stockholders' equity 11,712 11,306
Preferred stock portion of stockholders' equity 6,092 6,092
Common stock portion of stockholders' equity 5,620 5,214
PERFORMANCE DATA:
Return on average total assets (1) 0.44% 0.43%
Return on average stockholders' equity (1) 8.44 9.10
Net interest margin 2.64 2.23
Loans to deposits 38.89 37.83
Efficiency ratio (2) 73.85 64.49
ASSET QUALITY RATIOS:
Nonperforming assets to total assets 0.38% 0.69%
Nonperforming loans to total loans 1.11 2.35
Net loan charge-offs to average loans (1) (0.03) (0.09)
Allowance for loan losses to total loans 1.06 1.14
Allowance for loan losses to nonperforming
loans 95.96 48.26
CAPITAL RATIOS:
Tier I risk-based capital 13.82% 14.51%
Total risk-based capital 14.76 15.48
Leverage 5.11 4.97
- --------
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- --------- --------- ----------
INCOME STATEMENT DATA: (unaudited) (unaudited)
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Interest income $ 15,123 $ 13,251 $ 10,466 $ 9,818 $ 7,291
Interest expense 10,327 8,582 6,300 5,973 4,649
---------- ---------- ---------- ---------- ---------
Net interest income 4,796 4,669 4,166 3,845 2,642
Provision for loan losses (31) 10 (100) 252 47
---------- ---------- ---------- ---------- ---------
Net interest income after
provision for loan losses $ 4,827 $ 4,659 $ 4,266 $ 3,593 $ 2,595
Noninterest income 993 1,097 1,440 1,133 411
Noninterest expense 4,622 4,648 4,011 3,588 2,245
Minority interest 95 95 113 80 90
Net income before income taxes 1,103 1,013 1,582 1,058 671
Income taxes 275 227 271 172 217
---------- ---------- ---------- ---------- ---------
Net income $ 828 $ 786 $ 1,311 $ 886 $ 454
========== ========== ========== ========== =========
Preferred stock dividends 484 344 66 65 -
Net income applicable to common stock 344 442 1,245 821 454
COMMON SHARE DATA:
Net income $ 344 $ 442 $ 1,245 $ 821 $ 454
Book value 5,749 4,376 4,480 3,075 1,954
Weighted average common shares outstanding 1 1 1 1 1
Period end shares outstanding 1 1 1 1 1
BALANCE SHEET DATA:
Total assets $ 224,974 $ 228,188 $ 178,798 $ 140,667 $ 86,593
Loans, net 66,392 60,080 53,023 49,369 33,462
Allowance for loan losses 741 715 781 963 499
Total deposits 183,296 180,910 143,167 125,754 76,592
Stockholders' equity 11,841 8,968 5,572 4,167 1,954
Preferred stock portion of stockholders' equity 6,092 4,592 1,092 1,092 -
Common stock portion of stockholders' equity 5,749 4,376 4,480 3,075 1,954
PERFORMANCE DATA:
Return on average total assets (1) 0.37% 0.36% 0.89% 0.74% 0.53%
Return on average stockholders' equity (1) 7.96 10.81 26.92 28.94 28.79
Net interest margin 2.29 2.34 3.30 3.96 3.73
Loans to deposits 36.22 33.21 37.04 39.26 43.69
Efficiency ratio (2) 71.83 71.23 55.03 59.68 69.34
ASSET QUALITY RATIOS:
Nonperforming assets to total assets 0.30% 0.21% 0.27% 0.39% 0.39%
Nonperforming loans to total loans 1.00 0.75 0.75 0.93 1.01
Net loan charge-offs to average loans (1) (0.09) 0.13 0.16 0.32 (0.08)
Allowance for loan losses to total loans 1.10 1.18 1.45 1.91 1.47
Allowance for loan losses to nonperforming
loans 110.10 155.77 192.36 205.33 145.91
CAPITAL RATIOS:
Tier I risk-based capital 14.52% 12.29% 8.82% 7.15% 5.17%
Total risk-based capital 15.46 13.25 10.07 8.77 6.49
Leverage 5.05 4.28 3.04 2.94 2.24
- --------
</TABLE>
(1) All interim periods have been annualized.
(2) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.
F - 37
<PAGE> 114
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF PRAIRIE BANCORP, INC.
The following discussion provides additional information regarding the
operations and financial condition of Prairie Bancorp, Inc. ("Prairie") for the
six months ended June 30, 1996 and 1995 and the three years ended December
31, 1995. The discussion should be read in conjunction with the consolidated
statements of financial condition as of December 31, 1995 and 1994 and the
results of operations for the three years ended December 31, 1995 and for the
six months ended June 30, 1996 and 1995 and accompanying notes included
elsewhere in the prospectus.
GENERAL
Prairie derives substantially all of its revenues and income from the
operations of its subsidiaries, the Prairie Banks, which provide a full range
of commercial and consumer banking services to businesses and individuals,
primarily in central and western Illinois. As of June 30, 1996, Prairie had
total assets of $226.0 million, net loans of $73.0 million, total deposits of
$187.8 million and total stockholders' equity of $11.7 million. Prairie's
reported net income grew to $497,000 for the six months ended June 30, 1996
from net income of $481,000 for the six months ended June 30, 1995 as a result
of internal loan and deposit portfolio growth generating higher net interest
income partially offset by a decrease in securities gains in 1996 compared to
1995.
RESULTS OF OPERATIONS
NET INCOME
Net income of Prairie was $497,000 ($188 per common share) for the six months
ended June 30, 1996, compared with net income of $481,000 ($252 per common
share) for the six months ended June 30, 1995, an increase of $16,000 or 3.3%.
Net income per common share in 1996 decreased due to additional dividends paid
on preferred stock issued during 1995. Factors contributing to the increase in
net income in 1996 compared with 1995 include the higher percentage of loans to
total assets and replacement of other borrowings with lower cost deposits.
Net income was $828,000 for 1995 ($344 per common share), compared with net
income of $786,000 for 1994 ($442 per common share) and $1,311,000 for 1993
($1,245 per common share). Net income per common share in 1995 decreased due
to additional dividends paid on preferred stock issued during 1995. The
increase in net income for 1995 from 1994 was due primarily to an increase in
net interest income after provision for loan losses of $168,000. The decrease
in net income from 1993 to 1994 was attributable to an increase in net interest
income after provision for loan losses of $393,000 coupled with an increase in
noninterest expense of $637,000 partially attributable to the opening of new
branches and a decrease in securities gains of $361,000.
NET INCOME BEFORE INCOME TAXES
Net income before income taxes was $712,000 for the six months ended June 30,
1996, compared with $637,000 for the first six months of 1995, an 11.8%
increase.
Net income before income taxes was $1,103,000 in 1995 compared with $1,013,000
in 1994 and $1,582,000 in 1993.
F - 38
<PAGE> 115
NET INTEREST INCOME
Net interest income is the difference between income earned on interest-earning
assets and the interest expense incurred on interest-bearing liabilities. The
net yield on total interest-earning assets, also referred to as interest rate
margin or net interest margin, represents net interest income divided by
average interest-earning assets. Prairie's principal interest-earning assets
are loans, investment securities and federal funds sold.
Net interest income was $2,735,000 for the first six months of 1996, an
increase of $385,000 or 16.38% compared with the first six months of 1995,
resulting principally from an increase in loans. In addition, Prairie
experienced an increase in the net interest spread from 1.9% to 2.28% for the
six months ended June 30, 1995 and 1996, respectively. The foregoing increase
resulted principally from the fact that the yield on interest-earning assets
increased and the cost of the interest-bearing liabilities decreased slightly.
The yield on interest-earning assets increased from 6.93% to 7.10%, while the
cost of interest-bearing liabilities decreased from 5.03% to 4.82% for the six
months ended June 30, 1995 and 1996, respectively.
Net interest income was $4,796,000 for 1995, an increase of $127,000 or 2.72%
compared with net interest income of $4,669,000 for 1994, which represented an
increase of $503,000 or 12.07% compared with net interest income of $4,166,000
for 1993. Prairie's average total interest-earning assets increased from
approximately $208 million for 1994 to $217 million for 1995, representing a
4.56% increase resulting principally from an increase in loans. The net
interest margin of 2.29% for 1995 decreased from 2.34% for 1994.
The following table sets forth for each category of interest-earning assets and
interest-bearing liabilities the average amounts outstanding, the interest
earned or paid on such amounts and the average rate paid for the six months
ended June 30, 1996 and 1995 and for the three years ended December 31, 1995,
1994 and 1993. The table also sets forth the average rate earned on all
interest-earning assets, the average rate paid on all interest-bearing
liabilities, and the net yield on average interest-earning assets for the same
period.
F - 39
<PAGE> 116
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME
For the Six Months Ended June 30,
-------------------------------------------------------------------------
1996 1995
-------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
-------------- ------------ ------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits $ 484,000 $ 12,000 4.96% $ 371,000 $ 10,000 5.39%
Federal funds sold 2,088,000 50,000 4.79 623,000 20,000 6.42
U.S. Treasury and
agency securities 7,079,000 178,000 5.03 7,106,000 173,000 4.87
States and political (1) 6,471,000 294,000 9.09 6,718,000 289,000 8.60
Mortgage-backed securities 126,875,000 3,916,000 6.17 138,984,000 4,287,000 6.17
Other 1,384,000 44,000 6.36 1,869,000 64,000 6.85
Loans (2) (3) 70,483,000 3,136,000 8.90 62,474,000 2,720,000 8.71
------------- ----------- ----- ------------- ----------- ------
Total interest
earning assets $ 214,864,000 $ 7,630,000 7.10% $ 218,145,000 $ 7,563,000 6.93%
------------- ----------- ----- ------------- ----------- ------
Less: Allowance for loan
losses 763,000 742,000
Cash and due from banks 5,728,000 3,318,000
Premises and equipment 3,256,000 3,245,000
Other assets 2,418,000 1,909,000
------------- -------------
Total assets $ 225,503,000 $ 225,875,000
============= =============
LIABILITIES
Interest-earning liabilities:
Interest-bearing demand
deposits $ 20,846,000 $ 279,000 2.68% $ 17,757,000 $ 244,000 2.75%
Savings deposits 48,580,000 886,000 3.65 52,783,000 1,078,000 4.08
Time deposits 103,445,000 2,783,000 5.38 97,009,000 2,628,000 5.42
------------- ----------- ----- ------------- ----------- ------
Total interest-bearing
deposits $ 172,871,000 $ 3,948,000 4.57 $ 167,549,000 $ 3,950,000 4.72
------------- ----------- ----- ------------- ----------- ------
Short-term borrowings 7,463,000 264,000 7.07 6,108,000 203,000 6.65
Federal Home Loan Bank
advances and notes
payable 18,307,000 580,000 6.34 30,346,000 974,000 6.42
------------- ----------- ----- ------------- ----------- ------
Total interest-bear-
ing liabilities $ 198,641,000 $ 4,792,000 4.82 $ 204,003,000 $ 5,127,000 5.03
------------- ----------- ----- ------------- ----------- ------
Noninterest-bearing
deposits 12,698,000 9,913,000
Other liabilities 2,388,000 1,387,000
------------- -------------
Total liabilities 213,727,000 215,303,000
Stockholders' equity 11,776,000 10,572,000
------------- -------------
Total liabilities
and equity $ 225,503,000 $ 225,875,000
============= =============
Net interest income $ 2,838,000 $ 2,436,000
=========== ===========
Net interest spread 2.28 1.90
===== ======
Net interest margin 2.64% 2.23%
===== ======
</TABLE>
______________
(1) Interest income and yield on nontaxable securities are reflected on a tax
equivalent basis based upon a statutory Federal income tax rate of 34% .
(2) Loans on nonaccrual status have been included in the computation of average
balances.
(3) The interest income on loans includes loan fees. Loan fees were $18,000
and $16,000 for the six months ended June 30, 1996 and 1995, respectively.
F - 40
<PAGE> 117
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1995 1994
-------------------------------- ---------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
- ----------------------------------------- ------------ ---- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits $ 228,000 $ 16,000 7.02% $ 463,000 $ 22,000 4.75%
Federal funds sold 1,443,000 96,000 6.65 934,000 41,000 4.39
U.S. Treasury and
agency securities 6,894,000 335,000 4.86 10,190,000 516,000 5.06
States and political (1) 6,136,000 545,000 8.88 7,574,000 656,000 8.66
Mortgage-backed
securities 135,875,000 8,357,000 6.15 128,395,000 7,070,000 5.51
Other 1,849,000 126,000 6.81 2,717,000 128,000 4.71
Loans (2)(3) 64,662,000 5,819,000 9.00 57,339,000 5,003,000 8.73
------------ ------------ ---- ------------ ----------- ----
Total interest-
earning
assets (1) $217,087,000 $ 15,294,000 7.05% $207,612,000 $13,436,000 6.47%
------------ ------------ ------------ -----------
Less: Allowance for
loan losses 727,000 768,000
Cash and due from banks 3,845,000 3,575,000
Premises and equipment 3,419,000 3,097,000
Other assets 2,203,000 2,042,000
------------ ------------
Total assets $225,827,000 $215,558,000
============ ============
LIABILITIES
Interest-bearing
liabilities:
Interest-bearing demand
deposits $ 19,402,000 $ 559,000 2.88% $ 18,656,000 $ 528,000 2.83%
Savings deposits 50,630,000 1,996,000 3.94 61,449,000 2,460,000 4.00
Time deposits 99,974,000 5,494,000 5.50 78,356,000 3,677,000 4.69
------------ ------------ ---- ------------ ----------- ----
Total interest-bearing
liabilities $170,006,000 $ 8,049,000 4.73 $158,461,000 $ 6,665,000 4.21
------------ ------------ ---- ------------ ----------- ----
Short-term
borrowings 7,523,000 510,000 6.78 6,404,000 386,000 6.03
Federal Home Loan B
Bank advances and
notes payable 24,367,000 1,768,000 7.26 31,017,000 1,531,000 4.94
------------ --------- ---- ------------ ----------- ----
Total interest-
bearing
liabilities $201,896,000 $ 10,327,000 5.12 $195,882,000 $ 8,582,000 4.38
------------ ------------ ------------ -----------
Noninterest-bearing
deposits 11,994,000 11,038,000
Other liabilities 1,532,000 1,368,000
------------ ------------
Total liabilities 215,422,000 208,288,000
Stockholders' equity 10,405,000 7,270,000
------------ ------------
Total liabilities
and equity $225,827,000 $215,558,000
============ ============
Net interest income $ 4,967,000 $ 4,854,000
============ ===========
Net interest spread 1.93 2.09
==== ====
Net interest margin 2.29% 2.34%
==== ====
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1993
--------------------------------
Interest
Average Income/ Average
Balance Expense Rate
- ------------------------------------------- --------- -------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits $ 495,000 $ 19,000 3.84%
Federal funds sold 1,531,000 49,000 3.20
U.S. Treasury and
agency securities 6,427,000 493,000 7.67
States and political (1) 11,756,000 1,388,000 11.81
Mortgage-backed
securities 66,465,000 4,100,000 6.17
Other 1,778,000 91,000 5.12
Loans (2)(3) 52,134,000 4,804,000 9.21
------------ ----------- ----
Total interest-
earning
assets (1) $140,586,000 $10,944,000 7.78%
------------ -----------
Less: Allowance for
loan losses 888,000
Cash and due from banks 3,865,000
Premises and equipment 2,075,000
Other assets 1,859,000
------------
Total assets $147,497,000
============
LIABILITIES
Interest-bearing
liabilities:
Interest-bearing demand
deposits $ 17,735,000 $ 554,000 3.12%
Savings deposits 39,488,000 1,638,000 4.15
Time deposits 61,019,000 3,140,000 5.15
------------ ----------- ----
Total interest-bearing
liabilities $118,242,000 $ 5,332,000 4.51
------------ ----------- ----
Short-term
borrowings 3,395,000 258,000 7.60
Federal Home Loan B
Bank advances and
notes payable 13,286,000 710,000 5.34
------------ ----------- ----
Total interest-
bearing
liabilities $134,923,000 $ 6,300,000 4.67
------------ -----------
Noninterest-bearing
deposits 6,346,000
Other liabilities 1,358,000
------------
Total liabilities 142,627,000
Stockholders' equity 4,870,000
------------
Total liabilities
and equity $147,497,000
============
Net interest income $ 4,644,000
===========
Net interest spread 3.12
====
Net interest margin 3.30%
====
</TABLE>
- -----------------------------
(1) Interest income and yield on nontaxable securities are reflected on a tax
equivalent basis based upon a statutory Federal income tax rate of 34%.
(2) Loans on nonaccrual status have been included in the computation of average
balances.
(3) The interest income on loans includes loan fees. Loan fees were $30,000,
$21,000, and $22,000 for the years ended December 31, 1995, 1994 and 1993.
F - 41
<PAGE> 119
Prairie's net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as a
"volume change". It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as a "rate change". The following table reflects
the changes in net interest income stemming from changes in interest rates and
from asset and liability volume, including mix. The change in interest
attributable to both rate and volume has been allocated to the changes in the
rate and the volume on a pro rata basis.
<TABLE>
<CAPTION>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
Six Months Ended June 30, 1996 Compared Years Ended December 31, 1995
with Six Months Ended June 30, 1995 Compared with December 31, 1994
----------------------------------- ---------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- ---------------------------------------
Volume (1) Rate Net Volume (1) Rate Net
- --------------------------------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 355,000 $ 61,000 $ 416,000 $ 655,000 $ 161,000 $ 816,000
Interest-earning deposits 5,000 (3,000) 2,000 (14,000) 8,000 (6,000)
Federal funds sold 45,000 (15,000) 30,000 28,000 27,000 55,000
U.S. Treasury and agency
securities (1,000) 6,000 5,000 (161,000) (20,000) (181,000)
State and political (23,000) 28,000 5,000 (128,000) 17,000 (111,000)
Mortgage backed securities (375,000) 4,000 (371,000) 428,000 859,000 1,287,000
Other interest-earning assets (16,000) (4,000) (20,000) (49,000) 47,000 (2,000)
---------- ----------- ---------- --------- ----------- -----------
Total interest income $ (10,000) $ 77,000 $ 67,000 $ 759,000 $ 1,099,000 $ 1,858,000
--------- ---------- ---------- --------- ----------- -----------
Interest
Expense:
Interest-bearing deposits $ 248,000 $ (250,000) $ (2,000) $ 508,000 $ 876,000 $ 1,384,000
Short-term borrowings 47,000 14,000 61,000 72,000 52,000 124,000
Federal Home Loan Bank
advances and notes payable (382,000) (12,000) (394,000) (377,000) 614,000 237,000
--------- ---------- ----------- ---------- ----------- -----------
Total interest expense $ (87,000) $ (248,000) $ (335,000) $ 203,000 $ 1,542,000 $ 1,745,000
--------- ---------- ---------- --------- ----------- -----------
Net interest margin $ 77,000 $ 325,000 $ 402,000 $ 556,000 $ (443,000) $ 113,000
========== ========== ========== ========= =========== ===========
<CAPTION>
Years Ended December 31, 1994
Compared with December 31, 1993
------------------------------------------
Increase (Decrease) Due to
------------------------------------------
Volume (1) Rate Net
- -------------------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Interest Income:
Loans $ 463,000 $ (264,000) $ 199,000
Interest-earning deposits (1,000) 4,000 3,000
Federal funds sold (23,000) 15,000 (8,000)
U.S. Treasury and agency
securities 227,000 (204,000) 23,000
State and political (419,000) (313,000) (732,000)
Mortgage backed securities 3,452,000 (482,000) 2,970,000
Other interest-earning assets 45,000 (8,000) 37,000
----------- ------------ ---------
Total interest income $ 3,744,000 $ (1,252,000) $ 2,492,000
----------- ------------ -----------
Interest
Expense:
Interest-bearing deposits $ 1,712,000 (379,000) $ 1,333,000
Short-term borrowings 190,000 (62,000) 128,000
Federal Home Loan Bank
advances and notes payable 879,000 (58,000) 821,000
----------- ------------ -----------
Total interest expense $ 2,781,000 $ (499,000) $ 2,282,000
----------- ------------ -----------
Net interest margin $ 963,000 $ (753,000) $ 210,000
=========== ============ ===========
</TABLE>
(1) Nonaccrual loans are included in the average volumes used in
calculating this table.
F - 42
<PAGE> 120
PROVISION FOR LOAN LOSSES
The amount of the provision for loan losses is based on periodic (not less than
quarterly) evaluations of the loan portfolio, with particular attention
directed toward nonperforming and other potential problem loans. During these
evaluations, consideration is given to such factors as management's evaluation
of specific loans, the level and composition of nonperforming loans, historical
loss experience, results of examinations by regulatory agencies, an internal
asset review process, the market value of collateral, the strength and
availability of guaranties, concentrations of credits, and other judgmental
factors.
Prairie recorded a $20,000 provision for loan losses during the six months
ended June 30, 1996 compared with a $22,000 negative provision during the first
six months of 1995. As Prairie's ratio of net charge-offs to average loans
remained unchanged for these periods, Prairie provided amounts to compensate
for growth in the loan portfolio in order to maintain the allowance for loan
losses at an adequate level.
During 1995, recoveries exceeded charge-offs by $57,000 which resulted in a
negative provision for loan losses in the amount of $31,000. A negative
provision has the effect of reducing the allowance for loan losses. The
$10,000 provision for loan losses recorded during 1994 was significantly
increased from the negative $100,000 provision recorded in 1993 and was due
primarily to an increase in loans of 12.61%.
NONINTEREST INCOME
The following table sets forth the various categories of noninterest income for
the six months ended June 30, 1996 and 1995 and for the years ended December
31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
------------------ ------------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Noninterest income
Service charges and fees $205,000 $ 166,000 $346,000 $ 317,000 $ 300,000
Securities gains, net -- 406,000 402,000 505,000 866,000
Other 51,000 111,000 245,000 275,000 274,000
-------- --------- -------- ---------- ----------
Total noninterest
income $256,000 $ 683,000 $993,000 $1,097,000 $1,440,000
======== ========= ======== ========== ==========
</TABLE>
Noninterest income is generated primarily from fees associated with noninterest
and interest-bearing accounts as well as securities gains. Noninterest income
for the first six months of 1996 was $256,000, a decrease of $427,000 or 62.52%
compared with noninterest income of $683,000 for the first six months of 1995.
The decrease in noninterest income is the result of a decrease of $406,000 in
securities gains during the first six months of 1996 compared with the first
six months of 1995. Excluding security gains, noninterest income would have
shown a slight increase during this period.
Noninterest income was $993,000 for 1995, a decrease of $104,000 or 9.48%
compared with noninterest income of $1,097,000 for 1994, which represented a
decrease of $343,000 or 23.82% from 1993. While service charges remained
fairly constant from 1993 to 1995, securities gains decreased $103,000 or
20.40% from 1994 to 1995 and $361,000 or 41.69% from 1993 to 1994. Management
elected to reposition the composition of its portfolio in 1993 to reduce
fixed-rate exposure of assets and for tax-related reasons. Gains in 1994 and
1995 were from securities classified as available for sale and were due to
interest rate movements.
F - 43
<PAGE> 121
NONINTEREST EXPENSE
The following table sets forth the various categories of noninterest expense
for the six months ended June 30, 1996 and 1995 and for the years ended
December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
-------------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Salaries, wages and
employee benefits $ 1,206,000 $ 1,190,000 $ 2,424,000 $ 2,190,000 $ 1,827,000
Occupancy and
equipment 351,000 329,000 702,000 669,000 500,000
Other:
Professional fees 36,000 35,000 91,000 82,000 142,000
Office supplies 69,000 60,000 137,000 152,000 158,000
Travel and
entertainment 14,000 13,000 49,000 47,000 42,000
Telephone 36,000 32,000 61,000 60,000 51,000
Advertising 34,000 38,000 126,000 144,000 96,000
Postage 58,000 57,000 105,000 89,000 96,000
Amortization of
intangibles 8,000 11,000 58,000 35,000 53,000
Dues and
subscriptions 9,000 10,000 33,000 37,000 35,000
Insurance 12,000 13,000 59,000 66,000 58,000
Credit cards 6,000 4,000 9,000 12,000 10,000
Bank service
charge 44,000 49,000 97,000 100,000 112,000
FDIC assessment 17,000 100,000 157,000 367,000 297,000
Other 317,000 433,000 514,000 598,000 534,000
----------- ----------- ----------- ----------- -----------
Total other
expenses 660,000 855,000 1,496,000 1,789,000 1,684,000
----------- ----------- ----------- ----------- -----------
Total non-
interest
expense $ 2,217,000 $ 2,374,000 $ 4,622,000 $ 4,648,000 $ 4,011,000
=========== =========== =========== =========== ===========
</TABLE>
Noninterest expense was $2,217,000 for the first six months of 1996, a decrease
of $157,000 or 6.61% compared with noninterest expense of $2,374,000 for the
first six months of 1995. An $83,000 decrease in FDIC assessments and general
expense controls were the primary reasons for the decline.
Deposits held by the Prairie Banks are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC"), and as
FDIC-insured institutions, the Prairie Banks are required to pay deposit
insurance premium assessments to the FDIC. The amount an institution pays for
FDIC deposit insurance coverage is determined in accordance with a risk-based
assessment system under which each insured depository institution is placed
into one of nine categories and assessed insurance premiums based upon its
level of capital and the results of supervisory evaluations. The FDIC has
issued refunds to the best-rated institutions for assessment which exceeded the
recapitalization requirements of the BIF. The Prairie Banks received a total
refund from the FDIC of approximately $136,000. The change in the deposit
insurance assessment rate is expected to significantly reduce the cost of
deposit insurance for the Prairie Banks. See "Regulation and Supervision--The
Bank Subsidiaries--Deposit Insurance".
F - 44
<PAGE> 122
Noninterest expense was $4,622,000 for 1995, a decrease of $26,000 or .56%
compared with noninterest expense of $4,648,000 for 1994, which represented an
increase of $637,000 or 15.88% compared with noninterest expense of $4,011,000
for 1993. The decrease in noninterest expense from 1994 to 1995 was due
primarily to a decrease in FDIC insurance of $210,000 and management's emphasis
on expense control. Salaries and wages increased $234,000 for the same period,
offsetting some of the reduction in other expenses. Noninterest expense
increased from 1993 to 1994 primarily as a result of a 19.87% increase in
salaries and benefits, a 33.80% increase in occupancy and equipment expense,
and a 23.57% increase in FDIC insurance. All such increases were due to
deposit growth, both from new branches opened and aggressive marketing efforts.
INCOME TAXES
During 1993, Prairie adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". The principal effect of SFAS
No. 109 is to allow a tax benefit for cumulative book loss reserves in excess
of tax reserves. SFAS No. 109 provides that deferred tax assets may be reduced
by a valuation allowance if, based on the weight of available experience, it is
more likely than not that some portion or all of the deferred tax asset will
not be realized. In accordance with the provisions of SFAS No. 109, Prairie
elected not to restate prior years and has determined that the cumulative
effect of implementation was not significant. Prairie and the Prairie Banks
filed a consolidated tax return for 1995.
Prairie has recorded income tax expense of $215,000 on income before taxes of
$712,000 for the six months ended June 30, 1996, an effective tax rate of
30.2%, as compared with income tax expense of $156,000 on income before taxes
of $637,000 for the six months ended June 30, 1995, an effective tax rate of
24.5%. Prairie recorded income tax expense of $275,000, $227,000 and $271,000
on income before taxes of $1,103,000, $1,013,000 and $1,582,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. Effective tax rates were
24.9%, 22.4% and 17.1% for such periods. Prairie's effective tax rates varied
from the statutory tax rate primarily due to interest income on municipal
investments, which is exempt from federal income tax.
INTEREST RATE SENSITIVITY MANAGEMENT
The operating income and net income of the Prairie Banks depend, to a
substantial extent, on "rate differentials", i.e., the differences between the
income the Prairie Banks receive from loans, securities and other earning
assets, and the interest expense they pay to obtain deposits and other
liabilities. These rates are highly sensitive to many factors which are beyond
the control of the Prairie Banks, including general economic conditions and the
policies of various governmental and regulatory authorities. See "Investment
Considerations -- Impact of Interest Rates and Economic Conditions."
The objective of monitoring and managing the interest rate risk position of the
balance sheet is to contribute to earnings and to minimize the adverse changes
in net interest income. The potential for earnings to be affected by changes
in interest rates is inherent in a financial institution. Interest rate
sensitivity is the relationship between changes in market interest rates and
changes in net interest income due to the repricing characteristics of assets
and liabilities. An asset sensitive position in a given period will result in
more assets being subject to repricing; therefore, as interest rates rise, such
a position will have a positive effect on net interest income. Conversely, in
a liability sensitive position, where liabilities reprice more quickly than
assets in a given period, a rise in interest rates will have an adverse effect
on net interest income.
One way to analyze interest rate risk is to evaluate the balance of Prairie's
interest rate sensitivity position. A mix of assets and liabilities that are
roughly equal in volume and term and repricing represents a matched interest
rate sensitivity position. Any excess of assets or liabilities in a particular
period results in an interest rate sensitivity gap. The following table
presents the interest rate sensitivity for Prairie's interest-earning assets
and interest-bearing liabilities at June 30, 1996:
F - 45
<PAGE> 123
INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1996 3 months 3 months to 6 months
or less 6 months to 1 year
------------- ------------- ------------
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ 2,871,000 $ - $ -
Federal funds sold 2,131,000 - -
Investment securities 1,728,000 - 1,013,000
Loans 9,648,000 6,200,000 21,782,000
------------- ------------- ------------
Interest-earning assets $ 16,378,000 $ 6,200,000 $ 22,795,000
------------- ------------- ------------
Interest-bearing liabilities:
Interest-bearing demand deposits $ 21,519,000 $ - $ -
Savings deposits 46,662,000 - -
Time deposits 40,918,000 20,189,000 22,352,000
Repurchase agreements and federal
fund purchased 4,468,000 220,000 763,000
Federal Home Loan Bank advances
and notes payable 6,500,000 500,000 566,000
------------- ------------- ------------
Interest-bearing liabilities $ 120,067,000 $ 20,909,000 $ 23,681,000
------------- ------------- ------------
Period interest sensitivity gap $(103,689,000) $ (14,709,000) $ (886,000)
============= ============= ============
Cumulative interest sensitivity gap $(103,689,000) $(118,398,000) $119,284,000
============= ============= ============
Cumulative gap as a percent of assets (45.87)% (52.38)% (52.77)%
============= ============= ============
Cumulative interest-sensitive assets
as a percent of cumulative
interest-sensitive liabilities 13.64% 16.02% 27.56%
============= ============= ============
<CAPTION>
June 30, 1996 1 year to
5 years Over 5 years Total
------------ ------------ ------------
<S> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits $ - $ - $ 2,871,000
Federal funds sold - - 2,131,000
Investment securities 5,580,000 128,970,000 137,291,000
Loans 30,318,000 4,886,000 72,834,000
------------ ------------ ------------
Interest-earning assets $ 35,898,000 $133,856,000 $215,127,000
------------ ------------ ------------
Interest-bearing liabilities:
Interest-bearing demand deposits $ - $ - $ 21,519,000
Savings deposits - - 46,662,000
Time deposits 20,756,000 3,066,000 107,281,000
Repurchase agreements and federal
fund purchased 2,451,000 568,000 8,470,000
Federal Home Loan Bank advances
and notes payable 6,410,000 1,695,000 15,671,000
------------ ------------ ------------
Interest-bearing liabilities $ 29,617,000 $ 5,329,000 $199,603,000
------------ ------------ ------------
Period interest sensitivity gap $ 6,281,000 $128,527,000 $ 15,524,000
============ ============ ============
Cumulative interest sensitivity gap $113,003,000 $ 15,524,000 $ 15,524,000
============ ============ ============
Cumulative gap as a percent of assets (50.00)% 6.87%
============ ============
Cumulative interest-sensitive assets
as a percent of cumulative
interest-sensitive liabilities 41.83% 107.78%
============ ============
</TABLE>
The cumulative rate-sensitive gap position at one year was a
liability-sensitive position of $119.3 million, or negative 52.77%, which
indicates that Prairie was in a mismatched interest rate-sensitive position at
June 30, 1996. In connection with the Prairie Acquisition, the Company took
certain measures in an effort to minimize interest-rate risk associated with
Prairie's investment portfolio. See "Description of Capital Stock of
Company--Preferred Stock--Rights to Conversion."
Prairie undertakes this interest rate-sensitivity analysis to monitor the
potential risk to future earnings from the impact of possible future changes in
interest rates on currently existing net assets or net liability positions.
However, this type of analysis is as of a point-in-time, when in fact Prairie's
interest rate sensitivity can quickly change as market conditions, customer
needs and management strategies change. Thus, interest rate changes do not
affect all categories of assets and liabilities equally or at the same time.
Prairie is not involved in the purchase of derivative financial instruments or
structured notes.
The preceding table does not necessarily indicate the impact of general
interest rate movements on Prairie's net interest income because the repricing
of certain assets and liabilities is discretionary and is subject to
competitive and other pressures. Currently, the Prairie Banks are holding
approximately $122 million in mortgage-backed securities. Although the
mortgage-backed securities have a stated maturity greater than five years, it
is not uncommon for mortgage-backed securities to prepay outstanding principal
prior to stated maturities. As a result, assets and liabilities indicated as
repricing within the same period may, in fact, reprice at different times and
at different rate levels.
F - 46
<PAGE> 124
ANALYSIS OF FINANCIAL CONDITION
LOANS AND ASSET QUALITY
Prairie's loans are diversified by borrower and industry group. Loan growth
has occurred every year over the past five years and can be attributed to
acquisitions, increased loan demand and the addition of new lending products.
The following table describes the composition of loans by major categories
outstanding at June 30, 1996 and at December 31, 1995, 1994, 1993, 1992 and
1991.
LOAN PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- -------- -------- -------- ------- ----------
Aggregate Principal Amount
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial $ 25,885,000 $ 21,327,000 $ 20,625,000 $ 21,729,000 $ 19,594,000 $ 14,367,000
Real estate 40,972,000 37,652,000 33,422,000 27,153,000 25,093,000 15,487,000
Installment 7,014,000 8,218,000 6,889,000 5,228,000 6,125,000 4,435,000
------------- ------------ ------------ ------------ ------------ ------------
Gross loans 73,871,000 67,197,000 60,936,000 54,110,000 50,812,000 34,289,000
Less: Allowance
for loan
losses 784,000 741,000 715,000 781,000 963,000 499,000
Unearned
interest 37,000 64,000 141,000 306,000 480,000 328,000
------------- ------------ ------------ ------------ ------------ ------------
Loans, net $ 73,050,000 $ 66,392,000 $ 60,080,000 $ 53,023,000 $ 49,369,000 $ 33,462,000
============= ============ ============ ============ ============ ============
<CAPTION>
Percentage of Total Loan Portfolio
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial 35.04% 31.74% 33.85% 40.16% 38.56% 41.90%
Real estate 55.46 56.03 54.85 50.18 49.38 45.17
Installment 9.50 12.23 11.30 9.66 12.06 12.93
------------- ------------ ------------ ------------ ------------ ------------
Gross loans 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
============= ============ ============ ============ ============ ============
</TABLE>
As of June 30, 1996 and December 31, 1995, commitments of the Prairie Banks
under standby letters of credit and unused lines of credit totaled
approximately $4,712,000 and $4,673,000, respectively.
The loan portfolio includes a concentration of loans to agricultural and
agricultural-related industries amounting to approximately $15,009,000 as of
June 30, 1996.
F - 47
<PAGE> 125
Stated loan maturities (including floating rate loans reset to market interest
rates) of the total loan portfolio, net of unearned income, as of June 30, 1996
and December 31, 1995 were:
STATED LOAN MATURITIES
<TABLE>
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
------------ ------------- ------------ ------------
JUNE 30, 1996
<S> <C> <C> <C> <C>
Stated Loan Maturities/Floating Rates Reset:
Commercial $ 18,773,000 $ 6,219,000 $ 893,000 $ 25,885,000
Real estate 18,915,000 18,568,000 3,489,000 40,972,000
Installment loans 2,767,000 4,068,000 142,000 6,977,000
------------ ------------ ----------- ------------
Total $ 40,455,000 $ 28,855,000 $ 4,524,000 $ 73,834,000
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
------------ ------------ ----------- ------------
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Stated Loan Maturities/Floating Rates Reset:
Commercial $ 15,149,000 $ 5,763,000 $ 415,000 $ 21,327,000
Real estate 12,263,000 23,976,000 1,413,000 37,652,000
Installment loans 3,379,000 4,131,000 644,000 8,154,000
------------ ------------ ------------ ------------
Total $ 30,791,000 $ 33,870,000 $ 2,472,000 $ 67,133,000
============ ============ ============ ============
</TABLE>
Rate sensitivities of the total loan portfolio, net of unearned income, as of
June 30, 1996 and December 31, 1995 were as follows:
LOAN REPRICING
<TABLE>
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
------------ ------------ ----------- ------------
JUNE 30, 1996
<S> <C> <C> <C> <C>
Fixed rate $ 31,289,000 $ 24,194,000 $ 4,212,000 $ 59,695,000
Variable rate 7,093,000 6,124,000 674,000 13,891,000
Nonaccrual 248,000 -- -- 248,000
------------ ------------ ----------- ------------
Total $ 38,630,000 $ 30,318,000 $ 4,886,000 $ 73,834,000
============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
------------ ------------ ----------- ------------
DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Fixed rate $ 21,474,000 $ 31,743,000 $ 1,961,000 $ 55,178,000
Variable rate 6,356,000 5,249,000 -- 11,605,000
Nonaccrual 350,000 -- -- 350,000
------------ ------------ ----------- ------------
Total $ 28,180,000 $ 36,992,000 $ 1,961,000 $ 67,133,000
============ ============ =========== ============
</TABLE>
F - 48
<PAGE> 126
The maturities presented above are based upon contractual maturities. Many of
these loans are made on a short-term basis with the possibility of renewal at
time of maturity. All loans, however, are reviewed on a continuous basis for
creditworthiness.
NONPERFORMING ASSETS
Prairie's financial statements are prepared on the accrual basis of accounting,
including the recognition of interest income on its loan portfolio, unless a
loan is placed on a nonaccrual basis. Loans are placed on a nonaccrual basis
when there are serious doubts regarding the collectibility of all principal and
interest due under the terms of the loan. Amounts received on nonaccrual loans
generally are applied first to principal and then to interest after all
principal has been collected. It is the policy of the Prairie Banks not to
renegotiate the terms of a loan because of a delinquent status. Rather, a loan
is generally transferred to nonaccrual status if it is not in the process of
collection and is delinquent in payment of either principal or interest beyond
90 days.
Other nonperforming assets consist of real estate acquired through loan
foreclosures or other workout situations and other assets acquired through
repossessions. The following table summarizes nonperforming assets by category
as of June 30, 1996 and as of December 31, 1995, 1994, 1993, 1992 and 1991:
F - 49
<PAGE> 127
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $248,000 $350,000 $228,000 $301,000 $378,000 $265,000
Loans 90 days past due and
still accruing interest 569,000 323,000 231,000 105,000 91,000 77,000
-------- -------- -------- -------- -------- --------
Total nonperforming loans 817,000 673,000 459,000 406,000 469,000 342,000
Other real estate owned and
other assets 33,000 - 18,000 69,000 82,000 -
-------- -------- -------- -------- -------- --------
Total nonperforming assets $850,000 $673,000 $477,000 $475,000 $551,000 $342,000
======== ======== ======== ======== ======== ========
Nonperforming assets to
total assets 0.38% 0.30% 0.21% 0.27% 0.39% 0.39%
Nonperforming loans to
total loans 1.11 1.00 0.75 0.75 0.93 1.01
Nonperforming assets to
total loans 1.15 1.00 0.78 0.88 1.09 1.01
</TABLE>
The classification of a loan on nonaccrual status does not necessarily indicate
that the principal is uncollectible, in whole or in part. A determination as
to collectibility is made by Prairie Banks on a case-by-case basis. Prairie
Banks consider both the adequacy of the collateral and the other resources of
the borrower in determining the steps to be taken to collect nonaccrual loans.
The final determination as to these steps is made on a case-by-case basis.
Alternatives that are typically considered to collect nonaccrual loans are
foreclosure, collecting on guarantees, restructuring the loan or collection
lawsuits.
F - 50
<PAGE> 128
On January 1, 1995, Prairie adopted guidelines for impaired loans required by
Financial Accounting Standards Board Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by Statement No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." The adoption of FAS 114 did not significantly impact the
comparability of the allowance related tables of Prairie included in this
Prospectus.
The following table sets forth a summary of other real estate owned and other
collateral acquired as of June 30, 1996:
OTHER REAL ESTATE OWNED & OTHER COLLATERAL ACQUIRED
<TABLE>
<CAPTION>
Number of
Parcels/ Net Book
Description Autos Carrying Value
- --------------------------------------------- --------------
<S> <C> <C>
Developed property 1 $ 22,000
Repossessed automobiles 1 11,000
----------- --------------
2 $ 33,000
=========== ==============
</TABLE>
ALLOWANCE FOR LOAN LOSSES
In originating loans, management of Prairie recognizes that credit losses will
be experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The allowance for loan losses
represents Prairie's estimate of the allowance necessary to provide for losses
incurred in the loan portfolio. In making this determination, Prairie analyzes
the ultimate collectibility of Prairie's loan portfolio, incorporating feedback
provided by internal loan staff and provided by examinations performed by
regulatory agencies. Prairie makes an ongoing evaluation as to the adequacy of
the allowance for loan losses. To establish the appropriate level of the
allowance, all loans (including nonperforming loans), commitments to extend
credit and standby letters of credit are reviewed and classified as to
potential loss exposure. Specific allowances are then established for those
loans, commitments to extend credit or standby letters of credit with
identified loss exposure and an additional allowance is maintained based upon
the size, quality and concentration characteristics of the remaining loan
portfolio using both historical quantitative trends and Prairie's evaluation of
qualitative factors including future economic and industry outlooks. The
determination by Prairie of the appropriate level of the allowance amount was
$784,000 at June 30, 1996.
The allowance for loan losses is based on estimates, and ultimate losses will
vary from current estimates. These estimates are reviewed monthly and as
adjustments, either positive or negative, become necessary they are reported in
earnings in the periods in which they become known. The following table
presents a detailed analysis of Prairie's allowance for loan losses for the six
months ended June 30, 1996 and for the years ended December 31, 1995, 1994,
1993, 1992 and 1991:
F - 51
<PAGE> 129
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance $ 741,000 $ 715,000 $ 781,000 $ 963,000 $ 499,000 $ 424,000
------------ ------------ ------------ ------------ ------------ ------------
Charge-offs:
Commercial 23,000 53,000 96,000 60,000 102,000 12,000
Real estate 32,000 -- 4,000 28,000 100,000 5,000
Installment loans 47,000 34,000 53,000 65,000 49,000 22,000
------------ ------------ ------------ ------------ ------------ ------------
Total charge-offs 102,000 87,000 153,000 153,000 251,000 39,000
------------ ------------ ------------ ------------ ------------ ------------
Recoveries:
Commercial 97,000 125,000 66,000 32,000 18,000 52,000
Real estate 20,000 -- 3,000 24,000 53,000 --
Installment loans 8,000 19,000 8,000 15,000 26,000 15,000
------------ ------------ ------------ ------------ ------------ ------------
Total recoveries 125,000 144,000 77,000 71,000 97,000 67,000
------------ ------------ ------------ ------------ ------------ ------------
Net charge-offs (23,000) (57,000) 76,000 82,000 154,000 (28,000)
Bank acquisition -- -- -- -- 366,000 --
Provision for loan losses 20,000 (31,000) 10,000 (100,000) 252,000 47,000
------------ ------------ ------------ ------------ ------------ ------------
Ending balance $ 784,000 $ 741,000 $ 715,000 $ 781,000 $ 963,000 $ 499,000
============ ============ ============ ============ ============ ============
Period end total loans, net
of unearned interest $ 73,834,000 $ 67,133,000 $ 60,795,000 $ 53,804,000 $ 50,332,000 $ 33,961,000
============ ============ ============ ============ ============ ============
Average loans $ 70,483,000 $ 64,662,000 $ 57,339,000 $ 52,134,000 $ 47,887,000 $ 33,850,000
============ ============ ============ ============ ============ ============
Ratio of net charge-offs
to average loans (0.03)% (0.09)% 0.13% 0.16% 0.32% (0.08)%
============ ============ ============ ============ ============ ============
Ratio of provision for loan
losses to average loans 0.03 (0.05) 0.02 (0.19) 0.53 0.14
============ ============ ============ ============ ============ ============
Ratio of allowance for loan
losses to ending total loans 1.06 1.10 1.18 1.45 1.91 1.47
============ ============ ============ ============ ============ ============
Ratio of allowance for loan
losses to total nonperforming
loans 95.96 110.10 155.77 192.36 205.33 145.91
============ ============ ============ ============ ============ ============
Ratio of allowance for loan
losses to total nonperforming
assets 92.24 110.10 149.90 164.42 174.77 145.91
============ ============ ============ ============ ============ ============
</TABLE>
F - 52
<PAGE> 130
The following table sets forth an allocation of the allowance for loan losses
among categories as of June 30, 1996 and December 31, 1995, 1994, 1993, 1992
and 1991. Management of Prairie believes that any allocation of the allowance
for loan losses into categories lends an appearance of precision which does not
exist. The allowance is utilized as a single unallocated allowance available
for all loans. The following allocation table should not be interpreted as an
indication of the specific amounts or the relative proportion of future charges
to the allowance and has been derived by applying a general allowance to the
portfolio as a whole, in addition to specific allowance amounts for internally
classified loans. In retrospect, the specific allocation in any particular
category may prove excessive or inadequate and consequently may be reallocated
in the future to reflect the then current condition. Accordingly, the entire
allowance is available to absorb losses in any category.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
----------------------- --------------------- --------------------- --------------------- ---------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
----------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 296,000 35.04% $ 223,000 31.74% $ 243,000 33.85% $ 286,000 40.16% $ 257,000 38.56%
Real estate 374,000 55.46 399,000 56.03 368,000 54.85 373,000 50.18 567,000 49.38
Installment
loans 114,000 9.50 119,000 12.23 104,000 11.30 122,000 9.66 139,000 12.06
--------- -------- --------- --------- --------- --------- --------- --------- --------- ---------
Total $ 784,000 100.00% $ 741,000 100.00% $ 715,000 100.00% $ 781,000 100.00% $ 963,000 100.00%
========= ======== ========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
December 31, 1991
----------------------
Percent of
Loans in
Each
Category
to Total
Amount Loans
--------- ----------
<S> <C> <C>
Commercial $ 191,000 41.90%
Real estate 206,000 45.17
Installment
loans 102,000 12.93
--------- ---------
Total $ 499,000 100.00%
========= =========
</TABLE>
F - 53
<PAGE> 131
INVESTMENT ACTIVITIES
The investment portfolio, which was 64.62% of Prairie's earning asset base as
of June 30, 1996, was being managed to maximize return as well as maintain
sufficient liquidity. Investment securities which are classified as
held-to-maturity are purchased with the intent and ability of Prairie to hold
them to maturity. Securities classified as held-to-maturity are carried at
historical cost. Prairie's financial planning anticipates income streams based
on normal maturity and reinvestment. Investment securities classified as
available-for-sale are purchased with the intent to provide liquidity and to
increase returns. The securities classified as available-for-sale are carried
at fair value. Prairie does not have any securities classified as trading.
Securities held-to-maturity, carried at amortized cost, amounted to $97.8
million at June 30, 1996, compared with $103.8 million at December 31, 1995 and
$135.1 million at December 31, 1994. The net unrealized loss on securities
held-to-maturity was $2.5 million at June 30, 1996 compared with unrealized
losses of $2.2 million at December 31, 1995 and $8.4 million at December 31,
1994. The changes in unrealized loss were attributable to both a decline in
amounts held-to-maturity and interest rate movements during 1995.
Securities available-for-sale, carried at fair value, were $39.5 million at
June 30, 1996, compared to $42.5 million at December 31, 1995 and $20.6 million
at December 31, 1994. On December 31, 1995, based on management's reassessment
of their previous designations of securities, giving consideration to liquidity
needs, interest rate risk and other factors, securities with an amortized cost
of $20.9 million and an unrealized gain of $452,000 were transferred from
held-to-maturity to available-for-sale. The transfer was allowed pursuant to a
FASB Special Report, "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities".
Prior to January 1, 1994, all debt securities were carried at amortized cost.
Effective January 1, 1994, Prairie adopted SFAS No. 115, and classified
investments as held-to-maturity or available-for-sale.
F - 54
<PAGE> 132
The following tables describe the composition of investments by major category
and maturity:
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
HELD TO
MATURITY
June 30, December 31,
----------- -------------------------------------------
1996 1995 1994 1993 (1)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ - $ - $ - $ 2,642,000
U.S. Government agencies - - - 6,049,000
States and political subdivisions 377,000 514,000 747,000 12,282,000
Mortgage-backed securities 37,351,000 42,009,000 71,515,000 52,537,000
Collateralized mortgage obligations 60,104,000 61,303,000 62,883,000 39,704,000
Other - - - 1,743,000
----------- ------------ ------------ ------------
Total $97,832,000 $103,826,000 $135,145,000 $114,957,000
=========== ============ ============ ============
<CAPTION>
AVAILABLE FOR SALE
June 30, December 31,
----------- -------------------------------------------
1996 1995 1994 1993 (1)
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,973,000 $ 1,028,000 $ 1,005,000 $ -
U.S. Government agencies 5,582,000 5,574,000 5,602,000 -
Mortgage-backed securities 22,911,000 26,604,000 4,755,000 -
States and political subdivisions 6,137,000 5,914,000 7,280,000 -
Collateralized mortgage obligations 1,609,000 1,859,000 - -
Other 1,247,000 1,520,000 1,949,000 -
----------- ------------ ----------- ------------
Total $39,459,000 $ 42,499,000 $20,591,000 $ -
=========== ============ =========== ============
</TABLE>
(1) Prairie adopted Financial Accounting Standards Board (FASB) Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
effective January 1, 1994 and classified securities as held to maturity or
available for sale. For purposes of this table, securities as of December
31, 1993 are classified as held to maturity.
F - 55
<PAGE> 133
INVESTMENT PORTFOLIO MATURITY/REPRICING SCHEDULE
JUNE 30, 1996
<TABLE>
<CAPTION>
Maturing or Repricing
------------------------------------------------------------------------------------------------
After 1 Year but After 5 Years but
Within 1 Year Within 5 Years Within 10 Years After 10 Years
-------------------- ----------------- --------------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
Mortgage-backed
securities $ - $ - $ - $ 37,619,000 6.09%
States and political
subdivisions (1) 50,000 9.34% 168,000 9.57% 108,000 11.06% -
Collateralized
mortgage
obligations - - 51,000 5.76 -
Other - - - 59,836,000 5.21
----------- ----------- ----------- ------------
Total $ 50,000 $ 168,000 $ 159,000 $ 97,455,000
=========== =========== =========== ============
AVAILABLE-FOR-SALE
U.S. Treasury $ 1,013,000 5.74 $ - $ - $ -
U.S. Government
agencies 1,678,000 4.75 3,905,000 4.72 - -
Mortgage-backed
securities - - - 28,497,000 6.18
States and political
subdivisions (1) - 1,507,000 8.69 2,859,000 8.98 -
----------- ----------- ----------- ------------
Total $ 2,691,000 $ 5,412,000 $ 2,859,000 $ 28,497,000
=========== =========== =========== ============
</TABLE>
(1) Rates on obligations of states and political subdivisions have been
adjusted to tax equivalent yields using a 34% income tax rate.
F - 56
<PAGE> 134
INVESTMENT PORTFOLIO MATURITY/REPRICING SCHEDULE
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Maturing or Repricing
---------------------------------------------------------------------------------------------------------
After 1 Year but After 5 Years but
Within 1 Year Within 5 Years Within 10 Years After 10 Years
----------------------- -------------------- --------------------- ----------------------
Amount Yield Amount Yield Amount Yield Amount Yield
----------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HELD-TO-MATURITY
Mortgage-backed
securities $ - $ - $ 290,000 9.05% $ 41,719,000 6.16%
States and political
subdivisions (1) 130,000 9.46% 198,000 9.38% 186,000 10.94 -
Collateralized mortgage
obligations 6,000 6.38 - 1,225,000 5.74 60,072,000 5.74
----------- ----------- ----------- ------------
Total $ 136,000 $ 198,000 $ 1,701,000 $101,791,000
=========== =========== =========== ============
AVAILABLE-FOR-SALE
U.S. Treasury $ - $ 1,028,000 4.96 $ - $ -
U.S. Government
agencies 1,664,000 4.57 3,910,000 5.03 - -
Mortgage-backed
securities - - - 26,604,000 6.35
States and political
subdivisions (1) - 153,000 7.87 1,406,000 9.28 4,355,000 9.58
Collateralized mortgage
obligations - - - 1,859,000 7.94
Other - - - 1,520,000 6.76
----------- - ----------- ----------- ------------
Total $ 1,664,000 $ 5,091,000 $ 1,406,000 $ 34,338,000
=========== =========== =========== ============
</TABLE>
(1) Rates on obligations of states and political subdivisions have been
adjusted to tax equivalent yields using a 34% income tax rate.
F - 57
<PAGE> 135
DEPOSIT ACTIVITIES
Deposits are attracted through the offering of a broad variety of deposit
instruments, including checking accounts, money market accounts, regular
savings accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more), and retirement savings plans. Prairie's
average balance of total deposits was $185,569,000 for the six months ended
June 30, 1996, representing an increase of $3,569,000 or 1.96% compared with
the average balance of total deposits for the year ended December 31, 1995.
Prairie's average balance of total deposits was $182,000,000 for the year ended
1995, an increase of $12,501,000 or 7.38% compared with the average balance of
total deposits outstanding for 1994 of $169,499,000, an increase of $44,911,000
or 36.05% compared with the average balance of total deposits outstanding for
1993 of $124,588,000. The increases in deposits were due to pricing
strategies designed to attract new deposits and the opening of new branches.
F - 58
<PAGE> 136
The following table sets forth certain information regarding Prairie Banks'
average deposits as of June 30, 1996 and December 31, 1995, 1994 and 1993.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 December 31, 1994
--------------------------------- ---------------------------- -----------------------------
Average Percent Average Average Percent Average Average Percent Average
Amount Total Rate Amount Total Rate Amount Total Rate
------------- --------- -------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 12,698,000 6.8% -- $ 11,994,000 6.6% -- $ 11,038,000 6.5% --
Interest-bearing
demand deposits 20,846,000 11.2 2.68% 19,402,000 10.7 2.88% 18,656,000 11.0 2.83%
Savings deposits 48,580,000 26.2 3.65 50,630,000 27.8 3.94 61,449,000 36.3 4.00
Time deposits 103,445,000 55.8 5.38 99,974,000 54.9 5.50 78,356,000 46.2 4.69
------------- ----- ---- ------------- ------ ---- ------------- ----- ----
$ 185,569,000 100.0% 4.30% $ 182,000,000 100.0% 4.42% $ 169,499,000 100.0% 3.93%
============= ===== ==== ============= ===== ==== ============= ===== ====
<CAPTION>
December 31, 1993
-----------------------------
Average Percent Average
Amount Total Rate
------- ------- -------
<S> <C> <C> <C>
Non-interest bearing
demand deposits $ 6,346,000 5.1% --
Interest-bearing
demand deposits 17,735,000 14.2 3.12%
Savings deposits 39,488,000 31.7 4.15
Time deposits 61,019,000 49.0 5.15
------------- ----- -----
$ 124,588,000 100.0% 4.28%
============= ===== =====
</TABLE>
F - 59
<PAGE> 137
As of June 30, 1996, non-brokered time deposits over $100,000 represented
14.07% of total deposits, compared with 15.92% of total deposits as of December
31, 1995 and 10.97% as of December 31, 1994. The Prairie Banks do not have and
do not solicit brokered deposits.
The following table sets forth the remaining maturities for time deposits of
$100,000 or more at June 30, 1996 and at December 31, 1995:
TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
June 30, December 31,
MATURITY RANGE 1996 1995
---------- ------------
<S> <C> <C>
Three months or less $12,543,000 $15,871,000
Three through six months 8,629,000 3,754,000
Six through twelve months 2,047,000 5,346,000
Over twelve months 3,203,000 4,211,000
----------- -----------
Total $26,422,000 $29,182,000
=========== ===========
</TABLE>
RETURN ON EQUITY AND ASSETS
The following are various ratios for Prairie for the six months ended June 30,
1996 and the years ended December 31, 1995, 1994 and 1993.
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
For the For the
Six Months Years Ended
Ended December 31,
June 30, --------------------------
1996 1995 1994 1993
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets 0.44% 0.37% 0.36% 0.89%
Return on average equity 8.44 7.96 10.81 26.92
Average equity to average assets 5.22 4.61 3.37 3.30
Dividend payout rates 62.17 58.45 43.77 5.03
</TABLE>
LIQUIDITY
The Prairie Banks' investment securities portfolios, including federal funds
sold, and their cash and due from bank deposit balances serve as the primary
sources of liquidity for Prairie. At June 30, 1996, 13.24% of Prairie Banks'
interest-bearing liabilities were in the form of time deposits of $100,000 and
over. Substantially all of such large deposits were obtained from the Prairie
Banks' market areas and none of such deposits were brokered deposits.
Management believes these deposits to be a stable source of funds. However, if
a large number of these time deposits matured at approximately the same time
and were not renewed, the Prairie Banks' liquidity could be adversely affected.
Currently, the maturities of the Prairie Banks' large time deposits are spread
throughout the year, with 47% maturing in the third quarter of 1996, 33%
maturing in the fourth quarter of 1996, 8% maturing in the first and second
quarter of 1997, and the remaining 12% maturing thereafter. The Prairie Banks
monitor those maturities in an effort to minimize any adverse effect on
liquidity.
F - 60
<PAGE> 138
Prairie raised $1,500,000 during 1995, $3,500,000 during 1994, and $1,092,000
during 1992 through the issuance of Preferred Stock for acquisition of
additional shares of subsidiary banks and debt service.
In the longer term, the liquidity of Prairie and its ability to meet its cash
obligations will depend substantially on its receipt of dividends from the
Prairie Banks, which are limited by banking statutes and regulation. See
"Regulation and Supervision".
CAPITAL RESOURCES
Prairie's stockholders' equity at June 30, 1996 was $11.71 million compared
with $11.84 million at December 31, 1995. The decrease in equity was the
result of a decline in the net unrealized gain on securities available for
sale, partially offset by net income for the period. Prairie had consolidated
net income of $497,000 for the six months ended June 30, 1996.
The Prairie Banks are expected to meet a minimum risk-based capital to
risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in
the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in
the form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of
loan loss allowance that may be included in capital is limited to 1.25% of
risk-weighted assets. The ratio of Tier 1 (core) and the combined amount of
Tier 1 (core) and Tier 2 (supplementary) capital to risk-weighted assets for
the Prairie Banks were 13.82% and 14.76% respectively, at June 30, 1996, and
14.52% and 15.46%, respectively, at December 31, 1995. The Prairie Banks are
currently, and expect to continue to be, in compliance with these guidelines.
See "Regulation and Supervision -- Capital Adequacy Guidelines".
The Board of Governors of the Federal Reserve System has announced a policy
sometimes known as the "source of strength doctrine" that requires a bank
holding company to serve as a source of financial and managerial strength to
its subsidiary banks. The FRB has interpreted this requirement to require that
a bank holding company, such as Prairie, stand ready to use available resources
to provide adequate capital funds to its subsidiary banks during periods of
financial stress or adversity. The FRB has stated that it would generally view
a failure to assist a troubled or failing subsidiary bank in these
circumstances as an unsound or unsafe banking practice or a violation of
Regulation Y or both, justifying a cease and desist order or other enforcement
action, particularly if appropriate resources are available to the bank holding
company on a reasonable basis.
F - 61
<PAGE> 139
The following table sets forth an analysis of Prairie Banks' capital ratios:
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
December 31, Minimum Well-
June 30, ---------------------------------------- Capital Capitalized
1996 1995 1994 1993 Ratios Ratios
----------- ------------ ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tier I risk-based
capital $11,546,000 $ 11,358,000 $ 9,115,000 $ 5,438,000
Tier II risk-based
capital 784,000 741,000 715,000 771,000
Total capital 12,330,000 12,099,000 9,830,000 6,209,000
Risk-weighted
assets 83,541,000 78,238,000 74,192,000 61,668,000
Capital ratios:
Tier I risk-
based capital 13.82% 14.52% 12.29% 8.82% 4.00% 6.00%
Tier II risk-
based capital 14.76 15.46 13.25 10.07 8.00 10.00
Leverage ratio 5.11 5.05 4.28 3.04 3.00 5.00
</TABLE>
ACCOUNTING MATTERS
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114
"Accounting by Creditors of Impairment of a Loan" as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures". Together, these statements require that when a loan is impaired,
a creditor shall measure impairment based on the present value of expected
future cash flows discounted at the loan's effective interest rate, the fair
value of the collateral if the loan is collateral dependent or the loan's
observable market price. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The new statements also require certain disclosures regarding
impaired loans. Prairie adopted these statements effective January 1, 1995.
The adoption of these accounting statements did not have a material effect on
Prairie's consolidated financial position or results of operations since
Prairie's recognition and measurement policies regarding nonperforming loans
are materially consistent with the accounting statements.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". This Statement requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to hold
and use should be based on the fair value of the asset. This Statement is
effective for fiscal years beginning after December 15, 1995.
F - 62
<PAGE> 140
The Financial Accounting Standards Board has issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights" which became effective for years beginning after
December 15, 1995. This Statement amends FASB Statement No. 65, "Accounting
for Certain Mortgage Banking Activities" to require that an entity recognize as
separate assets rights to service mortgage loans for others however those
rights are acquired. An entity that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of
the mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values. If it is not
practicable to estimate the fair values separately, the entire cost of
purchasing or originating the loans should be allocated to the mortgage loans
(without the mortgage servicing rights) and no cost should be allocated to the
mortgage servicing rights. This Statement also requires that an entity assess
its capitalized mortgage servicing rights for impairment based on the fair
value of those rights.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This Statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Entities electing to continue to use the method of
accounting specified in Opinion 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value method of
accounting defined in this Statement had been applied. This Statement is
effective for fiscal years beginning after December 15, 1995.
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
The financial statements and related financial data concerning Prairie
presented in this Prospectus 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 changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of Prairie is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of the Prairie Banks,
including the influence of domestic and foreign economic conditions and the
monetary and fiscal policies of the United States government and federal
agencies, particularly the FRB. See "Investment Considerations -- Impact of
Interest Rates and Economic Conditions".
F - 63
<PAGE> 141
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
- ------------------------------------------------------------------------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,967,000 $ 4,458,000
Federal funds sold 2,131,000 2,045,000
Securities held to maturity (fair value $95,285,000
in 1996 and $101,623,000 in 1995) 97,832,000 103,826,000
Securities available for sale 39,459,000 42,499,000
Loans (net of allowance for loan losses of $784,000
in 1996 and $741,000 in 1995) 73,050,000 66,392,000
Premises and equipment 3,184,000 3,327,000
Accrued interest and other assets 2,409,000 2,427,000
------------ ------------
Total assets $226,032,000 $224,974,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 12,378,000 $ 13,017,000
Interest bearing 175,462,000 170,279,000
------------ ------------
Total deposits 187,840,000 183,296,000
Federal funds purchased 1,980,000 275,000
Repurchase agreements 6,490,000 6,181,000
Federal Home Loan Bank advances 11,721,000 16,993,000
Notes payable 3,950,000 3,950,000
Accrued interest and other liabilities 1,543,000 1,663,000
------------ ------------
Total liabilities 213,524,000 212,358,000
------------ ------------
Minority interest in subsidiaries 796,000 775,000
------------ ------------
Stockholders' Equity
Common stock, no par value; authorized, issued and outstanding
1,000 shares 1,000 1,000
Preferred stock 6,092,000 6,092,000
Additional paid-in capital 1,579,000 1,579,000
Retained earnings 3,874,000 3,686,000
Unrealized gain on securities available for sale, net 166,000 483,000
------------ ------------
Total stockholders' equity 11,712,000 11,841,000
------------ ------------
Total liabilities and stockholders' equity $226,032,000 $224,974,000
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F-64
<PAGE> 142
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995
---------- -----------
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans and fees on loans $ 3,136,000 $ 2,720,000
Taxable 4,094,000 4,507,000
Exempt from federal income taxes 191,000 159,000
Dividends 44,000 61,000
Other 62,000 30,000
----------- -----------
Total interest income 7,527,000 7,477,000
----------- -----------
Interest expense:
Deposits 3,948,000 3,950,000
Short-term borrowings 264,000 203,000
Federal Home Loan Bank advances and notes payable 580,000 974,000
----------- -----------
Total interest expense 4,792,000 5,127,000
----------- -----------
Net interest income 2,735,000 2,350,000
Provision for loan losses 20,000 (22,000)
----------- -----------
Net interest income after provision for loan losses 2,715,000 2,372,000
----------- -----------
Noninterest income:
Service charges and fees 205,000 166,000
Gain on sale of securities - 406,000
Other 51,000 111,000
----------- -----------
256,000 683,000
----------- -----------
Noninterest expenses:
Salaries and wages 965,000 952,000
Employee benefits 241,000 238,000
Occupancy and equipment 351,000 329,000
FDIC assessment 17,000 100,000
Other 643,000 755,000
----------- -----------
2,217,000 2,374,000
----------- -----------
Income before minority interest and income taxes 754,000 681,000
Minority interest 42,000 44,000
----------- -----------
Income before income taxes 712,000 637,000
Income taxes 215,000 156,000
----------- -----------
Net income $ 497,000 $ 481,000
=========== ===========
Net income applicable to common stock $ 188,000 $ 252,000
============================
Earnings per share of common stock 188 252
============================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F-65
<PAGE> 143
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1996 1995
----------- -----------
(Unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 497,000 $ 481,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 188,000 170,000
Provision for loan losses 20,000 (22,000)
Amortization of premiums and accretion of discounts on
securities, net 168,000 96,000
(Gain) on sale of securities, net - (406,000)
Minority interest in net income of subsidiaries, net of
dividends paid 34,000 20,000
Change in assets and liabilities:
Decrease in accrued interest receivable and other assets 18,000 207,000
Increase in accrued interest payable and other liabilities 50,000 23,000
---------- -----------
Net cash provided by operating activities 975,000 569,000
---------- -----------
Cash Flows from Investing Activities
(Increase) decrease in federal funds sold (86,000) 954,000
Investment securities:
Held to maturity:
Proceeds from maturities, calls and paydowns 5,933,000 3,975,000
Purchases (40,000) (587,000)
Available for sale:
Proceeds from maturities, calls and paydowns 3,098,000 293,000
Proceeds from sales 920,000 9,466,000
Purchases (1,545,000) (7,034,000)
Net (increase) in loans (6,678,000) (5,141,000)
Purchase of premises and equipment (45,000) (226,000)
---------- -----------
Net cash provided by investing activities 1,557,000 1,700,000
---------- -----------
Cash Flows from Financing Activities
Net (decrease) in noninterest-bearing deposits (639,000) (1,411,000)
Net increase (decrease) in interest-bearing deposits 5,183,000 (7,035,000)
Net increase (decrease) in federal funds purchased 1,705,000 (110,000)
Net increase (decrease) in repurchase agreements 309,000 (2,194,000)
Net increase (decrease) in Federal Home Loan Bank advances (5,272,000) 6,711,000
Principal payments on notes payable (1,050,000)
Proceeds from issuance of preferred stock -- 1,500,000
Dividends paid (309,000) (229,000)
Purchase of minority interest in subsidiaries - (74,000)
---------- -----------
Net cash provided by (used in) financing activities 977,000 (3,892,000)
---------- -----------
Net increase (decrease) in cash and due from banks 3,509,000 (1,623,000)
Cash and due from banks:
Beginning 4,458,000 5,361,000
---------- -----------
End $7,967,000 $ 3,738,000
========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F-66
<PAGE> 144
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The financial information of Prairie Bancorp, Inc. and subsidiaries included
herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.
NOTE 2. SECURITIES
Amortized costs and fair values of securities are summarized as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY June 30, 1996
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
States and political subdivisions $ 377,000 $ 16,000 $ - $ 393,000
Mortgage-backed securities 97,455,000 - (2,563,000) 94,892,000
------------ ----------- ------------ ------------
$ 97,832,000 $ 16,000 $ (2,563,000) $ 95,285,000
============ =========== ============ ============
<CAPTION>
December 31, 1995
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
States and political subdivisions $ 514,000 $ 25,000 $ - $ 539,000
Mortgage-backed securities 103,312,000 151,000 (2,379,000) 101,084,000
------------ ----------- ------------ ------------
$103,826,000 $ 176,000 $ (2,379,000) $101,623,000
============ =========== ============ ============
<CAPTION>
AVAILABLE FOR SALE June 30, 1996
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 7,714,000 $ - $ (159,000) $ 7,555,000
States and political subdivisions 6,061,000 76,000 - 6,137,000
Mortgage-backed securities 24,173,000 347,000 - 24,520,000
Other 1,247,000 - - 1,247,000
------------ ----------- ------------ ------------
$ 39,195,000 $ 423,000 $ (159,000) $ 39,459,000
============ =========== ============ ============
</TABLE>
(Continued)
F-67
<PAGE> 145
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury and government
agency securities $ 6,730,000 $ - $ (128,000) $ 6,602,000
States and political
subdivisions 5,577,000 337,000 - 5,914,000
Mortgage-backed securities 27,908,000 563,000 (8,000) 28,463,000
Other 1,520,000 - - 1,520,000
----------- ----------- ------------ -----------
$41,735,000 $ 900,000 $ (136,000) $42,499,000
=========== =========== ============ ===========
</TABLE>
The amortized cost and fair value of investment securities as of June 30, 1996
and December 31, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the mortgages
underlying the mortgage-backed and related securities may be called or prepaid
without any penalties. Therefore, these securities are not included in the
maturity categories in the following summary. Certain other securities are
excluded from the maturity categories because they do not have a fixed maturity
date.
<TABLE>
<CAPTION>
HELD TO MATURITY June 30, 1996 December 31, 1995
------------------------- --------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 50,000 $ 50,000 $ 130,000 $ 132,000
Due after one year through five years 168,000 173,000 198,000 204,000
Due after five years through ten years 159,000 170,000 186,000 203,000
Mortgage-backed securities 97,455,000 94,892,000 103,312,000 101,084,000
----------- ----------- ------------ ------------
$97,832,000 $95,285,000 $103,826,000 $101,623,000
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE June 30, 1996 December 31, 1995
------------------------- --------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,779,000 $ 2,691,000 $ 1,700,000 $ 1,664,000
Due after one year through five years 5,566,000 5,412,000 5,183,000 5,091,000
Due after five years through ten years 2,855,000 2,859,000 1,329,000 1,406,000
Due after ten years 2,575,000 2,730,000 4,095,000 4,355,000
Mortgage-backed securities 24,173,000 24,520,000 27,908,000 28,463,000
Other 1,247,000 1,247,000 1,520,000 1,520,000
----------- ----------- ----------- -----------
$39,195,000 $39,459,000 $41,735,000 $42,499,000
=========== =========== =========== ===========
(Continued)
</TABLE>
F - 68
<PAGE> 146
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONOSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Securities with carrying values of approximately $73,888,000 and $71,689,000 at
June 30, 1996 and December 31, 1995, respectively, were pledged to secure
public deposits as permitted or required by law.
NOTE 3. LOANS
The major classifications of loans follow:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Commercial $ 25,885,000 $ 21,327,000
Real estate 40,972,000 37,652,000
Installment 7,014,000 8,218,000
------------ ------------
73,871,000 67,197,000
------------ ------------
Deduct:
Unearned interest 37,000 64,000
Allowance for loan losses 784,000 741,000
------------ ------------
821,000 805,000
------------ ------------
$ 73,050,000 $ 66,392,000
============ ============
</TABLE>
NOTE 4. ALLOWANCE FOR LOAN LOSSES
An analysis of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Balance, January 1 $ 741,000 $ 715,000
Provision for loan losses 20,000 (22,000)
Recoveries 125,000 108,000
Loans charged off 102,000 51,000
--------- ---------
Balance, end of period $ 784,000 $ 750,000
========= =========
</TABLE>
(Continued)
F - 69
<PAGE> 147
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. SHORT TERM BORROWINGS
Short term borrowings include federal funds purchased and securities sold under
agreements to repurchase.
Average and maximum balances and rates on federal funds purchased and
securities sold under agreements to repurchase were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1996 1995
-------------- ------------------
<S> <C> <C>
Maximum month end balance $ 13,573,000 $ 9,822,000
Average month end balance 7,463,000 6,108,000
Weighted average interest rate for the period 7.07% 6.65%
Weighted average interest rate at end of period 5.98% 6.70%
</TABLE>
NOTE 6. CONTINGENT LIABILITIES
At June 30, 1996 and December 31, 1995, loan commitments and standby letters of
credit, were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- ------------
<S> <C> <C>
Unused lines-of-credit $ 4,360,000 $ 4,598,000
Standby letters of credit 352,000 75,000
</TABLE>
F - 70
<PAGE> 148
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Prairie Bancorp, Inc.
Princeton, Illinois
We have audited the accompanying consolidated balance sheets of Prairie
Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31,
1995. 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 above
present fairly, in all material respects, the financial position of
Prairie Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for investment securities in
1994.
McGLADREY & PULLEN, LLP
Davenport, Iowa
January 26, 1996
F - 71
<PAGE> 149
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,458,000 $ 5,361,000
Federal funds sold 2,045,000 954,000
Securities held to maturity (fair value $101,623,000 in 1995;
$126,794,000 in 1994) 103,826,000 135,145,000
Securities available for sale 42,499,000 20,591,000
Loans, net of allowance for loan losses of $741,000 in 1995;
$715,000 in 1994 66,392,000 60,080,000
Premises and equipment 3,327,000 3,303,000
Accrued interest and other assets 2,427,000 2,754,000
------------ ------------
Total assets $224,974,000 $228,188,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $ 13,017,000 $ 11,171,000
Interest bearing 170,279,000 169,739,000
------------ ------------
Total deposits 183,296,000 180,910,000
Federal funds purchased 275,000 960,000
Repurchase agreements 6,181,000 8,869,000
Federal Home Loan Bank advances 16,993,000 21,079,000
Notes payable 3,950,000 5,245,000
Accrued interest and other liabilities 1,663,000 1,397,000
------------ ------------
Total liabilities 212,358,000 218,460,000
------------ ------------
Minority interest in subsidiaries 775,000 760,000
------------ ------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, no par value; authorized, issued, and
outstanding 1,000 shares 1,000 1,000
Preferred stock 6,092,000 4,592,000
Additional paid-in capital 1,579,000 1,579,000
Retained earnings 3,686,000 3,342,000
Unrealized gain (loss) on securities available for sale 483,000 (546,000)
------------ ------------
Total stockholders' equity 11,841,000 8,968,000
------------ ------------
Total liabilities and stockholders'
equity $224,974,000 $228,188,000
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 72
<PAGE> 150
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------- ----------- ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,819,000 $ 5,003,000 $ 4,804,000
Interest and dividends on investment-taxable 8,753,000 7,716,000 4,664,000
Exempt from federal income taxes 318,000 343,000 887,000
Dividends 121,000 126,000 43,000
Other interest income 112,000 63,000 68,000
----------- ----------- -----------
Total interest income 15,123,000 13,251,000 10,466,000
----------- ----------- -----------
Interest expense:
Interest on deposits 8,049,000 6,665,000 5,332,000
Interest on short-term borrowings 510,000 386,000 258,000
Interest on Federal Home Loan Bank
advances and notes payable 1,768,000 1,531,000 710,000
----------- ----------- -----------
Total interest expense 10,327,000 8,582,000 6,300,000
----------- ----------- -----------
Net interest income 4,796,000 4,669,000 4,166,000
Provision for loan losses (31,000) 10,000 (100,000)
----------- ----------- -----------
Net interest income after provision
for loan losses 4,827,000 4,659,000 4,266,000
Other income:
Service charges 317,000 277,000 263,000
Gain on security transactions 402,000 505,000 866,000
Other operating income 274,000 315,000 311,000
----------- ----------- -----------
Total other income 993,000 1,097,000 1,440,000
----------- ----------- -----------
Other expenses:
Salaries and wages 2,142,000 1,902,000 1,552,000
Employee benefits 282,000 288,000 275,000
Occupancy and equipment 702,000 669,000 500,000
Professional fees 91,000 82,000 142,000
FDIC insurance 157,000 367,000 297,000
Office supplies 137,000 152,000 158,000
Advertising 126,000 144,000 96,000
Other expense 985,000 1,044,000 991,000
----------- ----------- -----------
Total other expenses 4,622,000 4,648,000 4,011,000
----------- ----------- -----------
Income before minority interest and
income taxes 1,198,000 1,108,000 1,695,000
Minority interest 95,000 95,000 113,000
----------- ----------- -----------
Income before income taxes 1,103,000 1,013,000 1,582,000
Income tax expense 275,000 227,000 271,000
----------- ----------- -----------
Net income $ 828,000 $ 786,000 $ 1,311,000
=========== =========== ===========
Net income applicable to common stock $ 344,000 $ 442,000 $ 1,245,000
=========== =========== ===========
Earnings per share of common stock 344 442 1,245
=========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 73
<PAGE> 151
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B
Common Preferred Preferred
Stock Stock Stock
------ ---------- ----------
<S> <C> <C> <C>
Balance, December 31,1992 $1,000 $1,092,000 $ -
Net income for year ended December 31, 1993 - - -
Dividend on preferred stock ($60 per share) - - -
Stockholders' contribution - - -
------ ---------- ----------
Balance, December 31, 1993 1,000 1,092,000 -
Net income for year ended December 31,
1994 - - -
Preferred stock, Series B, no par, issued
2,500 shares - - 2,500,000
Preferred stock, Series C, no par, issued
1,000 shares - - -
Dividends on Series A preferred stock
($60.00 per share) - - -
Dividends on Series B preferred stock
($230.17 per share) - - -
Dividends on Series C preferred stock
($49.11 per share) - - -
Effect of Adoption of SFAS No. 115, net - - -
Change in unrealized losses on securities
available for sale, net - - -
------ ---------- ----------
Balance, December 31, 1994 1,000 1,092,000 2,500,000
Net income for year ended December 31, 1995 - - -
Preferred stock, Series D, no par, issued
1,500 shares - - -
Dividends on Series B preferred stock
($108.16 per share) - - -
Dividends on Series C preferred stock
($108.32 per share) - - -
Dividends on Series D preferred stock
($70.13 per share) - - -
Change in unrealized gain (loss) on securities
available for sale, net - - -
------ ---------- ----------
Balance, December 31, 1995 $1,000 $1,092,000 $2,500,000
====== ========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 74
<PAGE> 152
<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------------
Unrealized
Gain (Loss)
Series C Series D Additional on Securities
Preferred Preferred Paid-In Retained Available
Stock Stock Capital Earnings For Sale, Net Total
- ---------- ---------- ---------- ----------- ------------- ------------
<C> <C> <C> <C> <C> <C>
$ - $ - $1,419,000 $1,655,000 $ - $ 4,167,000
- - - 1,311,000 - 1,311,000
- - - (66,000) - (66,000)
- - 160,000 - - 160,000
- ---------- ---------- ---------- ---------- ------------ -----------
- - 1,579,000 2,900,000 - 5,572,000
- - - 786,000 - 786,000
- - - - - 2,500,000
1,000,000 - - - - 1,000,000
- - - (65,000) - (65,000)
- - - (230,000) - (230,000)
- - - (49,000) - (49,000)
- - - - 442,000 442,000
- - - - (988,000) (988,000)
- ---------- ---------- ---------- ---------- ------------ -----------
1,000,000 - 1,579,000 3,342,000 (546,000) 8,968,000
- - - 828,000 - 828,000
- 1,500,000 - - - 1,500,000
- - - (271,000) - (271,000)
- - - (108,000) - (108,000)
- - - (105,000) - (105,000)
- - - - 1,029,000 1,029,000
- ---------- ---------- ---------- ---------- ------------ -----------
$1,000,000 $1,500,000 $1,579,000 $3,686,000 $ 483,000 $11,841,000
========== ========== ========== ========== ============ ===========
</TABLE>
F - 75
<PAGE> 153
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 828,000 $ 786,000 $ 1,311,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 380,000 343,000 247,000
Deferred income taxes 20,000 23,000 5,000
Provision for loan losses (31,000) 10,000 (100,000)
Amortization of premiums and accretion of
discounts on investment securities, net 239,000 422,000 140,000
(Gain) on sale of investment securities, net (402,000) (505,000) (866,000)
Minority interest in net income of subsidiaries,
net of dividends paid 38,000 37,000 69,000
(Increase) decrease in:
Accrued interest receivable (116,000) (242,000) 141,000
Other assets 140,000 58,000 (185,000)
Increase (decrease) in:
Accrued interest payable 92,000 242,000 (17,000)
Other liabilities (108,000) (398,000) 352,000
----------- ------------ ------------
Net cash provided by operating activities 1,080,000 776,000 1,097,000
----------- ------------ ------------
Cash Flows from Investing Activities:
(Increase) decrease in federal funds sold (1,091,000) 96,000 1,794,000
Proceeds from maturities, calls and principal
of investment securities held to maturity 10,797,000 12,730,000 25,959,000
Proceeds from maturities, calls and principal
of investment securities available for sale 668,000 1,025,000 -
Proceeds from sale of investment securities
available for sale 12,740,000 16,983,000 12,963,000
Purchase of investment securities held to maturity (587,000) (60,128,000) (74,363,000)
Purchase of investment securities available for sale (12,401,000) (12,187,000) -
Loans originated, net (6,281,000) (7,047,000) (2,975,000)
Purchase of property and equipment (404,000) (811,000) (945,000)
----------- ------------ ------------
Net cash provided by (used in) investing
activities $ 3,441,000 $(49,339,000) $(37,567,000)
----------- ------------ ------------
</TABLE>
(Continued)
F - 76
<PAGE> 154
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------- ----------- ---------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Net increase in noninterest-bearing deposits $ 1,846,000 $ 1,310,000 $ 1,062,000
Net increase in interest-bearing deposits 540,000 36,433,000 16,351,000
Net increase (decrease) in federal funds purchased (685,000) 702,000 108,000
Net increase (decrease) in repurchase agreements (2,688,000) 2,523,000 3,947,000
Net increase (decrease) in Federal Home Loan Bank
advances (4,086,000) 5,522,000 13,607,000
Principal payments on note payable (1,295,000) (350,000) -
Proceeds from note payable - - 1,150,000
Proceeds from issuance of preferred stock 1,500,000 3,500,000 -
Stockholders' contribution - - 160,000
Dividends paid preferred stock (484,000) (344,000) (66,000)
Purchase of minority interest in subsidiaries (72,000) - -
Minority interest contribution - - 92,000
----------- ----------- -----------
Net cash provided by (used in) financing
activities (5,424,000) 49,296,000 36,411,000
----------- ----------- -----------
Net increase (decrease) in cash and due
from banks (903,000) 733,000 (59,000)
Cash and due from banks:
Beginning 5,361,000 4,628,000 4,687,000
----------- ----------- -----------
Ending $ 4,458,000 $ 5,361,000 $ 4,628,000
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information,
payments for:
Interest $10,235,000 $ 8,339,000 $ 6,317,000
=========== =========== ===========
Income taxes $ 127,000 $ 212,000 $ 125,000
=========== =========== ===========
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Transfer of loans to other real estate acquired in
settlement of loans $ - $ 18,000 $ -
=========== =========== ===========
Securities transferred to available for sale at
amortized cost $ - $19,955,000 $ -
=========== =========== ===========
Securities transferred from held to maturity
to available for sale, at fair value $21,387,000 $ - $ -
=========== =========== ===========
Change in unrealized gain (loss) on securities
available for sale $ 1,643,000 $ (879,000) $ -
=========== =========== ===========
Increase (decrease) in deferred taxes attributable to
the unrealized gain (loss) on securities available
for sale $ 614,000 $ 33,000 $ -
=========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 77
<PAGE> 155
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry.
The significant accounting and reporting policies for Prairie Bancorp, Inc. and
its subsidiaries follow:
Nature of business: Prairie Bancorp, Inc. is a six bank holding company. The
Banks provide a full range of banking services to individual and corporate
customers in the Northwestern Illinois area. The Banks are subject to
competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, Prairie Bancorp, Inc. and its Bank
subsidiaries are subject to regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.
Accounting estimates: In preparing the consolidated financial statements,
Company management is required to make estimates and assumptions which
significantly affect the amounts reported in the consolidated financial
statements. Significant estimates which are particularly susceptible to change
in a short period of time include the determination of the allowance for loan
losses and valuation of real estate and other properties acquired in connection
with foreclosures or in satisfaction of amounts due from borrowers on loans.
Actual results could differ from those estimates.
Principles of consolidation: The consolidated financial statements include the
accounts of Prairie and its majority owned subsidiaries, First National Bank of
Manlius (Manlius) (98.50% owned), Tampico National Bank (Tampico) (99.41%
owned), Bank of Ladd (Ladd) (80% owned), Tiskilwa State Bank (Tiskilwa) (94.99%
owned) and its wholly-owned subsidiaries Farmers State Bank of Ferris (Ferris),
and Hanover State Bank (Hanover), collectively referred to as the "Prairie
Banks". All significant intercompany balances and transactions have been
eliminated in consolidation.
Presentation of cash flows: For purposes of reporting cash flows, cash and due
from banks include cash on hand and amounts due from banks, including cash
items in process of clearing. Cash flows from loans originated by the
subsidiary banks, deposits, federal funds purchased and securities sold under
agreements to repurchase and Federal Home Loan Bank advances are reported net.
Investment securities: Prior to January 1, 1994, all debt securities were
carried at amortized cost. Effective January 1, 1994, Prairie adopted
Financial Accounting Standards Board (FASB) Statement No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" and classified investments
as held to maturity or available for sale. The effect of adopting Statement
No. 115 on the accompanying balance sheet as of January 1, 1994 was an increase
in stockholders' equity of $442,000 net of the related income tax effect of
$228,000 to recognize the net unrealized gain in securities available for sale
at that date. There were no investments held for trading purposes during 1994
and 1995.
Securities classified as held to maturity are those for which the subsidiary
bank's have the ability and intent to hold to maturity. Securities meeting
such criteria at the date of purchase and as of the balance sheet date are
carried at cost, adjusted for amortization of premiums and discounts computed
using the interest method over their contractual lives.
Securities classified as available for sale are those debt securities that the
subsidiary banks intend to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital considerations, and
other similar factors. Securities available for sale are carried at fair
value. The differences between fair value and cost, adjusted for amortization
of premium and accretion of discounts, results in an unrealized gain or loss.
Unrealized gains or losses are reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect. Gains or losses
from the sale of securities are determined using the specific identification
method.
F - 78
<PAGE> 156
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Pursuant to a FASB Special Report "A Guide to Implementation of Statement No.
115 on Accounting for Certain Investments in Debt and Equity Securities"
Prairie transferred at fair value $21,387,000 of investment securities from
held to maturity to available for sale on December 31, 1995 which increased
stockholders' equity by $298,000 net of the related income tax effect of
$154,000.
Loans: Loans are stated at the principal amount outstanding, net of unearned
discount and the allowance for loan losses. Interest on all loans except
installment loans is credited to income based on the principal amount
outstanding. Interest on installment loans is credited to income over the term
of the loan using a method which approximates the interest method.
Unearned discount on certain installment loans is credited to income over the
term of the loan using the interest method. For all other loans, interest is
credited to income as earned using the simple interest method applied to the
daily balances of the principal outstanding.
The Company's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Interest income on these loans
is recognized to the extent interest payments are received and the principal is
considered fully collectible.
Allowance for loan losses: The allowance for loan losses is maintained at a
level considered adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to operating
expense and reduced by net charge-offs. The Prairie Banks make continuous
credit reviews of the loan portfolios and consider current economic conditions,
historical loan loss experience and other factors in determining the adequacy
of the allowance balance. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company Banks'
allowances for loan losses, and may require additions to the allowance based on
their judgment about information available to them at the time of their
examinations.
On January 1, 1995, Prairie adopted FASB Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan", as
amended by Statement No. 118, which requires loans to be considered impaired
when, based on current information and events, it is probable the Company will
not be able to collect all amounts due. The portion of the allowance for loan
losses applicable to impaired loans has been computed based on the present
value of the estimated future cash flows of interest and principal discounted
at the loan's effective interest rate or on the fair value of the collateral
for collateral dependent loans. The entire change in present value of expected
cash flows of impaired loans is reported as bad debt expense in the same manner
in which impairment initially was recognized or as a reduction in the amount of
bad debt expense that otherwise would be reported. The Company recognizes
interest income on impaired loans on an accrual basis.
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line and
declining balance methods over their estimated useful lives.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
F - 79
<PAGE> 157
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Preferred stock: Terms of the preferred stock are as follows:
Series A Preferred Stock: Dividends are 6%, cumulative, nonparticipating and
senior to Common Stock, Series B, Series C, and Series D Preferred Stock
dividends. Dividends have been declared through December 31, 1995.
1,000,000 shares have been authorized and 1,092 have been issued with no par
value. These shares are callable in whole or in part at $1,000 per share plus
accumulated dividends at any time, but may not be called in part without
dividends being paid current. These shares are to be liquidated in Prairie's
dissolution senior to the Common Stock, the Series B, Series C, and Series D
Preferred Stock at $1,000 per share plus accumulated dividends, with merger or
consolidation of Prairie not deemed to be a dissolution. These shares are
non-voting except for a proposed issuance of Preferred Stock senior to Series
A Preferred Stock or an amendment to the Articles of Incorporation relative to
the terms of Series A Preferred Stock.
Series B Preferred Stock: Dividends are 2% plus Prime (as determined by
averaging the LaSalle National Bank of Chicago prime rate for the prior 6
months), non-cummulative, nonparticipating and senior to Common Stock, Series
C and Series D Preferred Stock dividends. 1,000,000 shares have been
authorized and 2,500 have been issued with no par value. These shares are
callable in whole or in part at $1,000 per share plus dividends declared and
unpaid, if any, at any time. These shares are to be liquidated in Prairie's
dissolution senior to the Common Stock, Series C and Series D Preferred Stock
at $1,000 per share plus dividends declared and unpaid, if any, with merger or
consolidation of Prairie not deemed to be a dissolution. These shares are
non-voting except for a proposed issuance of Preferred Stock senior to Series
B Preferred Stock or an amendment to the Articles of Incorporation relative to
the terms of Series B Preferred Stock.
Series C Preferred Stock: Dividends are 2% plus Prime (as determined by
averaging the LaSalle National Bank of Chicago prime rate for the prior 6
months), non-cummulative, nonparticipating and senior to Common Stock and
Series D Preferred Stock dividends. 1,000,000 shares have been authorized and
1,000 have been issued with no par value. These shares are callable in whole
or in part at $1,000 per share plus dividends declared and unpaid, if any, at
any time. These shares are to be liquidated in Prairie's dissolution senior
to the Common Stock and Series D Preferred Stock at $1,000 per share plus
dividends declared and unpaid, if any, with merger or consolidation of Prairie
not deemed to be a dissolution. These shares are non-voting except for a
proposed issuance of Preferred Stock senior to Series C Preferred Stock or an
amendment to the Articles of Incorporation relative to the terms of Series C
Preferred Stock.
Series D Preferred Stock: Dividends are 2% plus Prime (as determined by
averaging the LaSalle National Bank of Chicago prime rate for the prior 6
months), non-cummulative, nonparticipating and senior to Common Stock
dividends. 1,000,000 shares have been authorized and 1,500 have been issued
with no par value. These shares are callable in whole or in part at $1,000
per share plus dividends declared and unpaid, if any, at any time. These
shares are to be liquidated in Prairie's dissolution senior to the Common
Stock at $1,000 per share plus dividends declared and unpaid, if any, with
merger or consolidation of Prairie not deemed to be a dissolution. These
shares are non-voting except for a proposed issuance of Preferred Stock senior
to Series D Preferred Stock or an amendment to the Articles of Incorporation
relative to the terms of Series D Preferred Stock.
Current accounting developments: The Financial Accounting Standards Board has
issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (Statement No. 121) which becomes
effective for years beginning after December 15, 1995. Statement No. 121
generally requires long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment is recognized. Management believes that adoption of
this Statement will not have a material effect on Prairie's financial
statements.
F - 80
<PAGE> 158
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Accounting Standards Board has issued Statement No. 122
"Accounting for Mortgage Servicing Rights" (Statement No. 122) which becomes
effective for years beginning after December 15, 1995. This Statement amends
FASB Statement No. 65 "Accounting for Certain Mortgage Banking Activities" to
require that an entity recognize as separate assets rights to service mortgage
loans for others, however those rights are acquired. An entity that acquires
mortgage servicing rights through either the purchase or origination of
mortgage loans and sells or securitizes those loans with servicing rights
retained should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without the mortgage servicing rights) based on
their relative fair values. If it is not practicable to estimate the fair
values separately, the entire cost of purchasing or originating the loans
should be allocated to the mortgage loans (without the mortgage servicing
rights) and no cost should be allocated to the mortgage servicing rights. This
Statement also requires that an entity assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights.
Management believes that adoption of this Statement will not have a material
effect on Prairie's financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 (Statement No. 123), Accounting for
Stock-Based Compensation. Statement No. 123 establishes a fair value based
method of accounting for stock options and other equity instruments. Statement
No. 123 permits the continued use of the intrinsic value method included in
Accounting Principle Board Opinion 25 ("APB-25"), Accounting for Stock Issued
to Employees, but regardless of the method used to account for the compensation
cost associated with stock option or similar plans, it requires employers to
disclose information required by Statement No. 123. Statement No. 123 is
effective for fiscal years beginning after December 15, 1995. Prairie believes
the adoption of Statement No. 123 will not have a material impact on its
consolidated financial statements.
Earnings per share of common stock: Earnings per share of common stock is
computed by dividing net income, after deducting preferred stock dividends, by
the weighted average number of shares outstanding during the reported period.
NOTE 2. CASH AND DUE FROM BANKS
Two of the Bank subsidiaries are required to maintain legal reserves composed
of funds on deposit with the Federal Reserve Bank and cash on hand. The
required balances as of December 31, 1995 and 1994 were $54,000 and $68,000,
respectively.
F - 81
<PAGE> 159
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains (Losses) Fair Value
------------ ---------- ----------- ------------
December 31, 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
States and political subdivisions $ 514,000 $ 25,000 $ - $ 539,000
Mortgage-backed and related
securities 103,312,000 151,000 (2,379,000) 101,084,000
------------ -------- ----------- ------------
Total $103,826,000 $176,000 $(2,379,000) $101,623,000
============ ======== =========== ============
Securities available for sale:
U.S. Treasury and government
agency securities $ 6,730,000 $ - $ (128,000) $ 6,602,000
States and political subdivisions 5,577,000 337,000 - 5,914,000
Mortgage-backed and related
securities 27,908,000 563,000 (8,000) 28,463,000
Other 1,520,000 - - 1,520,000
------------ -------- ----------- ------------
Total $ 41,735,000 $900,000 $ (136,000) $ 42,499,000
============ ======== =========== ============
<CAPTION>
December 31, 1994
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held to maturity:
States and political subdivisions $ 747,000 $ 16,000 $ - $ 763,000
Mortgage-backed and related
securities 134,398,000 40,000 (8,407,000) 126,031,000
------------ -------- ----------- ------------
Total $135,145,000 $ 56,000 $(8,407,000) $126,794,000
============ ======== =========== ============
Securities available for sale:
U.S. Treasury and government
agency securities $ 7,006,000 $ 4,000 $ (403,000) $ 6,607,000
States and political subdivisions 7,537,000 14,000 (271,000) 7,280,000
Mortgage-backed and related
securities 4,978,000 - (223,000) 4,755,000
Other 1,949,000 - - 1,949,000
------------ -------- ----------- ------------
Total $ 21,470,000 $ 18,000 $ (897,000) $ 20,591,000
============ ======== =========== ============
</TABLE>
F - 82
<PAGE> 160
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of the investment securities as of December
31, 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because the mortgages underlying the
mortgage-backed and related securities may be called or prepaid without any
penalties. Therefore, these securities are not included in the maturity
categories in the following summary. Other securities are excluded from the
maturity categories as there is no fixed maturity date.
<TABLE>
<CAPTION>
December 31, 1995
---------------------------------------------------------------
Securities Held to Maturity Securities Available for Sale
------------------------------ -----------------------------
Amortized Cost Fair Value Amortized Cost Fair Value
-------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 130,000 $ 132,000 $ 1,700,000 $ 1,664,000
Due after one year through five years 198,000 204,000 5,183,000 5,091,000
Due after five years through ten years 186,000 203,000 1,329,000 1,406,000
Due after ten years - - 4,095,000 4,355,000
------------ ------------ ----------- -----------
514,000 539,000 12,307,000 12,516,000
Mortgage-backed and related
securities 103,312,000 101,084,000 27,908,000 28,463,000
Other - - 1,520,000 1,520,000
------------ ------------ ----------- -----------
$103,826,000 $101,623,000 $41,735,000 $42,499,000
============ ============ =========== ===========
</TABLE>
Gross realized gains and losses for the years ended December 31, 1995, 1994,
and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Realized gains $407,000 $574,000 $893,000
Realized (losses) (5,000) (69,000) (27,000)
</TABLE>
As of December 31, 1995 and 1994, investment securities with a carrying value
of approximately $71,689,000 and $68,212,000, respectively, were pledged to
collateralize government and public deposits and to secure securities sold
under agreements to repurchase as permitted or required by law.
Prairie transferred securities with an amortized cost of $20,935,000 and an
unrealized gain of $452,000 from held to maturity to available for sale on
December 31, 1995, based on management's reassessment of their previous
designations of securities giving consideration of liquidity needs, management
of interest rate risk, and other factors.
NOTE 4. LOANS
Loans as of December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Real estate, mortgage $37,652,000 $33,422,000
Commercial and agricultural 21,327,000 20,625,000
Installment 8,218,000 6,889,000
----------- -----------
67,197,000 60,936,000
Less:
Unearned discount 64,000 141,000
Allowance for loan losses 741,000 715,000
----------- -----------
Loans, net $66,392,000 $60,080,000
=========== ===========
</TABLE>
F - 83
<PAGE> 161
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Prairie's opinion as to the ultimate collectibility of these loans is subject
to estimates regarding future cash flows from operations and the value of
property, real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic prospects of
borrowers.
Changes in the allowance for loan losses for the years ended December 31, 1995,
1994, and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning $715,000 $ 781,000 $ 963,000
Provision for loan losses (31,000) 10,000 (100,000)
Loans charged off (87,000) (153,000) (153,000)
Recoveries 144,000 77,000 71,000
-------- --------- ---------
Balance, ending $741,000 $ 715,000 $ 781,000
======== ========= =========
</TABLE>
Management believes that loan balances on loans determined to be impaired are
immaterial.
NOTE 5. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land $ 305,000 $ 301,000
Buildings and improvements 3,036,000 2,849,000
Furniture and equipment 2,556,000 2,348,000
---------- ----------
5,897,000 5,498,000
Less accumulated depreciation 2,570,000 2,195,000
---------- ----------
$3,327,000 $3,303,000
========== ==========
</TABLE>
NOTE 6. DEPOSITS
A maturity distribution of time certificates of deposit in denominations of
$100,000 or more were as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
3 months or less $15,871,000 $ 6,706,000
Over 3 months through 6 months 3,754,000 5,186,000
Over 6 months through 12 months 5,346,000 4,161,000
Over 12 months 4,211,000 3,795,000
----------- -----------
$29,182,000 $19,848,000
=========== ===========
</TABLE>
NOTE 7. SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities sold under
agreements to repurchase.
Average and maximum balances and rates on aggregate short-term borrowings
outstanding were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Maximum month-end balance $15,390,000 $15,203,000 $9,473,000
Average month-end balance 7,523,000 6,404,000 3,395,000
Weighted average interest rate for the year 6.78% 6.03% 7.60%
Weighted average interest rate at year-end 6.30 6.22 7.20
</TABLE>
F - 84
<PAGE> 162
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. FEDERAL HOME LOAN BANK ADVANCES
Pursuant to agreements with the Federal Home Loan Bank (FHLB), advances are
collateralized by qualifying first mortgage loans and investment securities.
Advances as of December 31, 1995 carry fixed interest rates ranging from 4.3%
through 7.5%. The maturities of advances as of December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended December 31:
1996 $12,272,000
1997 566,000
1998 2,960,000
Thereafter 1,195,000
-----------
$16,993,000
===========
</TABLE>
NOTE 9. NOTE PAYABLE
Prairie has a $4,195,000 revolving promissory note with a balance of $3,950,000
as of December 31, 1995. The loan is secured by Prairie's stock in the
Prairie Banks. The note bears interest at the rate of LaSalle National Bank's
prime rate (8.5% at December 31, 1995). Payments of interest on the note are
required to be made quarterly until all amounts outstanding are paid. The
balance is due on or before April 1, 1996. The loan agreement contains certain
affirmative and negative covenants. Prairie was in compliance with the
covenants as of December 31, 1995.
NOTE 10. PROFIT SHARING PLANS
Prairie has a 401(k) plan covering substantially all employees. Participants
are not required to make any contribution but may make a voluntary contribution
of up to 12% of their compensation. The plan provides for discretionary
contributions to be determined annually by Prairie's Board of Directors. The
total contributions to the plan for the years ended December 31, 1995, 1994,
and 1993 were $106,000, $125,000, and $111,000, respectively.
NOTE 11. INCOME TAXES
The components of income tax expense for the years ended December 31, 1995,
1994, and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current $ 255,000 $ 204,000 $ 266,000
Deferred 20,000 23,000 5,000
--------- --------- ---------
$ 275,000 $ 227,000 $ 271,000
========= ========= =========
</TABLE>
A reconciliation of the expected federal income tax expense using a statutory
federal rate of 34% to the income tax expense included in the statements of
income for the years ended December 31, 1995, 1994, and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense $ 407,000 $ 388,000 $ 571,000
Tax exempt interest income, net (130,000) (182,000) (303,000)
Other (2,000) 21,000 3,000
--------- --------- ---------
$ 275,000 $ 227,000 $ 271,000
========= ========= =========
</TABLE>
There were no state income taxes for the years ended December 31, 1995, 1994,
and 1993 due primarily to U.S. Treasury interest exemption and net operating
loss carryforwards utilized.
F - 85
<PAGE> 163
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The net deferred tax assets (liabilities) on the consolidated balance sheets
included in other assets (liabilities) as of December 31, 1995 and 1994 include
the following amounts:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Deferred tax assets:
Net unrealized losses on securities available for sale $ - $306,000
Allowance for loan losses 73,000 96,000
--------- --------
73,000 402,000
--------- --------
Deferred tax liabilities:
Net unrealized gains on securities available for sale (260,000) -
Premises and equipment (90,000) (87,000)
Other (6,000) (12,000)
--------- --------
(356,000) (99,000)
--------- --------
Net deferred tax assets (liabilities) $(283,000) $303,000
========= ========
</TABLE>
NOTE 12. REGULATORY CAPITAL REQUIREMENTS
Federal regulatory agencies have adopted various capital standards for banks,
including risk-based capital standards. The primary objectives of the
risk-based capital framework are to provide a more consistent system for
comparing capital positions of banks and to take into account the different
risks among banks' assets and off-balance sheet items.
Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition,
regulatory agencies consider the published capital levels as minimum levels and
may require banks to maintain capital at higher levels.
A comparison of Prairie's and each of the Prairie Banks' capital as of December
31, 1995 with the minimum requirements is presented below:
<TABLE>
<CAPTION>
Minimum Prairie
Requirements Bancorp, Inc. Manlius Tampico
------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Tier 1 risk-based capital 4.00% 14.52% 13.67% 24.54%
Total risk-based capital 8.00 15.46 14.31 25.70
Leverage ratio 3.00 5.05 6.56 6.77
</TABLE>
<TABLE>
<CAPTION>
Ladd Tiskilwa Ferris Hanover
------ -------- ------ -------
<S> <C> <C> <C> <C>
Tier 1 risk-based capital 17.87% 20.37% 16.74% 24.53%
Total risk-based capital 18.50 21.52 17.51 25.78
Leverage ratio 7.04 6.83 5.70 8.10
</TABLE>
According to Federal Reserve Board capital guidelines, Prairie is considered to
be adequately capitalized. According to FDIC capital guidelines, the Prairie
Banks are considered to be well capitalized.
National bank regulations restrict the amount of dividends that may be paid by
banks to their stockholders. Dividends declared by national banks that exceed
the net income for the current year plus retained net income for the preceding
two years must be approved by the Comptroller of the Currency. Under this
formula, dividends of approximately $301,000 and $106,000 may be paid without
prior regulatory approval by Manlius and Tampico, respectively.
Regardless of formal regulatory restrictions, Prairie and the Prairie Banks may
not pay dividends that would result in their capital levels being reduced below
the minimum requirements shown above.
F - 86
<PAGE> 164
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. PARENT COMPANY ONLY FINANCIAL INFORMATION
Following is condensed financial information of Prairie Bancorp, Inc. (parent
company only) as of December 31, 1995 and 1994 and for the three years ended
December 31, 1995.
<TABLE>
<CAPTION>
BALANCE SHEETS (PARENT COMPANY ONLY) December 31,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Cash $ 257,000 $ 122,000
Investment in subsidiaries 15,428,000 14,013,000
Premises and equipment, net 46,000 54,000
Other assets 72,000 149,000
------------- -----------
$ 15,803,000 $14,338,000
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 3,950,000 $ 5,245,000
Other liabilities 12,000 125,000
------------- -----------
3,962,000 5,370,000
------------- -----------
Stockholders' equity:
Common stock, no par value; authorized, issued and outstanding
1,000 shares 1,000 1,000
Preferred stock 6,092,000 4,592,000
Additional paid-in capital 1,579,000 1,579,000
Retained earnings 3,686,000 3,342,000
Unrealized gains (losses) on securities
available for sale 483,000 (546,000)
------------- -----------
Total stockholders' equity 11,841,000 8,968,000
------------- -----------
$ 15,803,000 $14,338,000
============= ===========
</TABLE>
F - 87
<PAGE> 165
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME STATEMENTS (PARENT COMPANY ONLY) Years Ended December 31,
-------------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Operating revenue:
Dividends received from subsidiaries $1,392,000 $ 980,000 $ 865,000
Other 47,000 124,000 124,000
---------- ---------- ----------
1,439,000 1,104,000 989,000
Operating expenses 911,000 858,000 712,000
---------- ---------- ----------
Income before income tax (credits)
and equity in undistributed
net income of subsidiaries 528,000 246,000 277,000
Income tax (credits) (274,000) (247,000) (185,000)
---------- ---------- ----------
802,000 493,000 462,000
Equity in undistributed net income of subsidiaries 26,000 293,000 850,000
---------- ---------- ----------
Net income $ 828,000 $ 786,000 $1,311,000
========== ========== ==========
</TABLE>
F - 88
<PAGE> 166
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) Years Ended December 31,
--------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 828,000 $ 786,000 $ 1,311,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
subsidiaries (26,000) (293,000) (850,000)
Depreciation 11,000 5,000 -
Decrease in other assets 77,000 78,000 21,000
(Decrease) in other liabilities (113,000) (172,000) (122,000)
----------- ----------- -----------
Net cash provided by operating
activities 777,000 404,000 360,000
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of additional shares of subsidiaries (360,000) (3,046,000) (1,712,000)
Purchase of premises and equipment (3,000) (59,000) -
----------- ----------- -----------
Net cash (used in) investing activities (363,000) (3,105,000) (1,712,000)
----------- ----------- -----------
Cash Flows from Financing Activities:
Cash dividends paid (484,000) (345,000) (66,000)
Proceeds from note payable - - 1,150,000
Principal payments on notes payable (1,295,000) (350,000) -
Proceeds from issuance of preferred stock 1,500,000 3,500,000 -
Stockholders' contribution - - 160,000
----------- ----------- -----------
Net cash provided by (used in)
financing activities (279,000) 2,805,000 1,244,000
----------- ----------- -----------
Net increase (decrease) in cash 135,000 104,000 (108,000)
Cash, beginning 122,000 18,000 126,000
----------- ----------- -----------
Cash, ending $ 257,000 $ 122,000 $ 18,000
=========== =========== ===========
</TABLE>
F - 89
<PAGE> 167
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. RELATED PARTY TRANSACTIONS
In the normal course of business, loans are made to employees, executive
officers, directors, principal stockholders of Prairie and the Prairie Banks
and to parties which Prairie or its directors, executive officers, and
stockholders have the ability to significantly influence its management or
operations (related parties). In the opinion of management, the terms of these
loans, including interest rates and collateral, are similar to those prevailing
for comparable transactions with other customers and do not involve more than a
normal risk of collectibility. Changes in such loans during the year ended
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Balance, beginning $ 1,455,000
New loans, extensions, and modifications 608,000
Repayments (1,205,000)
-----------
Balance, ending $ 858,000
===========
</TABLE>
NOTE 15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal action, which are not reflected in the
consolidated financial statements. In the opinion of management, no material
losses are anticipated as a result of these actions or claims.
The Prairie Banks are parties to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include unused lines of credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheets.
The Prairie Banks' exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for unused lines of credit and
standby letters of credit is represented by the contractual amounts of these
instruments. The Prairie Banks use the same credit policies in making
commitments and conditional obligations as they do for on-balance sheet
instruments.
Financial instruments whose contractual amounts represent credit risk are as
follows:
<TABLE>
<S> <C>
Unused lines of credit $4,598,000
Standby letters of credit 75,000
</TABLE>
Unused lines of credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. These agreements
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Prairie Banks evaluate each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained
if deemed necessary by the Prairie Banks upon extension of credit is based upon
management's credit evaluation of the counter-party. Collateral varies but may
include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Prairie
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements and extend for no more than one year. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.
Prairie does not engage in the use of interest rate swaps or futures, forwards
or option contracts.
F - 90
<PAGE> 168
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Concentration of credit risk: The Prairie Banks grant commercial, residential
and consumer loans to customers throughout the Prairie Banks' market areas
which are primarily in the following Illinois counties:
<TABLE>
<CAPTION>
Banks County
----- ------
<S> <C>
Manlius, Ladd and Tiskilwa Bureau
Tampico Whiteside
Ferris Hancock
Hanover Jo Davies
</TABLE>
Although the Prairie Banks have diversified loan portfolios, a substantial
portion of their debtors' ability to honor their contracts is dependent upon
the agribusiness and industrial economic sectors. The Prairie Banks' policy
for requiring collateral is consistent with prudent lending practice and
anticipates the potential for economic fluctuations. Collateral varies but may
include accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties. It is the policy of the Prairie Banks
to file financing statements and mortgages covering collateral pledged.
NOTES 16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107 "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
These fair value disclosures are not intended to represent the market value of
Prairie. The investment securities held to maturity and loan portfolios are
intended to be held to maturity, and unrealized gains and losses are not
intended to be realized. Income taxes and transaction costs have not been
considered in estimating fair values.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and due from banks: For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investment securities: For investment securities held to maturity and
securities available for sale, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Federal funds sold: The carrying amount is a reasonable estimate of fair
value.
Loans: The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
Deposits: The fair value of demand deposits, NOW accounts, savings accounts,
and money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
by discounting cash flows using the rates currently offered for deposits of
similar remaining maturities.
Federal funds purchased: The carrying amount is a reasonable estimate of fair
value.
F - 91
<PAGE> 169
PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Repurchase agreements: For short-term agreements, the carrying amount is a
reasonable estimate of fair value. For agreements with a term greater than
six months, fair value is estimated by discounting cash flows using the rates
currently offered for agreements of similar remaining maturities.
Federal Home Loan Bank advances and note payable: The cash flows discounted
at rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to extend credit and standby letters of credit: The fair value of
commitments is estimated using the fees currently charged to enter into
similar agreements. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
commitment rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them.
The estimated fair values of Prairie's financial instruments rounded to the
nearest $1,000 are as follows:
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------
Carrying
Amount Fair Value
----------- -----------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 4,458,000 $ 4,458,000
Investment securities:
Held to maturity 103,826,000 101,623,000
Available for sale 42,499,000 42,499,000
Federal funds sold 2,045,000 2,045,000
Loans, net 66,392,000 66,167,000
Financial liabilities:
Deposits 183,296,000 184,211,000
Federal funds purchased 275,000 275,000
Repurchase agreements 6,181,000 6,353,000
Federal Home Loan Bank advances and note payable 20,943,000 21,012,000
Unrecognized financial instruments:
Commitments to extend credit - -
Standby letters of credit - -
</TABLE>
In addition, other assets and liabilities of Prairie that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the trained work force,
customer goodwill and similar items.
NOTE 17. SUBSEQUENT EVENTS
In January of 1996, Prairie entered into an Agreement and Plan of Merger which
would merge Prairie Bancorp, Inc. with Prairie Acquisition Corporation, a
wholly-owned subsidiary of Union Bancorp, Inc, in which Prairie would be the
surviving entity.
F - 92
<PAGE> 170
COUNTRY BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of Country Bancshares, Inc.
should be read in conjunction with the Consolidated Financial Statements of
Country Bancshares, Inc. and the Notes thereto appearing elsewhere in this
Prospectus and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Country
Bancshares, Inc." The selected historical consolidated financial data as of
and for the two years in the period ended December 31, 1995 are derived from
Country's Consolidated Financial Statements which have been audited by
independent public accountants. The selected historical consolidated financial
data as of and for the six months ended June 30, 1996 and June 30, 1995 is
unaudited.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Years Ended December 31,
----------------------------------- ----------------------------------
1996 1995 1995 1994
--------------- -------------- --------------- -------------
INCOME STATEMENT DATA: (unaudited)
<S> <C> <C> <C> <C>
Interest income $ 3,817,540 $ 2,677,130 $ 6,029,752 $ 3,808,189
Interest expense 2,449,162 1,480,190 3,531,998 1,789,304
-------------- ------------ ------------- ------------
Net interest income 1,368,378 1,196,940 2,497,754 2,018,885
Provision for loan losses 144,713 - 40,200 15,800
-------------- ------------ ------------- ------------
Net interest income after provision
for loan losses $ 1,223,665 $ 1,196,940 $ 2,457,554 $ 2,003,085
Noninterest income 601,489 254,870 588,735 398,227
Noninterest expense 1,599,866 1,400,247 2,840,209 2,485,239
Net income before income taxes 225,288 51,563 206,080 (83,927)
Income tax (benefit) 70,000 18,000 (2,518) (46,830)
-------------- ------------ ------------- ------------
Net income $ 155,288 $ 33,563 $ 208,598 $ (37,097)
============== ============ ============= ============
COMMON SHARE DATA:
Net income $ 5.92 $ 1.28 $ 7.95 $ (3.57)
Book value 93.06 85.27 93.89 83.99
Weighted average common shares outstanding 26,225 26,225 26,225 10,403
Period end common shares outstanding 26,225 26,225 26,225 26,225
BALANCE SHEET DATA:
Total assets $ 103,172,283 $ 81,506,381 $ 96,604,878 $ 64,245,341
Loans, net 66,073,420 47,265,290 56,177,110 37,648,698
Allowance for loan losses 500,318 381,092 420,426 329,251
Total deposits 90,844,320 74,030,796 86,546,471 58,945,175
Stockholders' equity 2,440,428 2,236,120 2,462,260 2,202,557
PERFORMANCE DATA:
Return (loss) on average total assets (1) 0.30% 0.09% 0.26% (0.06)%
Return (loss) on average
stockholders' equity (1) 12.78 3.05 8.94 (1.79)
Net interest margin 2.90 3.61 3.39 3.90
Loans to deposits 72.73 63.85 64.91 63.87
Efficiency ratio (2) 80.80 95.89 91.49 102.66
ASSET QUALITY RATIOS:
Nonperforming assets to total assets 1.63% 0.62% 0.61% 1.00%
Nonperforming loans to total loans 2.39 0.94 0.95 1.54
Net loan charge-offs to average loans (1) 0.21 (0.12) (0.11) 0.04
Allowance for loan losses to total loans 0.75 0.80 0.74 0.87
Allowance for loan losses
to nonperforming loans 31.09 84.88 77.80 55.97
CAPITAL RATIOS: (OMNI BANK)
Tier I risk-based capital 10.51% 13.87% 11.44% 11.40%
Total risk-based capital 11.30 14.69 12.20 12.29
Leverage 6.41 7.92 6.61 6.78
</TABLE>
- --------------
(1) All interim periods have been annualized.
(2) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.
F - 93
<PAGE> 171
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF COUNTRY BANCSHARES, INC.
The following discussion provides additional information regarding the
operations and financial condition of Country Bancshares, Inc. ("Country") for
the six months ended June 30, 1996 and 1995 and the years ended December 31,
1995 and 1994. The discussion should be read in conjunction with the
consolidated statements of financial condition as of, and the results of
operations, for the years ended December 31, 1995 and 1994 and for the six
months ended June 30, 1996 and 1995 and accompanying notes included elsewhere
in the Prospectus.
GENERAL
Country derives substantially all of its revenues and income from the
operations of its subsidiary, Omni Bank, which provides a full range of
commercial and consumer banking services to businesses and individuals,
primarily in the western Illinois area. As of June 30, 1996, Country had total
assets of $103.2 million, net loans of $66.1 million, total deposits of $90.8
million and total stockholders' equity of $2.4 million. Country reported net
income of $155,288 for the six months ended June 30, 1996 compared with net
income of $33,563 for the six months ended June 30, 1995 as a result of
internal loan and deposit portfolio growth.
On December 5, 1994, Country merged with Paloma Bancshares, Inc. and its two
subsidiaries, Paloma Exchange Bank and First National Bank of Blandinsville.
In conjunction with the merger, Paloma Bancshares, Inc. was merged into Country
and Paloma Exchange Bank and First National Bank of Blandinsville were merged
into Omni Bank. Country continues to actively serve the banking needs of these
local communities, as it has served the local communities of its other
branches.
During 1995 and the first six months of 1996, Country substantially expanded
its efforts to increase deposits, loans and total assets, and Country increased
its emphasis on the Macomb market. Deposits grew from $58.9 million at the end
of December 31, 1994 to $90.8 million at the end of June, 1996, a 54.1%
increase. Loans, net of the allowance for loan losses, increased from $37.6
million to $66.0 million, a 75.5% increase. During the same period, total
assets grew from $64.2 million to $103.2 million, a 60.6% increase.
RESULTS OF OPERATIONS
NET INCOME
Net income was $155,288 ($5.92 per share) for the six months ended June 30,
1996, compared with net income of $33,563 ($1.28 per share) for the six months
ended June 30, 1995, an increase of $121,725 or 362.7%. Factors contributing
to the increase in net income in 1996 compared with 1995 included growth in
Country's loan and deposit portfolios and a gain of approximately $190,000 on
the sale of a nonperforming loan.
Net income was $208,598 for 1995 ($7.95 per share), compared with a net loss of
$37,097 for 1994 ($3.57 per share). The net income per share in 1994 was
affected by additional shares issued in December 1994 in connection with the
acquisition of Paloma Bancshares. The $245,695 increase in net income for 1995
was attributable to an increase in net interest income resulting from growth in
Country's loan and deposit portfolios.
NET INCOME BEFORE INCOME TAXES
Net income before income taxes was $225,288 for the six months ended June 30,
1996, compared with $51,563 for the first six months of 1995, an increase of
$173,725 or 336.9%.
F - 94
<PAGE> 172
Net income before income taxes was $206,080 in 1995 compared with a net loss of
$83,927 in 1994, an increase of $290,007 or 345.5%. The improvement in net
income before income taxes for 1995 compared to 1994 was primarily attributable
to an increase in net interest income resulting from growth in Country's loan
and deposit portfolios.
NET INTEREST INCOME
Net interest income is the difference between income earned on interest-earning
assets and the interest expense incurred on interest-bearing liabilities. The
net yield on total interest-earning assets, also referred to as interest rate
margin or net interest margin, represents net interest income divided by
average interest-earning assets. Country's principal interest-earning assets
are loans, investment securities and federal funds sold.
Net interest income was $1,368,378 for the first six months of 1996, an
increase of $171,438 or 14.3% compared with the first six months of 1995,
resulting principally from an increase in average total interest-earning assets
from $66.9 million to $95.4 million, a significant portion of which was
comprised of loans (typically the highest yielding asset). The increase in
average total interest-earning assets was offset by an increase in
interest-bearing liabilities from $60.3 million to $ 87.8 million, and a
decrease in the net interest spread from 3.12% to 2.46% for the six months
ended June 30, 1995 and 1996, respectively. The foregoing decrease resulted
principally from the fact that the cost of interest-bearing liabilities
increased more than the yield on the interest-earning assets. The yield on
interest-earning assets remained constant, while the cost of interest-bearing
liabilities increased from 4.95% to 5.64% for the six months ended June 30,
1995 and 1996, respectively.
Net interest income was $2,497,754 for 1995, an increase of $478,869 or 23.7%
compared with net interest income of $2,018,885 for 1994, which represented an
increase of $79,893 or 4.1% compared with 1993. Country's average total
interest-earning assets increased from approximately $51.8 million for 1994 to
$73.8 million for 1995, representing a 42.5% increase resulting principally
from an increase in loans. The net interest margin decreased to 3.39% for 1995
from 3.9% for 1994.
The following table sets forth for each category of interest-earning assets and
interest-bearing liabilities the average amounts outstanding, the interest
earned or paid on such amounts and the average rate paid for the six months
ended June 30, 1996 and 1995 and for the years ended December 31, 1995 and
1994. The table also sets forth the average rate earned on all
interest-earning assets, the average rate paid on all interest-bearing
liabilities, the net interest spread and the net interest margin on average
interest-earning assets for the same periods.
F - 95
<PAGE> 173
AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
----------------------------------------------------------------------
1996 1995
---------------------------------- ----------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
- -------------------------------------------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Certificates of deposit $ - $ - - $ 66,514 $ 2,098 6.36%
Federal funds sold 10,781,494 291,516 5.47% 9,145,144 266,247 5.87
U.S. Treasury and agency
securities 22,217,655 662,565 6.03 15,224,434 474,509 6.29
Municipal securities (1) 224,738 6,862 6.17 866,560 25,057 5.83
Loans (2)(3) 61,576,465 2,845,217 9.34 41,539,741 1,908,931 9.27
Other interest-earning
assets 552,668 11,380 4.16 36,000 288 1.61
------------ ---------- -------- ----------- ---------- --------
Total interest
earning assets $ 95,353,020 $3,817,540 8.10% $66,878,393 $2,677,130 8.07%
------------ ---------- ----------- ----------
Less: Allowance for loan
losses (454,823) (328,706)
Cash and due from banks 2,504,080 2,581,790
Premises and equipment 3,640,239 2,642,988
Other assets 1,458,842 1,339,942
------------ -----------
Total assets $102,501,358 $73,114,407
============ ===========
LIABILITIES
Interest-earning liabilities:
Interest-bearing demand
deposits $ 9,885,649 $ 127,138 2.60% $ 9,636,665 $ 123,900 2.59%
Savings deposits 4,194,065 46,042 2.22 4,384,383 48,062 2.21
Time deposits 66,165,783 1,996,417 6.10 43,602,306 1,204,228 5.57
Notes payable 7,519,475 279,565 7.52 2,654,587 104,000 7.90
------------ ---------- -------- ----------- ---------- --------
Total interest-bearing
liabilities $ 87,764,972 $2,449,162 5.64 $60,277,941 $1,480,190 4.95
------------ ---------- ----------- ----------
Noninterest-bearing
deposits 10,873,509 9,729,877
Other liabilities 1,411,533 887,200
------------ -----------
Total liabilities 100,050,014 70,895,018
------------ -----------
Stockholders' equity 2,451,344 2,219,389
------------ -----------
Total liabilities
and equity $102,501,358 $73,114,407
============ ===========
Net interest income $1,368,378 $1,196,940
========== ==========
Net interest spread 2.46% 3.12%
======== ========
Net interest margin 2.90% 3.61%
======== ========
</TABLE>
- ---------------------
(1) Interest income on tax exempt securities does not reflect the tax
equivalent yield.
(2) Loans on nonaccrual status have been included in the computation of average
balances.
(3) The interest income on loans includes loan fees. Loan fees were $210,998
and $85,262 for the six months ended June 30, 1996 and 1995, respectively.
F - 96
<PAGE> 174
AVERAGE BALANCE SHEET AND ANALYSIS FORMAT OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------------
1995 1994
---------------------------------------- -----------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
- -------------------------------------------- ----------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Certificates of deposit $ 32,984 $ 2,098 6.36% $ 182,000 $ 1,567 0.86%
Federal funds sold 9,096,414 531,491 5.84 5,443,003 232,514 4.27
U.S. Treasury and
agency securities 16,698,794 1,075,320 6.44 11,586,634 453,987 3.92
Municipal securities (1) 852,461 49,399 5.79 998,487 62,237 6.23
Loans (2)(3) 46,980,953 4,370,787 9.30 33,501,783 3,043,219 9.08
Other interest-earning
assets 96,572 657 0.68 42,000 14,665 34.90
----------- ---------- -------- ----------- ---------- --------
Total interest
earning assets $73,758,178 $6,029,752 8.18% $51,753,907 $3,808,189 7.36%
----------- ---------- ----------- ----------
Less: Allowance for
loan losses (362,922) (327,908)
Cash and due from banks 2,729,000 3,755,172
Premises and equipment 3,180,227 2,218,879
Other assets 1,078,368 1,206,148
----------- -----------
Total assets $80,382,851 $58,606,198
=========== ===========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 9,787,777 $ 247,420 2.53% $11,315,861 $ 253,863 2.24%
Savings deposits 4,296,022 94,218 2.19 4,935,017 102,304 2.07
Time deposits 49,407,934 2,872,390 5.81 28,202,734 1,219,893 4.33
Notes payable 3,343,222 317,970 9.51 2,412,500 213,244 8.84
----------- ---------- -------- ----------- ---------- --------
Total interest-bearing
liabilities $66,834,955 $3,531,998 5.28 $46,866,112 $1,789,304 3.82
----------- ---------- ----------- ----------
Noninterest-bearing
deposits 10,309,771 9,055,273
Other liabilities 905,716 614,492
----------- -----------
Total liabilities 78,050,442 56,535,877
Stockholders' equity 2,332,409 2,070,321
----------- -----------
Total liabilities
and equity $80,382,851 $58,606,198
=========== ===========
Net interest income $2,497,754 $2,018,885
========== ==========
Net interest spread 2.90% 3.54%
======== ========
Net interest margin 3.39% 3.90%
======== ========
</TABLE>
- ---------------------
(1) Interest income on tax exempt securities does not reflect the tax
equivalent yield.
(2) Loans on nonaccrual status have been included in the computation of average
balances.
(3) The interest income on loans includes loan fees. Loan fees were $261,239
and $155,034 for the years ended December 31, 1995 and 1994, respectively.
F - 97
<PAGE> 175
Country's net interest income is affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities, referred to as a
"volume change". It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as a "rate change". The decline in the net yield on
total interest-earning assets from 1995 through the first six months of 1996
resulted principally from an increase in investment securities as a percentage
of total interest-earning assets, which produced a lower average rate of return
for Country than loans. The following table reflects the changes in net
interest income stemming from changes in interest rates and from asset and
liability volume, including mix. The change in interest attributable to both
rate and volume has been allocated to the changes in the rate and the volume on
a pro rata basis.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 Compared Years Ended December 31, 1995
with Six Months Ended June 30, 1995 Compared with December 31, 1994
--------------------------------------- ------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------------------- ------------------------------------
Volume (1) Rate Changes Volume (1) Rate Changes
- ---------------------------------------------- --------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 925,765 $ 10,521 $ 936,286 $1,252,333 $ 75,235 $1,327,568
Certificates of deposit (1,049) (1,049) (2,098) (78) 609 531
Federal funds sold 41,997 (16,728) 25,269 193,146 105,831 298,977
U.S. Treasury and agency 207,572 (19,516) 188,056 252,733 368,600 621,333
Municipal securities (19,682) 1,487 (18,195) (8,670) (4,168) (12,838)
Other interest-earning assets 9,996 1,096 11,092 (57,089) 43,081 (14,008)
---------- ---------- ---------- ---------- ---------- ----------
Total interest income $1,164,599 $ (24,189) $1,140,410 $1,632,375 $589,188 $2,221,563
---------- ---------- ---------- ---------- ---------- ----------
Interest Expense:
Interest-bearing deposits $ 3,202 $ 36 $ 3,238 $ (105,338) $ 98,895 $ (6,443)
Savings deposits (2,089) 69 (2,020) (14,636) 6,550 (8,086)
Time deposits 740,857 51,332 792,189 1,133,721 518,776 1,652,497
Borrowed funds 82,432 93,133 175,565 87,491 17,235 104,726
---------- ---------- ---------- ---------- ---------- ----------
Total interest expense $ 824,402 $ 144,570 $ 968,972 $1,101,238 $641,456 $1,742,694
---------- ---------- ---------- ---------- ---------- ----------
Net interest margin $ 340,197 $ (168,759) $ 171,438 $ 531,137 $(52,268) $ 478,869
========== ========== ========== ========== ========== ==========
<CAPTION>
Years Ended December 31, 1994
Compared with December 31, 1993
------------------------------------
Increase (Decrease) Due to
------------------------------------
Volume (1) Rate Changes
- -------------------------------------------- --------- -----------
<S> <C> <C> <C>
Interest Income:
Loans $ 401,672 $ 133,289 $ 534,961
Certificates of deposit 331 (1,612) (1,281)
Federal funds sold 6,089 105,974 112,063
U.S. Treasury and agency 73,000 (281,367) (208,367)
Municipal securities (11,168) (37,755) (48,923)
Other interest-earning assets (7,241) (42,964) (50,205)
---------- ---------- ----------
Total interest income $ 462,683 $(124,435) $ 338,248
---------- ---------- ----------
Interest Expense:
Interest-bearing deposits $ (31,865) $ (25,598) $ (57,463)
Savings deposits (3,786) (44,706) (48,492)
Time deposits 290,298 832 291,130
Borrowed funds (4,089) 77,269 73,180
---------- ---------- ----------
Total interest expense $ 250,558 $ 7,797 $ 258,355
---------- ---------- ----------
Net interest margin $ 212,125 $(132,232) $ 79,893
========== ========== ==========
</TABLE>
- -----------------
(1) Nonaccrual loans are included in the average volumes used in calculating
this table.
F - 98
<PAGE> 176
PROVISION FOR LOAN LOSSES
The amount of the provision for loan losses is based on periodic (not less than
quarterly) evaluations of the loan portfolio, with particular attention
directed toward nonperforming and other potential problem loans. During these
evaluations, consideration is given to such factors as management's evaluation
of specific loans, the level and composition of nonperforming loans, historical
loss experience, results of examinations by regulatory agencies, the market
value of collateral, the strength and availability of guaranties,
concentrations of credits, and other judgmental factors.
Country recorded a $144,713 provision for loan losses during the six months
ended June 30, 1996 compared with no provision during the first six months of
1995. As Country's ratio of net charge-offs to average loans increased
slightly during 1996, additional amounts were provided to compensate for
ongoing growth in the loan portfolio in order to maintain the allowance for
loan losses at an adequate level.
The 1995 provision for loan losses was $40,200 compared with $15,800 in 1994.
The increase in the 1995 provision occurred as a result of the 40.2% growth in
average loans outstanding.
NONINTEREST INCOME
The following table sets forth the various categories of noninterest income for
the six months ended June 30, 1996 and 1995 and for the years ended December
31, 1995 and 1994.
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
------------------ ------------------
1996 1995 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Noninterest income
Service charges $311,050 $220,024 $494,659 $379,881
Securities gains, net - - 5,730 -
Other 290,439 34,846 88,346 18,346
-------- -------- -------- --------
Total noninterest
income $601,489 $254,870 $588,735 $398,227
======== ======== ======== ========
</TABLE>
Noninterest income is generated primarily from fees associated with noninterest
and interest-bearing accounts. Noninterest income for the first six months of
1996 was $601,489, an increase of $346,619 or 136% compared with noninterest
income of $254,870 for the first six months of 1995. The growth of Omni Bank
during 1996 increased the number and balance of noninterest and
interest-bearing accounts, which resulted in increased noninterest income.
Other noninterest income was $290,439 for the first six months of 1996, an
increase of $255,593 compared with other noninterest income of $34,846 for the
first six months of 1995. The increase in other noninterest income is
primarily due to a gain of approximately $190,000 on the sale of a
nonperforming loan.
Noninterest income was $588,735 for 1995, an increase of $190,508 or 47.8%
compared with noninterest income of $398,227 for 1994. Noninterest income
increased from 1994 to 1995 in all categories, primarily as a result of the
growth of Omni Bank's noninterest and interest-bearing accounts.
F - 99
<PAGE> 177
NONINTEREST EXPENSE
The following table sets forth the various categories of noninterest expense
for the six months ended June 30, 1996 and 1995 and for the years ended
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
----------------------- ----------------------
1996 1995 1995 1994
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Salaries and wages $ 783,244 $ 632,073 $1,317,433 $1,138,623
Employee benefits 72,414 104,955 193,329 201,804
Occupancy and equipment 236,884 214,829 492,966 400,992
FDIC assessment (120) 78,017 84,524 97,558
Other expenses:
Legal 108,288 23,062 28,720 26,850
Stationary, supplies and printing 50,177 43,026 76,834 71,671
Telephone 34,577 38,025 56,367 65,309
Postage 48,186 36,838 74,081 68,317
Correspondent bank charges 40,719 36,050 74,926 42,178
Directors fees 13,050 16,845 38,230 66,900
Amortization 8,149 8,176 16,325 3,851
Other 204,298 168,351 386,474 301,186
---------- ---------- ---------- ----------
Total other expenses 507,444 370,373 751,957 646,262
---------- ---------- ---------- ----------
Total noninterest expense $1,599,866 $1,400,247 $2,840,209 $2,485,239
========== ========== ========== ==========
</TABLE>
Noninterest expense was $1,599,866 for the first six months of 1996, an
increase of $199,619 or 14.3% compared with noninterest expense of $1,400,247
for the first six months of 1995. The growth of Omni Bank resulted in
additional personnel, occupancy and office expenses.
Deposits held by Omni Bank are insured by the Bank Insurance Fund ("BIF") of
the Federal Deposit Insurance Corporation ("FDIC"), and as FDIC-insured
institutions, the Omni Banks are required to pay deposit insurance premium
assessments to the FDIC. The amount an institution pays for FDIC deposit
insurance coverage is determined in accordance with a risk-based assessment
system under which each insured depository institution is placed into one of
nine categories and assessed insurance premiums based upon its level of capital
and the results of supervisory evaluations. The FDIC has issued refunds to the
best-rated institutions for assessment which exceeded the recapitalization
requirements of the BIF. The Omni Banks received a total refund from the FDIC
of approximately $41,000. The change in the deposit insurance assessment rate
is expected to significantly reduce the cost of deposit insurance for the Omni
Banks. See "Regulation and Supervision--The Bank Subsidiaries--Deposit
Insurance".
Noninterest expense was $2,840,209 for 1995, an increase of $354,970 or 14.3%
compared with noninterest expense of $2,485,239 for 1994. The increase in
noninterest expense for 1995 from 1994 was attributable to a 12.7% increase in
salaries and employee benefits and a 22.9% increase in occupancy expenses. The
increase in salaries and benefits and occupancy expenses were due primarily to
additional staffing associated with Omni Bank's loan and deposit growth.
F - 100
<PAGE> 178
INCOME TAXES
Country has recognized an income tax expense of $70,000 on income before income
taxes of $225,288 for the six months ended June 30, 1996, an effective tax rate
of 31.1%, as compared with an income tax expense of $18,000 on income before
income taxes of $51,563 for the six months ended June 30, 1995, an effective
tax rate of 34.9%. Country recognized income tax benefits of $2,518 and
$46,830 on income before income taxes of $206,080 and loss before income taxes
of $83,927 for the years ended December 31, 1995 and 1994, respectively.
Effective tax benefits were 1.2% and 55.8% for those years. - Country's
effective tax rates varied from the statutory tax rate primarily due to
interest income on municipal investments, which is exempt from federal income
tax.
INTEREST RATE SENSITIVITY MANAGEMENT
The operating income and net income of Omni Bank depend, to a substantial
extent, on "rate differentials", i.e., the differences between the income Omni
Bank receives from loans, securities and other earning assets, and the interest
expense it pays to obtain deposits and other liabilities. These rates are
highly sensitive to many factors which are beyond the control of Omni Bank,
including general economic conditions and the policies of various governmental
and regulatory authorities. See "Investment Considerations--Impact of Interest
Rates and Economic Conditions".
The objective of monitoring and managing the interest rate risk position of the
balance sheet is to contribute to earnings and to minimize the adverse changes
in net interest income. The potential for earnings to be affected by changes
in interest rates is inherent in a financial institution. Interest rate
sensitivity is the relationship between changes in market interest rates and
changes in net interest income due to the repricing characteristics of assets
and liabilities. An asset sensitive position in a given period will result in
more assets being subject to repricing; therefore, as interest rates rise, such
a position will have a positive effect on net interest income. Conversely, in
a liability sensitive position, where liabilities reprice more quickly than
assets in a given period, a rise in interest rates will have an adverse effect
on net interest income.
One way to analyze interest rate risk is to evaluate the balance of Country's
interest rate sensitivity position. A mix of assets and liabilities that are
roughly equal in volume and term and repricing represents a matched interest
rate sensitivity position. Any excess of assets or liabilities in a particular
period results in an interest rate sensitivity gap. The following table
presents the interest rate sensitivity for Country's interest-earning assets
and interest-bearing liabilities at June 30, 1996:
F - 101
<PAGE> 179
INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
3 months 3 months to 6 months 1 year to
or less 6 months to 1 year 5 years Over 5 years Total
------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 2,075,000 $ - $ - $ - $ - $ 2,075,000
Investment securities 2,599,694 2,076,413 2,770,500 18,597,017 87,000 26,130,624
Loans 9,070,263 3,750,900 10,996,561 19,295,000 24,081,333 67,194,057
Other interest-earning assets - - - - 714,300 714,300
------------ ------------ ------------ ------------ ----------- -----------
Interest-earning assets $ 13,744,957 $ 5,827,313 $ 13,767,061 $ 37,892,017 $24,882,633 $96,113,981
------------ ------------ ------------ ------------ ----------- -----------
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 9,921,512 $ - $ - $ - $ - $ 9,921,512
Savings deposits 4,320,923 - - - - 4,320,923
Time deposits 15,699,200 16,744,700 25,510,355 8,157,100 - 66,111,355
Notes payable and other
borrowings 3,550,000 - - 700,000 4,300,000 8,550,000
------------ ------------ ------------ ------------ ----------- -----------
Interest-bearing liabilities $ 33,491,635 $ 16,744,700 $ 25,510,355 $ 8,857,100 $ 4,300,000 $88,903,790
------------ ------------ ------------ ------------ ----------- -----------
Period interest sensitivity gap $(19,746,678) $(10,917,387) $(11,743,294) $ 29,034,917 $20,582,633 $ 7,210,191
============ ============ ============ ============ =========== ===========
Cumulative interest
sensitivity gap $(19,746,678) $(30,664,065) $(42,407,359) $(13,372,442) $ 7,210,191
============ ============ ============ ============ ===========
Cumulative gap as a percentage
of total assets (19.14)% (29.72)% (41.10)% (12.96) 6.99%
============ ============ ============ ============ ===========
Cumulative interest-sensitive
assets as a percentage of
cumulative interest-sensitive
liabilities 41.0% 39.0% 44.0% 84.2% 108.1%
============ ============ ============ ============ ===========
</TABLE>
The cumulative rate-sensitive gap position at one year was a
liability-sensitive position of $42.4 million, or negative 41.1%, which
indicates that Country was in a liability interest rate-sensitive position at
June 30, 1996. Accordingly, Country's earnings could experience a significant
negative impact from increases in interest rates.
Country undertakes this interest rate-sensitivity analysis to monitor the
potential risk to future earnings from the impact of possible future changes in
interest rates on currently existing net assets or net liability positions.
However, this type of analysis is as of a point-in-time, when in fact Country's
interest rate sensitivity can quickly change as market conditions, customer
needs and management strategies change. Thus, interest rate changes do not
affect all categories of assets and liabilities equally or at the same time.
Country is not involved in the purchase of derivative financial instruments or
structured notes.
The preceding table does not necessarily indicate the impact of general
interest rate movements on Country's net interest income because the repricing
of certain assets and liabilities is discretionary and is subject to
competitive and other pressures.
F - 102
<PAGE> 180
ANALYSIS OF FINANCIAL CONDITION
LOANS AND ASSET QUALITY
Country's loans are diversified by borrower and industry group. Loan growth
has occurred every year over the past two years and can be attributed to
mergers, increased loan demand and the addition of new lending products. The
following table describes the composition of loans by major categories
outstanding at June 30, 1996 and at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------
1996 1995 1994
----------- ----------- -----------
Aggregate Principal Amount
---------------------------------------
<S> <C> <C> <C>
Loans:
Commercial $22,368,261 $20,005,093 $13,347,394
Real estate 39,191,966 32,381,324 21,898,594
Installment 5,048,167 4,374,598 3,012,595
Other 585,663 413,635 57,903
----------- ----------- -----------
Gross loans 67,194,057 57,174,650 38,316,486
Less: Allowance for loan losses (500,318) (420,426) (329,251)
Unearned interest (620,319) (577,114) (338,537)
----------- ----------- -----------
Loans, net $66,073,420 $56,177,110 $37,648,698
=========== =========== ===========
<CAPTION>
Percentage of Total Loan Portfolio
---------------------------------------
<S> <C> <C> <C>
Loans:
Commercial loans 33.29% 34.99% 34.83%
Real estate loans 58.33 56.64 57.15
Installment loans 7.51 7.65 7.86
Other 0.87 0.72 0.16
----------- ----------- -----------
Gross loans 100.00% 100.00% 100.00%
=========== =========== ===========
</TABLE>
As of June 30, 1996 and December 31, 1995, commitments of Omni Bank under
standby letters of credit and unused lines of credit totaled approximately
$10,587,900 and $9,975,700, respectively.
The loan portfolio includes a concentration of loans to agricultural and
agricultural-related industries amounting to approximately $15,104,000 as of
June 30, 1996.
Stated loan maturities (including floating rate loans reset to market interest
rates) of the total loan portfolio, before unearned income, as of June 30, 1996
and December 31, 1995 were:
F - 103
<PAGE> 181
STATED LOAN MATURITIES
<TABLE>
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Stated Loan Maturities/Floating Rates Reset:
Commercial $13,638,661 $ 6,644,200 $ 2,085,400 $22,368,261
Real estate 9,357,100 7,987,900 21,846,966 39,191,966
Installment 236,300 4,662,900 148,967 5,048,167
Other 585,663 - - 585,663
----------- ----------- ----------- -----------
Total $23,817,724 $19,295,000 $24,081,333 $67,194,057
=========== =========== =========== ===========
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Stated Loan Maturities/Floating Rates Reset:
Commercial $11,123,793 $ 7,463,100 $ 1,418,200 $20,005,093
Real estate 6,668,200 10,079,700 15,633,424 32,381,324
Installment 253,478 3,928,565 192,555 4,374,598
Other 413,635 - - 413,635
----------- ----------- ----------- -----------
Total $18,459,106 $21,471,365 $17,244,179 $57,174,650
=========== =========== =========== ===========
</TABLE>
Rate sensitivities of the total loan portfolio, before unearned income, as of
June 30, 1996 and December 31, 1995 were as follows:
LOAN REPRICING
<TABLE>
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
JUNE 30, 1996
Fixed rate $13,165,940 $17,250,643 $ 9,754,426 $40,171,009
Variable rate 9,339,185 2,044,335 14,324,257 25,707,777
Nonaccrual 1,315,271 - - 1,315,271
----------- ----------- ----------- -----------
Total $23,820,396 $19,294,978 $24,078,683 $67,194,057
=========== =========== =========== ===========
<CAPTION>
Within One One Year to After Five
Year Five Years Years Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
Fixed rate $10,121,019 $18,865,501 $ 5,059,704 $34,046,224
Variable rate 7,888,455 2,855,827 11,982,144 22,726,426
Nonaccrual 402,000 - - 402,000
----------- ----------- ----------- -----------
Total $18,411,474 $21,721,328 $17,041,848 $57,174,650
=========== =========== =========== ===========
</TABLE>
F - 104
<PAGE> 182
The maturities presented above are based upon contractual maturities. Many of
these loans are made on a short-term basis with the possibility of renewal at
time of maturity. All loans, however, are reviewed on a continuous basis for
creditworthiness.
NONPERFORMING ASSETS
Country's financial statements are prepared on the accrual basis of accounting,
including the recognition of interest income on its loan portfolio, unless a
loan is placed on a nonaccrual basis. Loans are placed on a nonaccrual basis
when there are serious doubts regarding the collectibility of all principal and
interest due under the terms of the loan. Amounts received on nonaccrual loans
generally are applied first to principal and then to interest after all
principal has been collected. It is the policy of Omni Bank not to renegotiate
the terms of a loan because of a delinquent status. Rather, a loan is
generally transferred to nonaccrual status if it is not in the process of
collection and is delinquent in payment of either principal or interest beyond
90 days.
Other nonperforming assets consist of real estate acquired through loan
foreclosures or other workout situations and other assets acquired through
repossessions. The following table summarizes nonperforming assets by category
as of June 30, 1996 and as of December 31, 1995 and 1994:
NONPERFORMING ASSETS
<TABLE>
<CAPTION> December 31,
June 30, -------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans (1) $1,315,271 $402,000 $365,120
Loans 90 days past due and still
accruing interest 293,835 138,377 223,139
---------- -------- --------
Total nonperforming loans 1,609,106 540,377 588,259
Other real estate owned and other assets 69,084 53,707 53,036
---------- -------- --------
Total nonperforming assets $1,678,190 $594,084 $641,295
========== ======== ========
Nonperforming assets to total assets 1.63% 0.61% 1.00%
Nonperforming loans to total loans 2.39 0.95 1.54
</TABLE>
(1) Includes loans of $1,246,019, $225,000 and $225,000 at June 30, 1996,
December 31, 1995 and December 31, 1994, respectively, that will be sold
to the shareholders of Country as part of the acquisition.
The classification of a loan on nonaccrual status does not necessarily indicate
that the principal is uncollectible, in whole or in part. A determination as
to collectibility is made by Omni Bank on a case-by-case basis. Omni Bank
considers both the adequacy of the collateral and the other resources of the
borrower in determining the steps to be taken to collect nonaccrual loans. The
final determination as to these steps is made on a case-by-case basis.
Alternatives that are considered are foreclosure, collecting on guarantees,
restructuring the loan or collection lawsuits.
F - 105
<PAGE> 183
On January 1, 1995, Country adopted guidelines for impaired loans required by
Financial Accounting Standards Board Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by Statement No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." The adoption of SFAS No. 114 did not significantly impact the
comparability of the allowance related tables of Country included in this
prospectus.
The following table sets forth a summary of other real estate owned and other
collateral acquired as of June 30, 1996:
OTHER REAL ESTATE OWNED & OTHER COLLATERAL ACQUIRED
<TABLE>
<CAPTION>
Number of
Parcels/ Net Book
Description Autos Carrying Value
- ------------------------------------- --------------
<S> <C> <C>
Developed property 2 $ 37,379
Vacant land or unsold lots 1 3,857
Repossessed automobiles 14 27,848
--------- --------------
17 $ 69,084
========= ==============
</TABLE>
ALLOWANCE FOR LOAN LOSSES
In originating loans, management of Country recognizes that credit losses will
be experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The allowance for loan losses
represents Country's estimate of the allowance necessary to provide for losses
incurred in the loan portfolio. In making this determination, Country analyzes
the ultimate collectibility of Country's loan portfolio, incorporating feedback
provided by internal loan staff and provided by examinations performed by
regulatory agencies. Country makes an ongoing evaluation as to the adequacy of
the allowance for loan losses. To establish the appropriate level of the
allowance, all loans (including nonperforming loans), commitments to extend
credit and standby letters of credit are reviewed and classified as to
potential loss exposure. Specific allowances are then established for those
loans, commitments to extend credit or standby letters of credit with
identified loss exposure and an additional allowance is maintained based upon
the size, quality, and concentration characteristics of the remaining loan
portfolio using both historical quantitative trends and Country's evaluation of
qualitative factors including future economic and industry outlooks. The
determination by Country of the appropriate level of the allowance amount was
$500,318 at June 30, 1996.
The allowance for loan losses is based on estimates, and ultimate losses will
vary from current estimates. These estimates are reviewed monthly and as
adjustments, either positive or negative, become necessary they are reported in
earnings in the periods in which they become known. The following table
presents a detailed analysis of Country's allowance for loan losses for the six
months ended June 30, 1996 and for the years ended December 31, 1995 and 1994.
F - 106
<PAGE> 184
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION> December 31,
June 30, --------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning balance $ 420,426 $ 329,251 $ 326,565
----------- ----------- -----------
Charge-offs:
Commercial - 33,331 32,449
Real estate 55,000 16,000 1,000
Installment 8,929 - 5,000
Other 892 - -
----------- ----------- -----------
Total charge-offs 64,821 49,331 38,449
----------- ----------- -----------
Recoveries:
Commercial - 2,214 22,335
Real estate - 92,495 1,000
Installment - 5,597 2,000
----------- ----------- -----------
Total recoveries - 100,306 25,335
----------- ----------- -----------
Net charge-offs 64,821 (50,975) 13,114
Provision for loan losses 144,713 40,200 15,800
----------- ----------- -----------
Ending balance $ 500,318 $ 420,426 $ 329,251
=========== =========== ===========
Period end total loans, net of unearned interest $66,573,738 $56,597,536 $37,977,949
=========== =========== ===========
Average loans $61,576,465 $46,980,953 $33,501,783
=========== =========== ===========
Ratio of net charge-offs to average loans 0.21% (0.11)% 0.04%
=========== =========== ===========
Ratio of provision for loan losses to average loans 0.47 0.09 0.05
=========== =========== ===========
Ratio of allowance for loan losses to ending
total loans 0.75 0.74 0.87
=========== =========== ===========
Ratio of allowance for loan losses to total
nonperforming loans 31.09 77.80 55.97
=========== =========== ===========
Ratio of allowance for loan losses to total
nonperforming assets 29.81 70.77 51.34
=========== =========== ===========
</TABLE>
F - 107
<PAGE> 185
The following table sets forth an allocation of the allowance for loan losses
among categories as of June 30, 1996 and December 31, 1995 and 1994.
Management of Country believes that any allocation of the allowance for loan
losses into categories lends an appearance of precision which does not exist.
The allowance is utilized as a single unallocated allowance available for all
loans. The following allocation table should not be interpreted as an
indication of the specific amounts or the relative proportion of future charges
to the allowance and has been derived by applying a general allowance to the
portfolio as a whole, in addition to specific allowance amounts for internally
classified loans. In retrospect, the specific allocation in any particular
category may prove excessive or inadequate and consequently may be reallocated
in the future to reflect the then current condition. Accordingly, the entire
allowance is available to absorb losses in any category.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 December 31, 1994
------------------------- ----------------------------- -----------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
each each each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------------- ---------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 275,358 33.29% $ 237,191 34.99% $ 174,569 34.83%
Real estate 149,237 58.33 117,616 56.64 109,493 57.15
Installment 75,723 7.51 65,619 7.65 45,189 7.86
Other - 0.87 - 0.72 - 0.16
------------- ---------- ----------------- ---------- ----------------- ----------
Total $ 500,318 100.00% $ 420,426 100.00% $ 329,251 100.00%
============= ========== ================= ========== ================= ==========
</TABLE>
F - 108
<PAGE> 186
INVESTMENT ACTIVITIES
The investment portfolio, which was 27.2% of Country's earning asset base as of
June 30, 1996, is being managed to minimize interest rate risk, maintain
sufficient liquidity and maximize return. Country's financial planning
anticipates income streams based on normal maturity and reinvestment. The
short duration of the portfolio provides adequate liquidity through normal
maturities. Investment securities classified as available-for-sale are
purchased with the intent to provide liquidity and to increase returns. The
securities classified as available-for-sale are carried at fair value. Country
currently does not have any securities classified as held-to-maturity or
trading.
Prior to January 1, 1994, all debt securities were carried at amortized cost.
Effective January 1, 1994, Country adopted SFAS No. 115, and classified
investments as held-to-maturity or available-for-sale.
The following tables describe the composition of investments by major category
and maturity:
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
December 31,
HELD TO MATURITY June 30, -----------------------------------
1996 1995 1994
---------------- ------------------ ---------------
<S> <C> <C> <C>
U.S. Treasury $ - $ - $ 9,464,335
U.S. Government agencies and corporations - - 2,634,794
States and political subdivisions - - 875,372
Mortgage backed securities - - 515,897
---------------- ------------------ ---------------
Total $ - $ - $ 13,490,398
================ ================== ===============
<CAPTION>
December 31,
AVAILABLE FOR SALE June 30, -----------------------------------
1996 1995 1994
---------------- ------------------ ---------------
<S> <C> <C> <C>
U.S. Treasury $ 17,043,156 $ 12,928,391 $ -
U.S. Government agencies and corporations 8,426,172 9,403,563 -
States and political subdivisions 225,250 263,375 -
Mortgage backed securities 436,046 34,532 -
---------------- ------------------ ---------------
Total $ 26,130,624 $ 22,629,861 $ -
================ ================== ===============
</TABLE>
F - 109
<PAGE> 187
INVESTMENT PORTFOLIO MATURITY/REPRICING SCHEDULE
<TABLE>
<CAPTION>
JUNE 30, 1996 Maturing or Repricing
--------------------------------------------------------------------------------------------
After 1 Year but After 5 Years but
Within 1 Year Within 5 Years Within 10 Years
-------------------------- ---------------------- -----------------------
Amount Yield Amount Yield Amount Yield
------------- ----------- --------------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury $4,317,063 6.96% $ 12,726,093 5.28% $ - -
U.S. Government
agencies and
corporations 3,020,294 5.62 5,405,878 7.79 - -
States and political
subdivisions (1) 109,250 6.35 29,000 4.00 87,000 5.66%
Mortgage backed
securities - - - - - -
------------- ----------- --------------- ---------
Total $7,446,607 $ 18,160,971 $ 87,000
============= =============== =========
<CAPTION>
JUNE 30, 1996 Maturing or Repricing
---------------------------------------------------------
After 10 Years Total
--------------------------------------- ----------------
Amount Yield Amount
---------------- --------------------- ----------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury $ - - $ 17,043,156
U.S. Government
agencies and
corporations - - 8,426,172
States and political
subdivisions (1) - - 225,250
Mortgage backed
securities 436,046 8.25% 436,046
---------------- ----------------
Total $ 436,046 $ 26,130,624
================ ================
<CAPTION>
DECEMBER 31, 1995 Maturing or Repricing
--------------------------------------------------------------------------------------------
After 1 Year but After 5 Years but
Within 1 Year Within 5 Years Within 10 Years
-------------------------- ---------------------- -----------------------
Amount Yield Amount Yield Amount Yield
------------- ----------- --------------- ----- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury $4,225,641 6.28% $ 8,702,750 5.39% $ - -
U.S. Government
agencies and
corporations 5,044,813 5.43 4,358,750 6.65 - -
States and political
subdivisions (1) 62,000 4.98 106,375 4.41 95,000 5.66%
Mortgage backed
securities - - - - - -
------------- --------------- -----------
Total $9,332,454 $ 13,167,875 $ 95,000
============= =============== ===========
<CAPTION>
DECEMBER 31, 1995 Maturing or Repricing
---------------------------------------------------------
After 10 Years Total
--------------------------------------- ----------------
Amount Yield Amount
---------------- --------------------- ----------------
<S> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury $ - - $ 12,928,391
U.S. Government
agencies and
corporations - - 9,403,563
States and political
subdivisions (1) - - 263,375
Mortgage backed
securities 34,532 9.50% 34,532
---------------- ----------------
Total $ 34,532 $ 22,629,861
================ ================
</TABLE>
- ----------------
(1) Rates on tax-exempt securities have been adjusted to tax equivalent yields
using a 34% income tax rate.
F - 110
<PAGE> 188
DEPOSIT ACTIVITIES
Deposits are attracted through the offering of a broad variety of deposit
instruments, including checking accounts, money market accounts, regular
savings accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more), and retirement savings plans. Country's
average balance of total deposits was $91,119,006 for the six months ended June
30, 1996, representing an increase of $17,317,502 or 23.5% compared with the
average balance of total deposits for the year ended December 31, 1995.
Country's average balance of total deposits was $73,801,504 for the year ended
1995, an increase of $20,292,619 or 37.9% compared with the average balance of
total deposits outstanding for 1994 of $53,508,885. The increases in deposits
were due to internally generated growth.
F - 111
<PAGE> 189
The following table sets forth certain information regarding Omni Bank's
average deposits as of June 30, 1996 and December 31, 1995 and 1994.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 December 31, 1994
--------------------------------- --------------------------------- ---------------------------------
Average Percent of Average Average Percent of Average Average Percent of Average
Amount Total Rate Paid Amount Total Rate Paid Amount Total Rate Paid
----------- ---------- --------- ----------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $10,873,509 11.93% - $10,309,771 13.97% - $ 9,055,273 16.92% -
Interest-bearing
demand deposits 9,885,649 10.85 2.60% 9,787,777 13.26 2.53% 11,315,861 21.15 2.24%
Savings deposits 4,194,065 4.60 2.22 4,296,022 5.82 2.19 4,935,017 9.22 2.07
Time deposits 66,165,783 72.62 6.10 49,407,934 66.95 5.81 28,202,734 52.71 4.33
----------- ------- ------ ----------- ------- ------ ----------- ------- ------
$91,119,006 100.00% 4.80% $73,801,504 100.00% 4.35% $53,508,885 100.00% 2.95%
=========== ======= ====== =========== ======= ====== =========== ======= ======
</TABLE>
F - 112
<PAGE> 190
As of June 30, 1996, non-brokered time deposits of $100,000 or more represented
12.1% of total deposits, compared with 11.6% of total deposits as of December
31, 1995 and 6.9% as of December 31, 1994. Omni Bank does not have and does
not solicit brokered deposits.
The following table sets forth the remaining maturities for time deposits of
$100,000 or more at June 30, 1996 and at December 31, 1995:
TIME DEPOSITS OF $100,000 OR MORE
<TABLE>
<CAPTION>
June 30, December 31,
MATURITY RANGE 1996 1995
----------- -----------
<S> <C> <C>
Three months or less $ 3,235,709 $ 3,650,267
Three through six months 2,347,481 1,459,803
Six through twelve months 3,800,292 3,563,272
Over twelve months 1,649,225 1,389,404
----------- -----------
Total $11,032,707 $10,062,746
=========== ===========
</TABLE>
RETURN ON EQUITY AND ASSETS
The following are various ratios for Country for the six months ended June 30,
1996 and the years ended December 31, 1995 and 1994.
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
For the
Six Months For the Years Ended
Ended December 31,
June 30, ----------------------------
1996 1995 1994
---------- ------------- -------------
<S> <C> <C> <C>
Return on average assets 0.30% 0.26% (0.06)%
Return on average equity 12.78 8.94 (1.79)
Average equity to average assets 2.39 2.90 3.53
Dividend payout rates on common stock 0.00 0.00 0.00
</TABLE>
LIQUIDITY
Omni Bank's investment securities portfolio, including federal funds sold, and
its cash and due from bank deposit balances serve as the primary sources of
liquidity. At June 30, 1996, 11.1% of Omni Bank's interest-bearing liabilities
were in the form of time deposits of $100,000 and over. Substantially all of
such large deposits were obtained from Omni Bank's market area and none of such
deposits were brokered deposits. Management believes these deposits to be a
stable source of funds. However, if a large number of these time deposits
matured at approximately the same time and were not renewed, Omni Bank's
liquidity could be adversely affected. Currently, the maturities of Omni
Bank's large time deposits are spread throughout the year, with 29.3% maturing
in the third quarter of 1996, 21.3% maturing in the fourth quarter of 1996,
34.4% maturing in the first and second quarter of 1997, and the remaining 15.0%
maturing thereafter. Omni Bank monitors those maturities in an effort to
minimize any adverse effect on liquidity.
F - 113
<PAGE> 191
In the longer term, the liquidity of Country and its ability to meet its cash
obligations will depend substantially on its receipt of dividends from Omni
Bank, which are limited by banking statutes and regulation. See "Supervision
and Regulation".
CAPITAL RESOURCES
Country's stockholders' equity at June 30, 1996 was $2.4 million, compared with
$2.5 million at December 31, 1995. The decrease in equity has been the result
of the retention of earnings offset by the equity effect of unrealized losses
on securities available for sale of $177,120. Country had consolidated net
income of $155,288 for the six months ended June 30, 1996.
Omni Bank is expected to meet a minimum risk-based capital to risk-weighted
assets ratio of 8%, of which at least one-half (or 4%) must be in the form of
Tier 1 (core) capital. The remaining one-half (or 4%) may be in the form of
Tier 1 (core) or Tier 2 (supplementary) capital. The amount of loan loss
allowance that may be included in capital is limited to 1.25% of risk-weighted
assets. The ratio of Tier 1 (core) and the combined amount of Tier 1 (core)
and Tier 2 (supplementary) capital to risk-weighted assets for Omni Bank were
10.51% and 11.30%, respectively, at June 30, 1996, and 11.44% and 12.20%,
respectively, at December 31, 1995. Omni Bank is currently, and expects to
continue to be, in compliance with these guidelines. See "Supervision and
Regulation-- The Bank Subsidiaries--Capital Requirements".
The Board of Governors of the Federal Reserve System has announced a policy
sometimes known as the "source of strength doctrine" that requires a bank
holding company to serve as a source of financial and managerial strength to
its subsidiary banks. The FRB has interpreted this requirement to require that
a bank holding company, such as Country, stand ready to use available resources
to provide adequate capital funds to its subsidiary banks during periods of
financial stress or adversity. The FRB has stated that it would generally view
a failure to assist a troubled or failing subsidiary bank in these
circumstances as an unsound or unsafe banking practice or a violation of
Regulation Y or both, justifying a cease and desist order or other enforcement
action, particularly if appropriate resources are available to the bank holding
company on a reasonable basis. The requirement that a bank holding company,
such as Country, make its assets and resources available to a failing
subsidiary bank could have an adverse effect upon Country and its stockholders.
F - 114
<PAGE> 192
The following table sets forth an analysis of Omni Bank's capital ratios:
RISK-BASED CAPITAL RATIOS
<TABLE>
<CAPTION>
December 31, Minimum Well-
June 30, ------------------------- Capital Capitalized
1996 1995 1994 Ratios Ratios
----------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Tier I risk-based
capital $ 6,622,354 $ 6,390,183 $ 4,221,850
Tier II risk-based
capital 500,318 420,426 329,251
Total capital 7,122,672 6,810,609 4,551,101
Risk-weighted
assets 63,005,853 55,843,031 37,038,615
Capital ratios:
Tier I risk-based
capital 10.51% 11.44% 11.40% 4.00% 6.00%
Tier II risk-based
capital 11.30 12.20 12.29 8.00 10.00
Leverage ratio 6.41 6.61 6.78 4.00 5.00
</TABLE>
ACCOUNTING MATTERS
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors of Impairment of a Loan" as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures". Together, these statements require that when a loan is impaired,
a creditor shall measure impairment based on the present value of expected
future cash flows discounted at the loan's effective interest rate, the fair
value of the collateral if the loan is collateral dependent or the loan's
observable market price. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The new statements also require certain disclosures regarding
impaired loans. Country adopted these statements effective January 1, 1995.
The adoption of these accounting statements did not have a material effect on
Country's consolidated financial position or results of operations since
Country's recognition and measurement policies regarding nonperforming loans
are materially consistent with the accounting statements.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". This Statement requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Measurement of an impairment loss for
long-lived assets and identifiable intangibles that an entity expects to hold
and use should be based on the fair value of the asset. This Statement is
effective for fiscal years beginning after December 15, 1995.
F - 115
<PAGE> 193
The Financial Accounting Standards Board has issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights" which became effective for years beginning after
December 15, 1995. This Statement amends FASB Statement No. 65, "Accounting
for Certain Mortgage Banking Activities" to require that an entity recognize as
separate assets rights to service mortgage loans for others however those
rights are acquired. An entity that acquires mortgage servicing rights through
either the purchase or origination of mortgage loans and sells or securitizes
those loans with servicing rights retained should allocate the total cost of
the mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values. If it is not
practicable to estimate the fair values separately, the entire cost of
purchasing or originating the loans should be allocated to the mortgage loans
(without the mortgage servicing rights) and no cost should be allocated to the
mortgage servicing rights. This Statement also requires that an entity assess
its capitalized mortgage servicing rights for impairment based on the fair
value of those rights.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation". This Statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Entities electing to continue to use the method of
accounting specified in Opinion 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value method of
accounting defined in this Statement had been applied. This Statement is
effective for fiscal years beginning after December 15, 1995.
IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES
The financial statements and related financial data concerning Country
presented in this Prospectus 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 changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of Country is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of Country, including
the influence of domestic and foreign economic conditions and the monetary and
fiscal policies of the United States government and federal agencies,
particularly the FRB. See "Investment Considerations--Impact of Interest
Rates and General Economic Conditions".
F - 116
<PAGE> 194
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
June 30,
1996 December 31,
(Unaudited) 1995
- ----------------------------------------------------------------------------------- ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,945,125 $ 2,214,864
Federal funds sold 2,075,000 10,045,000
Securities available for sale 26,130,624 22,629,861
Loans (net of allowance for loan losses of $500,318 in 1996 and
$420,426 in 1995) 66,073,420 56,177,110
Premises and equipment, net 3,632,931 3,748,388
Accrued interest and other assets 2,315,183 1,789,655
------------- ------------
Total assets $ 103,172,283 $ 96,604,878
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand $ 10,490,530 $ 10,880,457
Savings and NOW 14,242,435 13,828,262
Other time 55,078,648 51,775,006
Time deposits of $100,000 or more 11,032,707 10,062,746
------------- ------------
Total deposits 90,844,320 86,546,471
Short term borrowings 3,550,000 3,550,000
Long term borrowings 5,000,000 2,700,000
Income taxes payable - 9,466
Deferred income taxes 181,139 279,798
Accrued interest and other liabilities 1,156,396 1,056,883
------------- ------------
Total liabilities 100,731,855 94,142,618
------------- ------------
Stockholders' Equity
Preferred stock 314,470 314,470
Common stock 26,225 26,225
Surplus 1,057,776 1,057,776
Retained earnings 1,156,673 1,001,385
Unrealized gain (loss) on securities available for sale (114,716) 62,404
------------- ------------
Total stockholders' equity 2,440,428 2,462,260
------------- ------------
Total liabilities and stockholders' equity $ 103,172,283 $ 96,604,878
============= ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F - 117
<PAGE> 195
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996 1995
------------ ------------
(Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans and fees on loans $ 2,845,217 $ 1,908,931
Securities:
U.S. Treasuries 419,930 253,715
U.S. Government agencies and corporations 242,635 220,794
States and political subdivisions 6,862 25,057
Federal funds sold 291,516 266,247
Other 11,380 2,386
----------- -----------
Total interest income 3,817,540 2,677,130
----------- -----------
Interest expense:
Deposits 2,169,597 1,376,190
Notes payable 279,565 104,000
----------- -----------
Total interest expense 2,449,162 1,480,190
----------- -----------
Net interest income 1,368,378 1,196,940
Provision for loan losses 144,713 --
----------- -----------
Net interest income after provision for
loan losses 1,223,665 1,196,940
----------- -----------
Noninterest income:
Service charges and fees 311,050 220,024
Other 290,439 34,846
----------- -----------
601,489 254,870
----------- -----------
Noninterest expenses:
Salaries and wages 783,244 632,073
Employee benefits 72,414 104,955
Occupancy and equipment rental 236,884 214,829
FDIC assessment (120) 78,017
Other 507,444 370,373
----------- -----------
1,599,866 1,400,247
----------- -----------
Income before income taxes 225,288 51,563
Income taxes 70,000 18,000
----------- -----------
Net income $ 155,288 $ 33,563
=========== ===========
Earnings per share of common stock $ 5.92 $ 1.28
=========== ===========
Weighted average number of common
shares outstanding 26,225 26,225
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F-118
<PAGE> 196
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996 1995
----------- -----------
(Unaudited)
- -----------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 155,288 $ 33,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 136,523 80,325
Provision for loan losses 144,713 -
Amortization of bond premiums, net 19,104 17,214
Change in assets and liabilities:
(Increase) in accrued interest
and other assets (525,529) (249,976)
Increase in accrued interest
and other liabilities 90,048 297,839
----------- -----------
Net cash provided by operating
activities 20,147 178,965
----------- -----------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls,
paydowns and maturities - 1,034,552
Purchases - (6,202,433)
Available for sale:
Proceeds from sales 1,000,000 -
Proceeds from calls,
paydowns and maturities 5,683,264 -
Purchases (10,478,910) -
Net (increase) decrease in
federal funds sold 7,970,000 (3,043,000)
Net decrease in certificates of deposit - 199,000
Net (increase) in loans (10,041,023) (9,616,592)
Purchase of premises and equipment (21,066) (236,089)
----------- -----------
Net cash (used in) investing activities (5,887,735) (17,864,562)
----------- -----------
Cash Flows from Financing Activities
Net increase in demand deposits,
NOW accounts and savings accounts 24,246 682,171
Net increase in time deposits 4,273,603 14,403,450
Payments on short term borrowings - (12,500)
Proceeds from short term borrowings - 2,070,000
Payments on long term borrowings - (175,000)
Proceeds from long term borrowings 2,300,000 -
----------- -----------
Net cash provided by
financing activities 6,597,849 16,968,121
----------- -----------
Net increase (decrease) in
cash and due from banks 730,261 (717,476)
Cash and due from banks:
Beginning 2,214,864 3,624,274
----------- -----------
End $ 2,945,125 $ 2,906,798
=========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
F-119
<PAGE> 197
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The financial information of Country Bancshares, Inc. and subsidiary included
herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.
NOTE 2. SECURITIES
Amortized costs and fair values of securities are summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE June 30, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 17,191,771 $ 23,200 $ 171,815 $ 17,043,156
U.S. Government agencies and
corporations 8,449,090 55,280 78,198 8,426,172
States and political
subdivisions 223,621 1,629 -- 225,250
Mortgage backed securities 439,954 -- 3,908 436,046
------------ -------- --------- ------------
$ 26,304,436 $ 80,109 $ 253,921 $ 26,130,624
============ ======== ========= ============
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE FOR SALE December 31, 1995
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 12,858,183 $ 75,043 $ 4,835 $ 12,928,391
U.S. Government agencies and
corporations 9,373,853 63,797 34,087 9,403,563
States and political subdivisions 261,468 1,907 -- 263,375
Mortgage backed securities 34,390 142 -- 34,532
------------ --------- -------- ------------
$ 22,527,894 $ 140,889 $ 38,922 $ 22,629,861
============ ========= ======== ============
</TABLE>
(Continued)
F-120
<PAGE> 198
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSIDILATED FINANCIAL STATEMENTS
The amortized cost and fair value of securities classified as available for
sale at June 30, 1996 and December 31, 1995, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------ ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ 7,462,344 $ 7,446,607 $ 9,330,269 $ 9,332,454
Due after one year
through five years 18,315,267 18,160,971 13,068,500 13,167,875
Due after five years
through ten years 86,871 87,000 94,735 95,000
Due after ten years - - - -
Mortgage backed securities 439,954 436,046 34,390 34,532
----------- ----------- ----------- -----------
$26,304,436 $26,130,624 $22,527,894 $22,629,861
=========== =========== =========== ===========
</TABLE>
Securities with carrying values of approximately $13,749,000 and $9,174,000 at
June 30, 1996 and December 31, 1995, respectively, were pledged to secure
public deposits, to secure securities sold under agreements to repurchase and
for other purposes as required or permitted by law.
NOTE 3. LOANS
The major classifications of loans follow:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Commercial $ 22,368,261 $ 20,005,093
Real estate 39,191,966 32,381,324
Installment 5,048,167 4,374,598
Other 585,663 413,635
------------ ------------
67,194,057 57,174,650
------------ ------------
Deduct:
Unearned interest 620,319 577,114
Allowance for loan losses 500,318 420,426
------------ ------------
1,120,637 997,540
------------ ------------
$ 66,073,420 $ 56,177,110
============ ============
</TABLE>
(Continued)
F-121
<PAGE> 199
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. ALLOWANCE FOR LOAN LOSSES
An analysis of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Balance, January 1 $ 420,426 $ 329,251
Provision for loan losses 144,713 -
Recoveries - 98,922
Loans charged off (64,821) (47,081)
--------- ---------
Balance, end of period $ 500,318 $ 381,092
========= =========
</TABLE>
NOTE 5. SHORT TERM BORROWINGS
Short term borrowings include a note payable to a third party lender and
securities sold under agreements to repurchase.
Average and maximum balances and rates on notes payable and securities sold
under agreements to repurchase were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996 1995
----------- ------------
<S> <C> <C>
Maximum month end balance $ 3,550,000 $ 3,520,000
Average month end balance 3,550,000 1,685,146
Weighted average interest rate for the period 8.75% 8.73%
Weighted average interest rate at end of period 8.75% 8.88%
</TABLE>
NOTE 6. CONTINGENT LIABILITIES
At June 30, 1996 and December 31, 1995, loan commitments, including standby
letters of credit, approximated $10,587,900 and $9,975,700, respectively,
substantially all of which are variable rate commitments.
F - 122
<PAGE> 200
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Country Bancshares, Inc.
Macomb, Illinois
We have audited the accompanying consolidated balance sheets of Country
Bancshares, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. 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 above present
fairly, in all material respects, the financial position of Country Bancshares,
Inc. as of December 31, 1995 and 1994, and the results of their operations and
their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
McGLADREY & PULLEN, LLP
Champaign, Illinois
May 24, 1996
F - 123
<PAGE> 201
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,214,864 $ 3,624,274
Certificates of deposit - 199,000
Federal funds sold 10,045,000 5,694,000
Securities held to maturity (fair value
$13,315,525 in 1994) - 13,490,398
Securities available for sale 22,629,861 -
Loans (net of allowance for loan losses
of $420,426 in 1995 and $329,251 in
1994) 56,177,110 37,648,698
Premises and equipment 3,748,388 2,486,855
Income tax receivable 38,483
Accrued interest and other assets 1,789,655 1,063,633
------------ ------------
Total assets $ 96,604,878 $ 64,245,341
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand $ 10,880,457 $ 9,273,375
Savings and NOW 13,828,262 14,757,651
Other time 51,775,006 30,854,632
Time deposits of $100,000 or more 10,062,746 4,059,517
------------ ------------
Total deposits 86,546,471 58,945,175
Short term borrowings 3,550,000 1,462,500
Long term borrowings 2,700,000 875,000
Deferred income taxes 279,798 283,524
Income tax payable 9,466 -
Accrued interest and other liabilities 1,056,883 476,585
------------ ------------
Total liabilities 94,142,618 62,042,784
------------ ------------
Commitments, Contingencies and Credit Risk
Stockholders' Equity
Preferred stock 314,470 314,470
Common stock 26,225 26,225
Surplus 1,057,776 1,057,776
Retained earnings 1,001,385 804,086
Unrealized gain on securities available for sale 62,404 -
------------ ------------
Total stockholders' equity 2,462,260 2,202,557
------------ ------------
Total liabilities and stockholders'
equity $ 96,604,878 $ 64,245,341
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 124
<PAGE> 202
<TABLE>
<CAPTION>
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
- ----------------------------------------------- -----------
<S> <C> <C>
Interest income:
Loans and fees on loans $ 4,370,787 $ 3,043,219
Securities:
U.S. Treasury securities 494,713 354,108
U.S. Government agencies and
corporations 580,607 99,879
States and political
subdivisions 49,399 62,237
Federal funds sold 531,491 232,514
Other 2,755 16,232
---------- ----------
Total interest income 6,029,752 3,808,189
---------- ----------
Interest expense:
Deposits 3,214,028 1,576,060
Notes payable 317,970 213,244
---------- ----------
Total interest
expense 3,531,998 1,789,304
---------- ----------
Net interest income 2,497,754 2,018,885
Provision for loan losses 40,200 15,800
---------- ----------
Net interest income
after provision for
loan losses 2,457,554 2,003,085
---------- ----------
Noninterest income:
Service charges and fees 494,659 379,881
Other 94,076 18,346
---------- ----------
588,735 398,227
---------- ----------
Noninterest expenses:
Salaries and wages 1,317,433 1,138,623
Employee benefits 193,329 201,804
Occupancy and equipment rental 492,966 400,992
FDIC assessment 84,524 97,558
Other 751,957 646,262
---------- ----------
2,840,209 2,485,239
---------- ----------
Income (loss) before
income taxes 206,080 (83,927)
Income taxes (benefit) (2,518) (46,830)
---------- ----------
Net income (loss) $ 208,598 $ (37,097)
========== ==========
Earnings (loss) per
share of common stock $ 7.95 $ (3.57)
========== ==========
Weighted average
number of shares
outstanding 26,225 10,403
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 125
<PAGE> 203
<TABLE>
<CAPTION>
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
- -----------------------------------------------------------------------------------------------------------------
Unrealized
Gain on
Securities
Preferred Common Retained Available
Stock Stock Surplus Earnings for Sale Total
---------- -------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 112,985 $ 8,934 $ 974,985 $ 841,183 $ - $ 1,938,087
Issuance of 683 shares of Series 2
preferred stock and 17,291 shares
of common stock 201,485 17,291 82,791 - 301,567
Net (loss) - - - (37,097) - (37,097)
---------- -------- ----------- --------- -------- -----------
Balance, December 31, 1994 314,470 26,225 1,057,776 804,086 2,202,557
Net income - - - 208,598 - 208,598
Change in unrealized gain on
securities available for sale - - - - 62,404 62,404
Cash dividends on Series 1 preferred
stock, $29.50 per share - - - (11,299) - (11,299)
---------- -------- ---------- ---------- -------- -----------
Balance, December 31, 1995 $ 314,470 $ 26,225 $1,057,776 $1,001,385 $ 62,404 $ 2,462,260
========== ======== ========== ========== ======== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 126
<PAGE> 204
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 208,598 $ (37,097)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 262,315 141,317
Amortization of intangibles 6,496 (6,307)
Provision for loan losses 40,200 15,800
Provision for deferred income taxes (43,289) 132,323
Amortization of bond premiums, net 36,077 33,586
Gain on sale of securities (5,730) -
Change in assets and liabilities:
(Increase) in accrued interest and other assets (694,034) (341,883)
Increase in accrued interest and other liabilities 589,763 158,920
------------ ------------
Net cash provided by operating activities 400,396 96,659
------------ ------------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls and maturities 5,752,214 3,836,000
Proceeds from paydowns 80,925 687,288
Purchases (13,787,981) (6,367,430)
Available for sale:
Proceeds from sales 1,360,280 -
Purchases (2,473,281) -
Net (increase) in loans (18,568,612) (8,988,128)
Net (increase) in federal funds sold (4,351,000) (502,000)
Net (increase) decrease in certificates of deposit 199,000 (34,000)
Purchase of premises and equipment (1,523,848) (677,271)
Proceeds from sale of real estate acquired in settlement of loans - 662,937
------------ ------------
Net cash (used in) investing activities (33,312,303) (11,382,604)
------------ ------------
(Continued)
</TABLE>
F - 127
<PAGE> 205
<TABLE>
<CAPTION>
COUNTRY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
- -------------------------------------------------------------- -------------
<S> <C> <C>
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts $ 677,693 $(2,550,249)
Net increase in time deposits 26,923,603 13,422,831
Proceeds from short term borrowings 2,100,000 -
Payments on short term borrowings (12,500) (25,000)
Payments on long term borrowings (175,000) (125,000)
Proceeds from long term borrowings 2,000,000 -
Proceeds from issuance of common stock - 100,082
Proceeds from issuance of preferred stock - 201,485
Dividends paid (11,299) -
----------- -----------
Net cash provided by financing activities 31,502,497 11,024,149
----------- -----------
Net increase in cash and due from banks (1,409,410) (261,796)
Cash and due from banks:
Beginning of year 3,624,274 3,886,070
----------- -----------
End of year $ 2,214,864 $ 3,624,274
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest - depositors $ 2,640,061 $ 1,396,387
=========== ===========
- short-term borrowings $ 259,090 $ 86,475
=========== ===========
- long-term borrowings $ 74,672 $ 97,365
=========== ===========
Income taxes $ (7,178) $ (101,349)
=========== ===========
Supplemental Schedule of Noncash Investing
and Financing Activities
Transfer of loans to real estate acquired
in settlement of loans $ - $ 22,682
=========== ===========
Change in unrealized gain on securities
available for sale $ 101,967 $ -
=========== ===========
Increase in deferred taxes attributable
to the unrealized gain on securities
available for sale $ (39,563) $ -
=========== ===========
Amortized cost of securities transferred
from held to maturity to available for
sale $21,431,021 $ -
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F - 128
<PAGE> 206
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry.
The significant accounting and reporting policies for Country Bancshares, Inc.
and its subsidiary ("Country"), follow:
Nature of Business
Through its subsidiary, Omni Bank ("Omni Bank"), Country provides a full range
of banking services to individual and corporate customers in its five
locations in the western Illinois area. Country is subject to competition from
other financial institutions and nonfinancial institutions providing financial
products. Additionally, Country and Omni Bank are subject to regulations of
certain regulatory agencies and undergo periodic examinations by those
regulatory agencies.
Basis of consolidation
The consolidated financial statements include the accounts of Country and its
wholly-owned subsidiary, Omni Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Basis of accounting
In preparing the consolidated financial statements, Country management is
required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements. Significant
estimates which are particularly susceptible to change in a short period of
time include the determination of the allowance for loan losses and valuation
of real estate and other properties acquired in connection with foreclosures or
in satisfaction of amounts due from borrowers on loans. Actual results could
differ from those estimates.
Securities held to maturity
Securities classified as held to maturity are those debt securities Country has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed using the interest method over their
contractual lives.
(Continued)
F - 129
<PAGE> 207
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Securities available for sale
Securities classified as available for sale are those debt securities that
Country intends to hold for an indefinite period of time, but not necessarily
to maturity. Any decision to sell a security classified as available for sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of Country's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. The difference
between fair value and cost, adjusted for amortization of premium and accretion
of discounts, results in an unrealized gain or loss. Unrealized gains or
losses are reported as increases or decreases in stockholders' equity, net of
the related deferred income tax effect. Gains or losses from the sale of
securities are determined using the specific identification method .
Amortization of premiums and accretion of discounts, computed using the
interest method, are recognized in interest income using the interest method
over their contractual lives.
Loans
Loans are stated at the principal amount outstanding, net of unearned interest
and the allowance for loan losses.
Unearned interest on certain installment loans is credited to income over the
term of the loan using the interest method. For all other loans, interest is
credited to income as earned using the simple interest method applied to the
daily balances of the principal outstanding.
Country's policy is to discontinue the accrual of interest income on any loan
when, in the opinion of management, there is reasonable doubt as to the timely
collectibility of interest or principal. Interest income on these loans is
recognized to the extent interest payments are received and the principal is
considered fully collectible.
Allowance for loan losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience. The
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers'
ability to pay. While management uses the best information available to make
its evaluation, future adjustments to the allowance may be necessary if there
are significant changes in economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
Omni Bank's allowance for loan losses, and may require Omni Bank to make
additions to the allowance based on their judgment about information available
to them at the time of their examinations.
(Continued)
F - 130
<PAGE> 208
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
On January 1, 1995, Country adopted Financial Accounting Standards Board
Statement No. 114 (Statement No. 114), "Accounting by Creditors for the
Impairment of a Loan," as amended by Statement No. 118, which requires loans to
be considered impaired when, based on current information and events, it is
probable that Omni Bank will not be able to collect all amounts due. The
portion of the allowance for loan losses applicable to impaired loans has been
computed based on the present value of the estimated future cash flows of
interest and principal discounted at the loan's effective interest rate or on
the fair value of the collateral for collateral dependent loans. The entire
change in present value of expected cash flows of impaired loans or of
collateral value is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the accelerated and straight-line methods over the
estimated useful lives of the assets.
Deferred income taxes
Deferred taxes are provided on a liability method. Deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Per share data
Earnings per share of common stock are calculated on the weighted average
number of shares of common stock outstanding during the year.
Statements of cash flows
For purposes of reporting cash flows, cash and due from banks include cash on
hand and amounts due from banks (including cash items in process of clearing).
(Continued)
F - 131
<PAGE> 209
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of
The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" (Statement No. 121). Statement No. 121 generally requires
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(discounted and without interest charges) is less than the carrying amount of
the asset, an impairment is recognized. Management believes that adoption of
this Statement will not have a material effect on Country's financial
statements.
Accounting for mortgage servicing rights
In May 1995, the Financial Accounting Standards Board issued Statement No.
122, "Accounting for Mortgage Servicing Rights" (Statement No. 122). Statement
No. 122 requires Omni Bank to recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired. If
Omni Bank acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained, Omni Bank should allocate the total cost of the
mortgage loans to mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. The mortgage servicing
rights should be amortized in proportion to and over the period of estimated
net servicing income.
Statement No. 122 is effective for years beginning after December 15, 1995.
Country believes the adoption of Statement No. 122 will not have a material
impact on its consolidated financial statements.
Accounting for Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock Based Compensation" (Statement No. 123). Statement
No. 123 establishes a fair value based method of accounting for stock options
and other equity instruments. Statement No. 123 permits the continued use of
the intrinsic value method included in Accounting Principle Board Opinion 25,
"Accounting for Stock Issued to Employees", but regardless of the method used
to account for the compensation cost associated with stock option or similar
plans, it requires employers to disclose information required by Statement No.
123.
Statement No. 122 is effective for years beginning after December 15, 1995.
Country believes the adoption of Statement No. 122 will not have a material
impact on its consolidated financial statements.
NOTE 2. CASH AND DUE FROM BANKS
Omni Bank is required to maintain legal reserves composed of funds on deposit
with the Federal Reserve Bank and cash on hand. The required balances as of
December 31, 1995 and 1994, were $361,000 and $25,000, respectively.
(Continued)
F - 132
<PAGE> 210
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SECURITIES
Country adopted Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (Statement
No. 115) as of January 1, 1994. Country elected to classify its entire
portfolio as held to maturity and therefore the financial statements were not
affected by adopting Statement No. 115.
In November 1995, the Financial Accounting Standards Board decided to allow all
enterprises to make a one-time reassessment of the classification of securities
made under Statement No. 115. These transfers were only allowed during the
period from the issuance of the Financial Accounting Standards Board Special
Report through December 31, 1995. Country transferred its entire security
portfolio, with an amortized cost of $21,431,021, from the held to maturity
classification to the available for sale classification and recorded, as a
component of equity, an unrealized gain of $49,038, net of $31,090 of deferred
taxes, to allow for more flexibility in managing Country's asset mix.
Amortized costs and fair values of securities are summarized as follows:
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 12,858,183 $ 75,043 $ 4,835 $ 12,928,391
U.S. Government agencies and
corporations 9,373,853 63,797 34,087 9,403,563
States and political
subdivisions 261,468 1,907 - 263,375
Mortgage backed securities 34,390 142 - 34,532
------------ ---------- ---------- ------------
$ 22,527,894 $ 140,889 $ 38,922 $ 22,629,861
============ ========== ========== ============
HELD TO MATURITY
<CAPTION>
December 31, 1994
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 9,464,335 $ - $ 184,929 $ 9,279,406
U.S. Government agencies and
corporations 2,634,794 6,456 34,343 2,606,907
States and political
subdivisions 875,372 13,845 1,750 887,467
Mortgage backed securities 515,897 25,848 - 541,745
------------ ---------- ---------- ------------
$ 13,490,398 $ 46,149 $ 221,022 $ 13,315,525
============ ========== ========== ============
</TABLE>
(Continued)
F - 133
<PAGE> 211
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The amortized cost and fair value of securities classified as available for
sale at December 31, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
December 31, 1995
-------------------------
Available for Sale
-------------------------
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 9,330,269 $ 9,332,454
Due after one year through five years 13,068,500 13,167,875
Due after five years through ten years 94,735 95,000
Due after ten years - -
Mortgage backed securities 34,390 34,532
----------- -----------
$22,527,894 $22,629,861
=========== ===========
</TABLE>
Securities with carrying values of approximately $9,174,000 and $200,000 at
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits, to secure securities sold under agreements to repurchase and for
other purposes as required or permitted by law.
Realized gains and losses from securities available for sale during 1995 and
1994 follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Gross gains $ 36,084 $ -
Gross losses 30,354 -
----------- -----------
$ 5,730 $ -
=========== ===========
</TABLE>
(Continued)
F - 134
<PAGE> 212
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS
The major classifications of loans follow:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Commercial $ 20,005,093 $ 13,347,394
Real estate 32,381,324 21,898,594
Installment 4,374,598 3,012,595
Other 413,635 57,903
------------ ------------
57,174,650 38,316,486
------------ ------------
Deduct:
Unearned interest 577,114 338,537
Allowance for loan losses 420,426 329,251
------------ ------------
997,540 667,788
------------ ------------
$ 56,177,110 $ 37,648,698
============ ============
</TABLE>
Country's opinion as to the ultimate collectibility of these loans is subject
to estimates regarding future cash flows from operations and the value of
property, real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic prospects of
borrowers.
The following table presents data on impaired loans at December 31, 1995:
<TABLE>
<S> <C>
Impaired loans for which an allowance has been provided $ -
Impaired loans for which an allowance has not been provided 389,297
---------------
Total loans determined to be impaired $ 389,297
===============
Allowance for loan loss for impaired loans included in the allowance for loan losses $ -
===============
Average recorded investment in impaired loans $ 212,932
===============
Interest income recognized from impaired loans $ -
===============
Cash basis interest income recognized from impaired loans $ 400
===============
</TABLE>
Loans on which the accrual of interest had been discontinued or reduced
amounted to $369,104 at December 31, 1994, which had the effect of reducing
interest income approximately $35,000.
Country and Omni Bank conduct most of their business activities, including
granting agribusiness, commercial, residential and installment loans with
customers in the counties of McDonough, Adams, Pike, and Schuyler, Illinois and
Marion, Missouri. The loan portfolio includes a concentration of loans to
agricultural and agricultural-related industries amounting to approximately
$15,105,000 and $12,200,000 as of December 31, 1995 and 1994, respectively.
Generally those loans are collateralized by assets of those entities. The
loans are expected to be repaid from cash flows or from proceeds from the sale
of selected assets of the borrowers. Credit losses arising from lending
transactions with agricultural entities compare favorably with the Omni Bank's
credit loss experience on the loan portfolio as a whole.
(Continued)
F - 135
<PAGE> 213
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the normal course of business, loans are made to executive officers,
directors, and principal stockholders of Country and Omni Bank and to parties
which Country or its directors, executive officers and stockholders have the
ability to significantly influence its management or operations (related
parties). In the opinion of management, the terms of these loans, including
interest rates and collateral, are similar to those prevailing for comparable
transactions with other customers and do not involve more than a normal risk of
collectibility. Changes in such loans during the year ended December 31, 1995
follow:
<TABLE>
<S> <C>
Balance at the beginning of year $ 1,100,000
New loans, extensions and modifications 505,000
Repayments (391,000)
--------------
Balance at end of year $ 1,214,000
==============
</TABLE>
NOTE 5. ALLOWANCE FOR LOAN LOSSES
An analysis of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------------
1995 1994
------------ ---------
<S> <C> <C>
Balance at beginning of year $ 329,251 $ 326,565
Provision for loan losses 40,200 15,800
Recoveries 100,306 25,335
Loans charged off (49,331) (38,449)
------------ ---------
Balance at end of year $ 420,426 $ 329,251
============ =========
</TABLE>
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment consisted of:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------------ ----------
<S> <C> <C>
Land $ 478,740 $ 226,570
Buildings 2,222,818 971,608
Furniture and equipment 2,043,089 1,541,117
Construction in Progress - 481,504
------------ ----------
4,744,647 3,220,799
Less accumulated depreciation 996,259 733,944
------------ ----------
$ 3,748,388 $2,486,855
============ ==========
</TABLE>
(Continued)
F - 136
<PAGE> 214
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7. DEPOSITS
A maturity distribution of time certificates of deposit in denominations of
$100,000 or more was as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
3 months or less $ 3,650,267 $ 200,597
Over 3 months through 6 months 1,459,803 508,533
Over 6 months through 12 months 3,563,272 2,744,571
Over 12 months 1,389,404 605,816
----------- ----------
$10,062,746 $4,059,517
=========== ==========
</TABLE>
NOTE 8. LONG TERM BORROWINGS
Long term borrowings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
-------------------------
<S> <C> <C>
Advances from the Federal Home Loan Bank,
interest quarterly at 6.04%, balance due December 26, 2001
collateralized with a blanket lien on all
qualifying mortgage loans held by the Bank $ 2,000,000 $ -
Debentures, interest quarterly at 8.5%, due at various dates in
September and October 1998 700,000 875,000
----------- ----------
$ 2,700,000 $ 875,000
=========== ==========
</TABLE>
NOTE 9. SHORT TERM BORROWINGS
Short term borrowings include a note payable to a third party lender of
$3,450,000 and securities sold under agreements to repurchase of $100,000.
Average and maximum balances and rates on notes payable and securities sold
under agreements to repurchase were as follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Maximum month end balance $ 3,550,000 $ 1,487,500
Average month end balance 2,639,317 2,550,073
Weighted average interest rate for the year 8.47% 9.00%
Weighted average interest rate at year end 8.26% 9.00%
</TABLE>
(Continued)
F - 137
<PAGE> 215
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The note payable of $3,450,000 contains certain covenants which limit the
amounts of dividends paid, the purchase of other banks and/or businesses, the
purchase of investments not in the ordinary course of business, the changes in
capital structure and the guarantees of other liabilities and obligations. In
addition, Country must maintain certain financial ratios. Country was in
compliance with all covenants as of the year ended December 31, 1995.
NOTE 10. STOCKHOLDERS' EQUITY
The Company's common stock has a $1 par value. There were 50,000 shares
authorized and 26,225 shares issued and outstanding at December 31, 1995 and
1994.
Terms of the preferred stock are as follows:
Series 1: 450 shares of $295 par value, voting, Series 1 preferred stock are
authorized and 383 shares were issued and outstanding at December 31, 1995 and
1994. Dividends are cumulative at 8.5% and noncumulative at an additional
1.5%.
Series 2: 5,000 shares of $295 par value, voting, Series 2 preferred stock are
authorized and 683 shares were issued and outstanding at December 31, 1995 and
1994. Dividends are noncumulative.
NOTE 11. INCOME TAXES
Income taxes (benefits) consisted of:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994
---------- -----------
<S> <C> <C>
Federal:
Current $ 40,771 $ (179,153)
Deferred (43,289) 132,323
-------- ----------
$ (2,518) $ (46,830)
======== ==========
</TABLE>
Country's income tax (benefits) differed from the statutory federal rate of 34%
as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994
---------- -----------
<S> <C> <C>
Expected income taxes (benefit) $ 70,067 $ (28,535)
Income tax effect of:
Interest earned on tax free investments and loans (22,217) (22,396)
Nondeductible interest expense incurred to carry tax-free
investments and loans 1,865 1,826
Other (52,233) 2,275
-------- ---------
$ (2,518) $ (46,830)
======== =========
(Continued)
</TABLE>
F - 138
<PAGE> 216
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The net deferred income tax liability in the accompanying balance sheets
includes the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Deferred tax liability $ (325,630) $ (335,566)
Deferred tax asset 45,832 52,042
---------- ----------
Net deferred tax liability $ (279,798) $ (283,524)
========== ==========
</TABLE>
The tax effects of principal temporary differences are shown in the following
table:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Allowance for loan losses $ (72,590) $ (84,898)
Premises and equipment basis (213,477) (183,552)
Securities available for sale (39,563) -
Net operating loss carryforwards 22,796 52,042
Other 23,036 (67,116)
---------- ----------
$(279,798) $(283,524)
========== ==========
</TABLE>
Net operating loss carryforwards of approximately $67,000 are available to
offset future taxable income. The carryforwards expire in the years 2002
through 2009.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107, "Disclosures about Fair
Value of Financial Instruments" (Statement No. 107), requires disclosure of
fair value information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that value. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instrument.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of Country.
The following methods and assumptions were used by Country in estimating the
fair value of its financial instruments:
Cash and due from banks
The carrying amounts reported in the balance sheet for cash and due from banks
approximate their fair values.
(Continued)
F - 139
<PAGE> 217
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Federal funds sold
The stated carrying amounts of federal funds sold approximate their fair
values.
Securities
Fair values for securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying amount of accrued
interest receivable approximates its fair value.
Loans
For variable-rate loans that reprice frequently and with no significant change
in credit risk, fair values are based on carrying values. The fair values for
fixed-rate loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. The carrying amount of accrued interest
receivable approximates its fair value.
Off-balance-sheet instruments
Fair values for Country's off-balance-sheet instruments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair value of these items is not material.
Deposit liabilities
The fair values for demand deposits equal their carrying amounts, which
represents the amount payable on demand. The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits. The
carrying amount of accrued interest payable approximates its fair value.
Long term and short term borrowings
Rates currently available to Country for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
(Continued)
F - 140
<PAGE> 218
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The estimated fair values of Country's financial instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1995
------------------------
Carrying Fair
Amount Value
----------- -----------
<S> <C> <C>
Financial Assets:
Cash and due from banks $ 2,214,864 $ 2,214,864
Federal funds sold 10,045,000 10,045,000
Securities 22,629,861 22,629,861
Loans 56,177,110 56,213,470
Financial Liabilities:
Deposits 86,546,471 86,586,498
Short term borrowings 3,550,000 3,550,000
Long term borrowings 2,700,000 2,700,000
</TABLE>
In addition, other assets and liabilities of Country that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the trained work force, customer goodwill and similar
items.
NOTE 13. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal actions, which are not reflected in the
consolidated financial statements. In the opinion of management, no material
losses are anticipated as a result of these actions or claims.
Omni Bank 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.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contractual amounts of those instruments reflect the extent of involvement in
particular classes of financial instruments.
Country's exposure to credit loss, in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit written, is represented by the contractual amount of those
instruments. Omni Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. At
December 31, 1995, loan commitments, including standby letters of credit,
approximated $ 9,975,700, substantially all of which are variable rate
commitments. Country does not anticipate any material losses as a result of
these commitments.
Country has employment agreements with its executive officers and certain other
management personnel. These agreements generally continue until terminated by
the executive or Country and provide for continued salary and benefits to the
executive under certain circumstances. The agreements provide the employees
with additional rights after a change of control of Country occurs.
(Continued)
F - 141
<PAGE> 219
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Country does not engage in the use of interest rate swaps, or futures, forwards
or option contracts.
NOTE 14. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
The primary source of funds for Country is dividends from Omni Bank. Certain
regulatory requirements restrict the amount of dividends that may be paid by
Omni Bank to Country. As a practical matter, dividend payments are restricted
to maintain prudent capital levels.
Condensed financial information for Country Bancshares, Inc. follows:
<TABLE>
<CAPTION>
BALANCE SHEETS (PARENT COMPANY ONLY) December 31,
-------------------------
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Cash and due from banks $ 9,345 $ 215,505
Investment in subsidiary 6,576,251 4,355,343
Income tax receivable 90,184 42,695
---------- ----------
$6,675,780 $4,613,543
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short term borrowings $3,450,000 $1,462,500
Long term borrowings 700,000 875,000
Accrued interest payable and other liabilities 63,520 73,486
---------- ----------
4,213,520 2,410,986
---------- ----------
Stockholders' Equity
Preferred stock 314,470 314,470
Common stock 26,225 26,225
Surplus 1,057,776 1,057,776
Retained earnings 1,001,385 804,086
Unrealized gain on securities available for sale 62,404 -
---------- ----------
2,462,260 2,202,557
---------- ----------
$6,675,780 $4,613,543
========== ==========
</TABLE>
(Continued)
F - 142
<PAGE> 220
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME STATEMENTS (PARENT COMPANY ONLY) Years Ended December 31,
------------------------
1995 1994
--------- ----------
<S> <C> <C>
Dividends from subsidiary $ 282,132 $ 237,423
Amortization of negative goodwill 19,640 19,640
--------- ---------
Total income 301,772 257,063
--------- ---------
Interest expense 317,970 213,244
Amortization of organizational costs 26,136 13,333
Other expenses 32,238 970
--------- ---------
Total expenses 376,344 227,547
--------- ---------
Income (loss) before income tax benefit and equity in
undistributed earnings of subsidiary (74,572) 29,516
Income tax benefit 124,666 61,041
--------- ---------
Income before equity in undistributed earnings of subsidiary 50,094 90,557
Equity in undistributed earnings (loss) of subsidiary 158,504 (127,654)
--------- ---------
Net income (loss) $ 208,598 $ (37,097)
========= =========
</TABLE>
(Continued)
F - 143
<PAGE> 221
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) Years Ended December 31,
----------------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 208,598 $ (37,097)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Undistributed earnings of subsidiary (158,504) 127,654
Amortization of negative goodwill (19,640) (19,640)
Amortization of organizational costs 26,136 13,333
Change in assets and liabilities:
(Increase) decrease in other assets (48,159) 13,021
Increase (decrease) in other liabilities (15,792) 4,946
----------- ----------
Net cash (used in) provided by operating activities (7,361) 102,217
----------- ----------
Cash Flows from Investing Activities
Organizational costs incurred in merger - (85,398)
Investment in subsidiary (2,000,000) 43,377
----------- ----------
Net cash (used in) investing activities (2,000,000) (42,021)
----------- ----------
Cash Flows from Financing Activities
Dividends paid (11,299) -
Proceeds from issuance of common stock - 100,082
Proceeds from issuance of preferred stock - 201,485
Proceeds on short-term borrowings 2,000,000 -
Payments on short-term borrowings (12,500) (25,000)
Payments on long-term borrowings (175,000) (125,000)
----------- ----------
Net cash provided by financing activities 1,801,201 151,567
----------- ----------
Net (decrease) increase in cash and due from banks (206,160) 211,763
Cash and due from banks:
Beginning of year 215,505 3,742
----------- ----------
End of year $ 9,345 $ 215,505
=========== ==========
Supplemental Schedule of Noncash Investing and Financing Activities
Change in unrealized gain on securities available for sale $ 101,967 $ -
=========== ==========
Increase in deferred taxes attributable to the unrealized
gain on securities available for sale $ (39,563) $ -
=========== ==========
</TABLE>
(Continued)
F - 144
<PAGE> 222
COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. SUBSEQUENT EVENTS
On March 21, 1996, Country entered into an Agreement and Plan of Merger
pursuant to which Country agreed to be merged with CBI Acquisition Corporation,
a wholly-owned subsidiary of UnionBancorp, Inc., with Country being the
surviving corporation.
F - 145
<PAGE> 223
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF
WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
SUCH INFORMATION.
________________________
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
Prospectus Summary.................................
Unaudited Pro Forma Combined Condensed.............
Financial Statements..............................
Investment Considerations..........................
Use of Proceeds....................................
Capitalization.....................................
Dilution...........................................
Market for Common Stock and
Dividends.........................................
The Acquisitions...................................
Selected Consolidated Financial
Data..............................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Company.........................
Business...........................................
Management.........................................
Beneficial Ownership of Common Stock...............
Supervision and Regulation.........................
Description of Capital Stock of the Company........
Shares Eligible for Future Sale....................
Underwriting.......................................
Legal Opinions.....................................
Experts............................................
Additional Information.............................
Index to Financial Statements and Financial Information F-1
</TABLE>
________________________
UNTIL __________, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
1,100,000 SHARES
UNIONBANCORP, INC.
[UNIONBANCORP, INC. LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
HOEFER & ARNETT
INCORPORATED
_________, 1996
================================================================================
<PAGE> 224
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the Common Stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates,
except the Commission's registration fee, the NASD filing fee and the Nasdaq
application fee.
<TABLE>
<S> <C>
Commission registration fee.................................. $5,017
NASD filing fee.............................................. 1,955
Nasdaq application fee....................................... 19,757
Printing and mailing expenses................................ 100,000
Fees and expenses of Company counsel......................... 165,000
Accounting and related expenses.............................. 95,000
Blue Sky fees and expenses................................... 15,000
Miscellaneous................................................ 98,271
Total..................................................... $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles VIII and XIII of
the Registrant's Restated Certificate of Incorporation, as amended, provide as
follows:
ARTICLE VIII:
The Company shall, to the full extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify all persons who it may indemnify pursuant thereto.
ARTICLE XIII:
No director of the Company shall be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty by such
directors as a director; provided, however, that this Article XIII shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Company 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 Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article XIII shall apply to or have any effect
on the liability or alleged liability of any director of the Company for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has not issued any securities in the past three years except
with respect to the three-for-one stock split in the form of a stock dividend
effected in May, 1996, and with respect to the acquisitions of Prairie and
LaSalle Collections. With respect to the stock split, the Company had 710,577
issued and outstanding shares of Common Stock prior to such event and 2,131,731
issued and outstanding shares immediately following the May 20, 1996 effective
date for the stock split. In connection with the Prairie Acquisition, the
Company issued 710,576 shares of Common Stock and 2,762.24 shares of Series A
Preferred Stock to the holders of shares of Prairie Common Stock, and issued
857 shares of Series B Preferred Stock to the holders of Prairie's Series A
Preferred
II-1
<PAGE> 225
Stock electing to receive securities in lieu of cash. See "The Acquisitions --
Prairie Bancorp, Inc. -- Consideration for Prairie Common and Preferred Stock."
The Company also issued 9,090 shares of Common Stock to the sole stockholder
of LaSalle Collections in connection with the Company's acquisition of LaSalle
Collections. The Company believes all of the securities issued in
connection with the acquisitions of Prairie and LaSalle Collections were issued
in transactions exempt from the registration requirements of the Securities Act
of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder.
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement with Hoefer & Arnett, Incorporated
3.1 Restated Certificate of Incorporation of UnionBancorp, Inc., as
amended
3.2 Bylaws of UnionBancorp, Inc.
4.1 Articles IV, VI, VIII, X XI, XII, XIII and XIV of UnionBancorp,
Inc.'s Restated Certificate of Incorporation, as amended
4.2 Articles III, IV, VII, IX and XII of UnionBancorp, Inc.'s Bylaws
4.3 Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of UnionBancorp, Inc.
4.4 Certificate of Designation, Preferences and Rights of Series B
Preferred Stock of UnionBancorp, Inc.
4.5 Certificate of Designation, Preferences and Rights of Series C
Junior Participating Preferred Stock
4.6 Specimen Common Stock Certificate of UnionBancorp, Inc.
4.7 Rights Agreement between UnionBancorp, Inc. and Harris Trust and
Savings Bank, dated August 5, 1996
5.1 Opinion of Barack, Ferrazzano, Kirschbaum & Perlman regarding
legality of securities being registered
10.1 Employment Agreement dated January 1, 1992, between UnionBank,
UnionBancorp, Inc. and R. Scott Grigsby, as amended on October 1,
1993, April 4, 1996 and August 5, 1996
10.2 Employment Agreement dated March 1, 1994, among UnionBank,
UnionBancorp, Inc. and Wayne L. Bismark, as amended on April 4,
1996
10.3 Employment Agreement dated January 1, 1992, between UnionBancorp,
Inc. and Charles J. Grako, as amended on October 1, 1993, April 4,
1996 and August 5, 1996
10.4 Employment Agreement dated January 1, 1992, by and among
UnionBank, UnionBancorp, Inc. and Everett J. Solon, as amended on
October 1, 1993, April 11, 1996 and August 5, 1996
10.5 Employment Agreement dated June 3, 1996, between UnionBancorp, Inc.
and John M. Daw
10.6 Employment Agreement dated March 4, 1996, between UnionBank,
UnionBancorp, Inc. and Jimmie D. Lansford, as amended on April 4,
1996
II-2
<PAGE> 226
10.7 Agreement and Plan of Merger dated January 22, 1996, as amended,
among UnionBancorp, Inc., Prairie Acquisition Corporation and Prairie
Bancorp, Inc.
10.8 Agreement and Plan of Merger dated March 21, 1996, among
UnionBancorp, Inc., CBI Acquisition Corporation and Country Bancshares,
Inc.
10.9 Standstill Agreements dated August 6, 1996, between UnionBancorp,
Inc. and each of Wayne W. Whalen and Dennis J. McDonnell
10.10 Registration Agreement dated August 6, 1996, between UnionBancorp,
Inc. and each of Wayne W. Whalen and Dennis J. McDonnell
10.11 Loan Agreement between UnionBancorp, Inc. and LaSalle National Bank
dated August 2, 1996
10.12 UnionBancorp, Inc. Employee Stock Ownership Plan
10.13 UnionBancorp, Inc. 1993 Stock Option Plan, as amended
21.1 Subsidiaries of UnionBancorp, Inc.
23.1 Consent of Barack, Ferrazzano, Kirschbaum & Perlman (included in
opinion filed as Exhibit 5.1)
23.2 Consents of McGladrey & Pullen, LLP
23.3 Consent of Robert J. Doty
23.4 Consent of Scott C. Sullivan
24.1 Power of Attorney (included on the signature page of this
Registration Statement)
27.1 Financial Data Schedule
ITEM 17. UNDERTAKINGS
(a) 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.
(b) The undersigned Registrant hereby undertakes that:
(1) 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 of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) 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.
II-3
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ottawa, State of
Illinois, on August 5, 1996.
UNIONBANCORP, INC.
By:
--------------------------------------
R. Scott Grigsby
Chairman of the Board, President and
Chief Executive Officer
By:
--------------------------------------
Charles J. Grako
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints R. Scott Grigsby and Charles J. Grako, and each
of them, his true and lawful attorney-in-fact and agent, each with full power
of substitution and re-substitution, for him and in his name, place and stead,
in any and all capacities to sign any or all amendments (including
post-effective 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, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by each of the following persons in the
capacities indicated on August 5, 1996.
SIGNATURE TITLE
- --------- -----
Chairman of the Board of Directors,
- -------------------- President and Chief Executive Officer
R. Scott Grigsby
- -------------------- Director
Richard J. Berry
- -------------------- Director
Walter E. Breipohl
- -------------------- Director
L. Paul Broadus
II-4
<PAGE> 228
SIGNATURE TITLE
--------- -----
- --------------------
John Michael Daw Director
- --------------------
Jimmie D. Lansford Director
- --------------------
Lawrence J. McGrogan Director
- --------------------
C. Robert Myers Director
- --------------------
I. J. Reinhardt, Jr. Director
- --------------------
H. Dean Reynolds Director
- --------------------
John A. Trainor Director
Executive Vice
- -------------------- President and Chief
Charles J. Grako Financial Officer
II-5
<PAGE> 1
EXHIBIT 1.1
DRAFT: JULY 30, 1996
1,100,000 SHARES*
UNIONBANCORP, INC.
Common Stock
UNDERWRITING AGREEMENT
______________ , 1996
HOEFER & ARNETT INCORPORATED
353 Sacramento Street, 10th Floor
San Francisco, California 94111
Ladies and Gentlemen:
Pursuant to the terms of this Underwriting Agreement (this "Agreement"),
UnionBancorp, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions set forth herein, to issue and sell an aggregate of
1,100,000 shares of Common Stock, par value $1.00 per share (the "Common
Stock"), of the Company to Hoefer & Arnett Incorporated (the "Underwriter").
The Company has agreed to sell to the Underwriter, upon the terms and
conditions set forth in Section 2 hereof, up to an additional 165,000 shares of
Common Stock. The aggregate of 1,100,000 shares to be sold by the Company are
herein called the "Firm Shares" and the aggregate of 165,000 additional shares
to be sold by the Company are herein called the "Additional Shares." The Firm
Shares and the Additional Shares are hereinafter collectively referred to as
the "Shares."
Prior to the purchase and public offering of the Shares by the
Underwriter, the Company and the Underwriter shall enter into an agreement
substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The
Pricing Agreement may take the form of an exchange of any standard form of
written telecommunication between the Company and the Underwriter and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Shares will be governed by this Agreement, as supplemented by
the Pricing Agreement. From and after the date of the execution and delivery
of the Pricing Agreement, this Agreement shall be deemed to incorporate the
Pricing Agreement.
The Company is hereby advised that the Underwriter has agreed to make a
public offering of the Shares as soon after the Registration Statement has
become effective and the Pricing Agreement has been executed as in the judgment
of the Underwriter is advisable and to first offer the Shares upon the terms
set forth in the Prospectus.
The Company and the Underwriter hereby agree to the following matters with
respect to the purchase and sale of the Shares:
_______________
* Plus an option to purchase up to 165,000 Additional Shares to cover
over-allotments.
<PAGE> 2
SECTION 1. (A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Underwriter that:
(i) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-1 (File No. 33-______), including a preliminary prospectus, relating to
the Shares and certain amendments thereto. The Company will next file with the
Commission one of the following: (A) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of
final prospectus, (B) a final prospectus in accordance with Rules 430A and
424(b) under the Act or (C) a term sheet (the "Term Sheet") as described in and
in accordance with Rules 434 and 424(b) under the Act. As filed, the final
prospectus, if one is used, or the Term Sheet and the latest Preliminary
Prospectus, if a final prospectus is not used, shall include all Rule 430A
Information (as defined below). There have been or will promptly be delivered
to you three signed copies of such registration statement and amendments, three
copies of each exhibit filed therewith, and conformed copies of such
registration statement and amendments (but without exhibits) and of the related
preliminary prospectus or prospectuses and final forms of prospectus or Term
Sheet, if a Term Sheet is used, for the Underwriter. The term "Registration
Statement" as used in this Agreement shall mean such registration statement at
the time such registration statement becomes effective and, in the event any
amendment thereto becomes effective prior to the Closing Date (as hereinafter
defined), shall also mean such registration statement as so amended; provided,
however, that such term shall also include all Rule 430A Information deemed to
be included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A and, if a Term Sheet is
used, shall also include all information deemed to be included in such
registration statement at the time such registration statement becomes
effective as provided by Rule 434; provided, further, that if the Company files
a registration statement under the Act to register a portion of the Shares and
relies on Rule 462(b) for such registration statement to become effective upon
filing with the Commission (the "Rule 462 Registration Statement"), then any
reference to "Registration Statement" herein shall be deemed to be to both the
registration statement referred to above (No. 33-_______) and the Rule 462
Registration Statement, as each such registration statement may be amended
pursuant to the Act. The term "Preliminary Prospectus" as used in this
Agreement shall mean any preliminary prospectus relating to the Shares filed
with the Commission under the Act and the rules and regulations thereunder,
including any preliminary prospectus included in the Registration Statement at
the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean: (X) the prospectus relating
to the Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) under the Act; (Y) if a Term Sheet is not used and no
filing pursuant to Rule 424(b) under the Act is required, the form of final
prospectus included in the Registration Statement at the time the Registration
Statement becomes effective; or (Z) if a Term Sheet is used in lieu of a
prospectus, the Term Sheet in the form in which it is first filed with the
Commission pursuant to Rule 424(b) under the Act, together with the latest
Preliminary Prospectus included in the Registration Statement at the time it
becomes effective (such Term Sheet and Preliminary Prospectus are sometimes
collectively referred to herein as the "Rule 434 Prospectus"). The term "Rule
430A Information" as used in this Agreement shall mean information with respect
to the Shares and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A under
the Act. The Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder are hereinafter collectively referred
to as the "Exchange Act."
(ii) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus complied in
all material respects when so filed with the requirements of the Act (except to
the extent that, in conformity with the Act, such Preliminary Prospectus is
subject to completion).
(iii) The Registration Statement in the form in which it becomes
effective and also in such form as it may be when the Pricing Agreement is
executed or any post-effective amendment to the Registration Statement shall
become effective, and the Prospectus when and in the form last filed with the
Commission as part of the Registration Statement prior to effectiveness or, if
applicable, first filed pursuant to Rule 424(b) under the Act, and when any
supplement or amendment thereto is filed with the Commission, each
<PAGE> 3
will comply in all material respects with the requirements of the Act, will not
at any such time contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. This representation and warranty does not apply to statements
in or omissions from the Registration Statement or the Prospectus (or any
supplement or amendment thereto) made in reliance upon and in conformity with
information relating to the Underwriter furnished to the Company in writing by
such Underwriter specifically for use in the Registration Statement.
(iv) There is no contract or other document of a character required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required.
(v) McGladrey & Pullen, LLP, who are certifying to certain of the
financial statements of the Company, Prairie Bancorp, Inc., an Illinois
corporation ("Prairie") and Country Bancshares, Inc., an Illinois corporation
("Country") included in the Registration Statement and the Prospectus, are
independent public accountants as required by the Act.
(vi) The consolidated financial statements and schedules, together with
the notes thereto, of the Company included in the Registration Statement and
the Prospectus comply in all material respects with the Act and present fairly
the consolidated financial position of the Company as of the dates indicated,
and the consolidated results of operations, cash flows and changes in financial
position of the Company for the periods specified and the supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. The consolidated financial statements and schedules,
together with notes thereto, of Prairie and Country included in the
Registration Statement and the Prospectus comply in all material respects with
the Act and present fairly the consolidated financial position of Prairie and
Country, respectively, as of the dates indicated, and the consolidated results
of operations, cash flows and changes in financial position of Prairie and
Country, respectively, for the periods specified present fairly the information
required to be stated therein. All of such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis throughout the entire periods involved except to the extent
disclosed therein.
The pro forma financial statements and other pro forma information
included in the Prospectus present fairly the information shown therein, have
been prepared in accordance with generally accepted accounting principles and
the Commission's rules and guidelines with respect to pro forma financial
statements and other pro forma information, have been properly compiled on the
pro forma basis described therein, and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate under the circumstances.
(vii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement and Prospectus.
The Company is duly qualified to do business as a foreign corporation and in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
in any such case in which the failure to so qualify or be in good standing
would not have a material adverse effect upon the business of the Company and
its subsidiaries, taken as a whole; and no proceeding of which the Company has
knowledge has been instituted in any such jurisdiction, revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and authority or
qualification.
(viii) Each of the Company's subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to own,
lease and operate its properties and conduct its business as described in the
Registration Statement and Prospectus. Each of the Company's subsidiaries is
duly qualified to do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or leasing of its properties or the conduct
of its business requires such qualification, except in any such case in which
the failure to so qualify or be in good standing would not have a material
adverse effect on the business of the
<PAGE> 4
Company and its subsidiaries, taken as a whole. Each of the Company's
subsidiaries has all authorizations, approvals, orders, certificates and
permits of and from all state, federal and other regulatory officials and
bodies necessary to own its properties and to conduct its business as described
in the Registration Statement and Prospectus, except where the failure to have
any such authorization, approval, order, certificate or permit would not have a
material adverse effect on the business affairs, business prospects,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Except for the capital stock of the
subsidiaries and except as otherwise described in the Prospectus, the Company
does not own any capital stock of, or other securities evidencing an equity
interest in, any corporation, partnership or other entity. All of the issued
and outstanding shares of capital stock of the Company's subsidiaries have been
duly and validly authorized and issued, are fully paid and non-assessable, and
except as described in the Prospectus, are owned by the Company, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of any
nature. Except as described in the Prospectus, there are no outstanding
subscriptions, rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock of any of the
Company's subsidiaries.
(ix) The Company has an authorized and outstanding capitalization as set
forth in the Prospectus and the Shares conform to the description thereof
contained in the Prospectus. All of the issued and outstanding shares of
Common Stock have been duly authorized, validly issued and are fully paid and
non-assessable and are free of preemptive or other similar rights and there are
no options, agreements, contracts or other rights in existence to acquire from
the Company any shares of Common Stock.
(x) The Shares to be sold by the Company pursuant to this Agreement and
the Pricing Agreement have been duly authorized and, when issued and paid for
in accordance with this Agreement and the Pricing Agreement, will be validly
issued, fully paid and non-assessable; the holders of the Shares will not be
subject to personal liability by reason of being such holders; there are no
holders of securities of the Company having rights, contractual or otherwise,
to registration thereof or preemptive rights to purchase Common Stock; all
corporate actions required to be taken for the authorization, issue and sale of
the Shares have been validly and sufficiently taken; and upon delivery of and
payment for such Shares hereunder, the Underwriters will acquire valid and
marketable title thereto, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature.
(xi) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated or
contemplated therein, there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, affairs, business or prospects of
the Company and its subsidiaries, taken as a whole, whether or not arising in
the ordinary course of business, (B) any material transaction entered into, or
any material liability or obligation incurred, by the Company or its
subsidiaries other than in the ordinary course of business, (C) any change in
the capital stock, or material increase in the short-term debt or long-term
debt of the Company or its subsidiaries, or (D) any dividend or distribution of
any kind declared, paid or made by the Company or its subsidiaries on its
capital stock.
(xii) The Company and each of its subsidiaries have good and marketable
title to all properties and assets reflected as owned in the financial
statements hereinabove described or described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions of any
kind, except such as are referred to in such financial statements or the
Prospectus or which are not material to the business of the Company and its
subsidiaries, taken as a whole; all of the leases and subleases material to the
business of the Company and its subsidiaries, taken as a whole or under which
the Company or any of its subsidiaries holds properties are in full force and
effect; and neither the Company nor any of its subsidiaries has received any
notice of any material claim of any sort which has been asserted by anyone
adverse to the rights of the Company or any subsidiary as owner or as lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
<PAGE> 5
(xiii) Neither the Company nor any of its subsidiaries is in default in
the observance of any provision of its Certificate of Incorporation, bank
charter or by-laws, or in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which it is a
party or by which it or any of its properties may be bound, the effect of which
could be materially adverse to the condition (financial or otherwise),
earnings, affairs, business or prospects of the Company and its subsidiaries,
taken as a whole.
(xiv) The execution and delivery of this Agreement and the Pricing
Agreement, the issuance and delivery of the Shares, the consummation of the
transactions contemplated herein and in the Registration Statement and
compliance with the terms of this Agreement and the Pricing Agreement have been
duly authorized by all necessary corporate action and will not result in any
violation of the Certificate of Incorporation, bank charter or by-laws of the
Company or any of its subsidiaries, and will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge, encumbrance or
restriction of any kind upon any property or assets of the Company or any of
its subsidiaries under any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries, or
any of their respective properties, is bound, or any existing applicable law,
rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their respective properties. No
approval, authorization or consent of any court, regulatory body,
administrative agency or other governmental body having jurisdiction over the
Company or any of its subsidiaries is required in connection with the sale of
the Shares to the Underwriters, except such as may be required under the Act,
state securities or Blue Sky laws or from the clearance of the offering with
the National Association of Securities Dealers, Inc. (the "NASD").
(xv) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, or any arbitrator or
arbitration panel, now pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries which could result
in any material adverse change to the condition (financial or otherwise),
earnings, affairs, business or prospects of the Company and its subsidiaries,
taken as whole; and there is no decree, judgment or order of any kind in
existence against or restraining the Company or any of its subsidiaries, or any
of their respective officers, employees or directors, from taking any actions
of any kind in connection with the business of the Company or any such
subsidiary.
(xvi) The Company and each of its subsidiaries own or possess or have
obtained all material governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease or own, as the case may
be, and to operate their properties and to carry on their businesses as
presently conducted, and neither the Company nor any such subsidiary has
received any notice of proceedings related to revocation or modification of any
such licenses, permits, consents, orders, approvals or authorizations which
singly or in the aggregate, if the subject of an unfavorable ruling or finding,
would be materially adverse to the condition (financial or otherwise),
earnings, affairs, business or prospects of the Company and its subsidiaries,
taken as a whole.
(xvii) The conduct of the business of the Company and each of its
subsidiaries is in compliance with all applicable federal, state and local laws
and regulations that regulate or are concerned in any way with the business of
the Company or such subsidiaries, where the effect of the failure to comply
would be materially adverse to the condition (financial or otherwise),
earnings, affairs, business or prospects of the Company and its subsidiaries,
taken as a whole.
(xviii) The Company together with its subsidiaries owns or possesses, or
can acquire on reasonable terms, all right, title and interest in or to, or has
duly licensed from third parties, all patents, trademarks, service marks,
copyrights, trade names, trade secrets and other proprietary rights ("Trade
Rights") necessary to conduct the business now or proposed to be conducted by
it, and neither the Company nor any of its subsidiaries has received any notice
of, and has no knowledge of, infringement of or conflict with asserted rights
of others with respect to any such Trade Rights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
be materially adverse to the
<PAGE> 6
condition (financial or otherwise), earnings, affairs, business or prospects of
the Company and its subsidiaries, taken as a whole.
(xix) The Company has filed all tax returns required to be filed and has
paid all taxes which were payable pursuant to said returns or any assessments
with respect thereto, other than any tax returns which the Company is
contesting in good faith or which are not material to the Company and there is
no tax deficiency that has been, or to the knowledge of the Company might be,
asserted against the Company or any of its properties or assets that would or
could be expected to have a material adverse affect upon the condition
(financial or otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole.
(xx) This Agreement has been duly executed and delivered by the Company.
(xxi) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock thereunder, has filed an
application to list the Shares for quotation on The Nasdaq National Market and
has received notification [that the listing has been approved, subject to
notice of issuance or sale of the Shares, as the case may be] [that the Shares
have been authorized for quotation on The Nasdaq National Market, subject to
notice of issuance or sale, as the case may be].
(xxii) The Company is not, and does not intend to conduct its business in
a manner in which it would become, an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(xxiii) All offers and sales of the Company's capital stock prior to the
date hereof were at all relevant times exempt from the registration
requirements of the Act and were duly registered with, or the subject of an
available exemption from, the registration requirements of the applicable state
securities or Blue Sky laws.
(xxiv) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company.
(xxv) Except as disclosed in the Registration Statement and the
Prospectus, no transaction has occurred between or among the Company, on the
one hand, and any of its officers or directors or any affiliate or affiliates
of any such officer or director, on the other hand, that is required to be so
disclosed, including, but not limited to, any outstanding loans, advances or
guaranties of indebtedness by the Company to or for the benefit of any
affiliates of the Company, or any of the officers or directors of the Company,
or any family member of any of them.
(xxvi) The Company has not, directly or indirectly, at any time (A) made
any contributions to any candidate for foreign political office, or if made,
failed to disclose fully any such contribution made in violation of law, or (B)
made any payment to any state, federal or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments or contributions required or allowed by applicable law.
The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(xxvii) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in the Prospectus, if
any, concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the Company will provide
the Department with notice of such business or change, as appropriate, in a
form acceptable to the Department.
<PAGE> 7
(xxviii) The Company and each of its subsidiaries are in compliance with
all applicable federal and state laws and regulations that regulate or are
concerned in any way with the business of banking, including, without
limitation, the Bank Holding Company Act of 1956, as amended (the "Bank Holding
Company Act"), the National Bank Act, the Federal Deposit Insurance Act and all
other applicable laws and regulations where the failure to comply would have a
material and adverse effect on the financial condition, earnings or business of
the Company and its subsidiaries taken as a whole. Each of the Company,
Prairie and Country is a bank holding company duly registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act.
(xxix) The Company has consummated the acquisition of all of the
outstanding capital stock of Prairie pursuant to the Agreement and Plan of
Merger dated January 22, 1996, as supplemented and amended, by and among the
Company, Prairie Acquisition Corporation and Prairie (the "Prairie Agreement")
and has consummated the acquisition of all of the outstanding capital stock of
Country pursuant to the Agreement and Plan of Merger dated March 21, 1996, by
and among the Company, CBI Acquisition Corporation and Country (the "Country
Agreement") and the Company is not in default in the observance of any of the
terms and conditions of the Prairie Agreement or the Country Agreement.
For purposes of this Agreement, all references to the Company and its
subsidiaries shall include, without limitation, Prairie and Country and their
respective subsidiaries.
SECTION 2. AGREEMENT TO SELL AND PURCHASE.
(a) Subject to such adjustments to eliminate any fractional share sales
or purchases as the Underwriter in its discretion may make, (i) the Company
hereby agrees to issue and sell to the Underwriter an aggregate of 1,100,000
Firm Shares, and (ii) on the basis of the representations, warranties and
agreements of the Company herein contained and subject to the terms and
conditions set forth herein, the Underwriter agrees to purchase from the
Company, at the purchase price per Share set forth in the Pricing Agreement
(the "Purchase Price per Share"), such Firm Shares.
(b) The Company agrees to issue and sell to the Underwriter and, on the
basis of the representations, warranties and agreements of the Company set
forth herein and subject to the terms and conditions set forth herein, the
Underwriter shall have the right to purchase from the Company up to 165,000
Additional Shares at the Purchase Price per Share upon delivery to the Company
of the notice hereinafter referred to. Such Additional Shares may be purchased
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares.
(c) It is understood that up to 110,000 Firm Shares will initially be
reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus to the Company's Employees' Stock
Ownership Plan and to officers and directors of the Company who have heretofore
delivered to the Underwriter offers or indications of interest to purchase Firm
Shares in form satisfactory to the Underwriter, and that any allocation of such
Firm Shares among such persons will be made in accordance with timely
directions received by the Underwriter from the Company, provided that under no
circumstances will the Underwriter be liable to the Company or any such person
for any action taken or omitted in good faith in connection with such offering
to the Company's Employee's Stock Ownership Plan and to officers and directors
of the Company. It is further understood that any of such Firm Shares which
are not purchased by such persons will be offered by the Underwriter to the
public upon the terms and conditions set forth in the Prospectus.
SECTION 3. DELIVERY OF THE SHARES AND PAYMENT THEREFOR.
(a) Delivery to the Underwriter of the Firm Shares shall be made against
payment therefor at 9:00 a.m., Chicago, Illinois time, on the third full
business day following the date of the Pricing Agreement (the "Closing Date")
at the offices of Sidley & Austin, One First National Plaza, Chicago, Illinois
60603. The place of the closing and the Closing Date may be varied by
agreement between the Underwriter and the Company.
<PAGE> 8
(b) Delivery to the Underwriter of any Additional Shares to be purchased
by the Underwriter shall be made in Chicago, Illinois against payment therefor
at the offices of Sidley & Austin at such time on such date (the "Option
Closing Date"), which may be the same as the Closing Date, but shall in no
event be earlier than the Closing Date nor earlier than three nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in written notice from the Underwriter to the Company of the
determination to purchase a number, specified in said notice, of Additional
Shares. Said notice may be given at any time within 30 days after the date of
the execution of the Pricing Agreement. The place of the closing and the
Option Closing Date may be varied by agreement between the Underwriter and the
Company.
(c) If the Underwriter and the Company have elected to enter into the
Pricing Agreement after the Registration Statement is effective, the Purchase
Price per Share to be paid by the Underwriter for the Shares shall be an amount
equal to the initial public offering price, less an amount to be determined by
agreement between the Underwriter and the Company. The initial public offering
price per Share of the Shares shall be a fixed price to be determined by
agreement between the Underwriter and the Company. The initial public offering
price and the Purchase Price per Share, when so determined, shall be set forth
in the Pricing Agreement. If such prices have not been agreed upon and the
Pricing Agreement has not been executed and delivered by all parties thereto by
the close of business on the fourth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to by the Company and the
Underwriter and except as otherwise provided in Section 5 hereof. If the
Underwriter and the Company have elected to enter into the Pricing Agreement
prior to the Registration Statement becoming effective, the initial public
offering price and the Purchase Price per Share to be paid by the several
Underwriters for the Shares having each been determined and set forth in the
Pricing Agreement, the Company agrees to file an amendment to the Registration
Statement and the Prospectus before the Registration Statement becomes
effective.
(d) Certificates for the Firm Shares and for the Additional Shares shall
be registered in such names and in such denominations as the Representatives
shall request upon at least 48 hours prior notice to the Company preceding the
Closing Date or the Option Closing Date, as the case may be. Such certificates
shall be made available to the Underwriter at the office of The Depository
Trust Company, New York, New York, for inspection and packaging not later than
at least 24 hours prior to the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and the Additional
Shares shall be delivered to the Underwriter on the Closing Date or the Option
Closing Date, as the case may be, with any transfer taxes thereon duly paid by
the Company for the Underwriter, against payment of the purchase price therefor
by certified or official bank check or checks payable in Chicago Clearing House
(next-day) funds to the order of the Company, or, at the option of the Company,
by wire transfer in federal (same day) funds for which the Company will pay one
day's interest at the broker call rate as reported in The Wall Street Journal
on the business day immediately prior to the Closing Date or the Option Closing
Date, as the case may be, subject to change by written agreement of the Company
and the Underwriter.
SECTION 4. AGREEMENTS OF THE COMPANY. The Company covenants and agrees
with the Underwriter that:
(a) The Company will endeavor to cause the Registration Statement to
become effective and will advise the Underwriter promptly and, if requested by
the Underwriter, will confirm such advice in writing, (i) when the Registration
Statement has become effective and when any post-effective amendment to it
becomes effective, and of the filing of any final prospectus or supplement or
amendment to the Prospectus, (ii) of any request by the Commission for
amendments or supplements to the Registration Statement or Prospectus or any
Preliminary Prospectus or for additional information, (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation or contemplation of any
proceeding for such purposes, and (iv) within the period of time referred to in
paragraph (f) below, of the happening of any event which makes any statement
made in the Registration Statement or Prospectus (as then amended or
supplemented) untrue in any material respect or which requires the making of
any additions to or changes in the Registration Statement or Prospectus (as
then
<PAGE> 9
amended or supplemented) in order to make the statements therein not misleading
or the necessity to amend or supplement the Prospectus to comply with the Act
or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment. If the Company elects to rely on Rule 434 of the
Act, the Company will prepare a Term Sheet that complies with the requirements
of Rule 434 of the Act and will provide the Representatives with copies of the
form of Rule 434 Prospectus in such numbers as you may reasonably request and
file or transmit for filing with the Commission the form of Prospectus
complying with Rule 434(c)(2) of the Act in accordance with Rule 424(b) of the
Act by the close of business in Chicago on the business day immediately
succeeding the date hereof. If the Company elects not to rely on Rule 434, the
Company will provide the Underwriter with copies of the form of Prospectus in
such numbers as you may reasonably request and file or transmit for filing with
the Commission such Prospectus in accordance with Rule 424(b) of the Act, by
the close of business in Chicago on the business day immediately succeeding the
date hereof.
(b) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the Act, then promptly following the execution of the Pricing Agreement,
the Company will prepare and file with the Commission, in accordance with Rule
430A and Rule 424(b) under the Act, copies of an amended Prospectus, or, if
required by Rule 430A, a post-effective amendment to the Registration Statement
(including an amended Prospectus) containing all information so omitted.
(c) Neither the Company nor any of its subsidiaries will, prior to the
earlier of the Option Closing Date or termination or expiration of the related
option, incur any liability or obligation, direct or contingent, or enter into
any material transaction, other than in the ordinary course of business, except
as contemplated in the Prospectus.
(d) The Company will not file any amendment to the Registration Statement
or make any amendment or supplement to the Prospectus of which the Underwriter
shall not previously have been advised or to which the Underwriter shall
promptly after being so advised reasonably object in writing.
(e) Prior to the effective date of the Registration Statement, the
Company has delivered or will deliver to the Underwriter, without charge,
copies of each form of Preliminary Prospectus in such quantities as the
Underwriter shall have reasonably requested or may hereafter reasonably
request. The Company consents to the use, in accordance with the provisions of
the Act and with the securities or Blue Sky laws of the jurisdictions in which
the Shares are offered by the Underwriter and by dealers, prior to the
effective date of the Registration Statement, of each Preliminary Prospectus so
furnished by the Company.
(f) On the effective date of the Registration Statement and thereafter
from time to time during such period as in the opinion of counsel for the
Underwriters a prospectus relating to the Shares is required by law to be
delivered in connection with offers or sales of the Shares by the Underwriter
or a dealer, the Company will deliver to the Underwriter and each dealer,
without charge, as many copies of the Registration Statement, the Prospectus
and each Preliminary Prospectus (and of any amendment or supplement to such
documents) as they may reasonably request. During such period, if any event
occurs which in the judgment of the Company, or in the opinion of counsel for
the Underwriter, should be set forth in the Prospectus in order to ensure that
no part of the Prospectus includes an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances at the time the Prospectus is
delivered to a purchaser, not misleading, the Company will forthwith prepare,
submit to the Underwriter, file with the Commission and deliver, without charge
to the dealers (whose names and addresses will be furnished by the Underwriter
to the Company) to whom shares have been sold by the Underwriter or to other
dealers any amendments or supplements to the Prospectus so that the statements
in the Prospectus, as so amended or supplemented, will comply with the
standards set forth in this sentence. The Company consents to the use of such
Prospectus (and of any amendments or supplements thereto) in accordance with
the provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions described in the preliminary Blue Sky memorandum in which the
Shares are lawfully offered by the Underwriter and by all dealers to whom
Shares may be sold, both
<PAGE> 10
in connection with the offering or sale of the Shares and for such period of
time thereafter as the Prospectus is required by law to be delivered in
connection therewith. In case the Underwriter is required to deliver a
Prospectus (and any amendment or supplement thereto) more than nine months
after the first date upon which the Shares are offered to the public, the
Company will, upon request, but at the expense of the Underwriter, promptly
prepare and furnish the Underwriter with reasonable quantities of a Prospectus
complying with Section 10(a)(3) of the Act.
(g) The Company will cooperate with the Underwriter and counsel for the
Underwriter in connection with the registration or qualification of the Shares
for offer and sale by the Underwriter and by dealers under the securities or
Blue Sky laws of such jurisdictions as the Underwriter may designate, will
continue such registrations or qualifications in effect so long as reasonably
required for the distribution of the Shares and will file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided that in no event shall the Company
be obligated to (i) qualify to do business in any jurisdiction where it is not
now so qualified, (ii) file any general consent to service of process, or (iii)
take any action that would subject it to income taxation in any jurisdiction
where it is not so qualified.
(h) For a period of five years after the date of the Pricing Agreement:
(i) the Company will furnish to the Underwriter (A) as soon as
available, a copy of each report of the Company of general interest mailed
to any class of its security holders (B) copies of all annual reports and
current reports filed with the Commission on Forms 10-K, 10-Q and 8-K and
any amendment thereto or such other similar forms as may be designated by
the Commission and (C) from time to time, such other information concerning
the Company as the Underwriter may reasonably request;
(ii) if at any time during such five year period, the Company
shall cease filing with the Commission the annual reports and current
reports on Forms 10-K, 10-Q and 8-K or other similar forms referred to
in clause (h)(i) above, the Company will forward to its stockholders
generally and the Underwriter (A) as soon as practicable after the end
of each fiscal year, copies of a balance sheet and statements of income
and retained earnings of the Company as of the end of and for such
fiscal year, certified by independent public accountants, and (B) as
soon as practicable after the end of each quarterly fiscal period,
except for the last quarterly fiscal period in each fiscal year, a
summary statement (which need not be certified) of income and retained
earnings of the Company for such period, which shall also be made
publicly available; and
(iii) the Company will furnish to the Underwriter and to the NASD,
and by issuance of a press release, on the date of declaration, notice
of all dividends, including the amount and medium of payment, the record
date (which shall be not less than ten days subsequent to the
declaration date) and the payment date (which shall be not less than ten
days subsequent to the record date).
(i) The Company will make generally available to its security holders an
earnings statement of the Company, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which earnings statement shall
satisfy the provisions of Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including Rule 158).
(j) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than by notice given by the Underwriter's
termination of this Agreement pursuant to Section 9 hereof), or if this
Agreement shall be terminated by the Underwriter because of any failure or
refusal on the part of the Company to comply with the terms or fulfill any of
the conditions of this Agreement, the Company agrees to reimburse the
Underwriter for all out-of-pocket expenses (including reasonable fees and
expenses of counsel for the Underwriter) reasonably incurred by them in
connection herewith but without any further obligation of the Company for lost
profits or otherwise.
<PAGE> 11
(k) The Company will not sell, contract to sell or otherwise dispose of
any Common Stock or rights to purchase Common Stock for a period of 180 days
after the date of the Pricing Agreement without the prior written consent of
the Underwriter (other than the issuance of shares of Common Stock pursuant to
the "UnionBancorp, Inc. 1993 Stock Option Plan" and certain other employment
benefit arrangements of the Company in an aggregate amount not to exceed 5%) of
the Shares. The Company will also obtain similar agreements from each of its
executive officers and directors and, to the extent practicable, all persons
who own more than 5% of the Common Stock after the consummation of the
Offering.
(l) The Company will apply the net proceeds from the sale of the Shares
to be sold by it under this Agreement and the Pricing Agreement for the
purposes set forth in the Prospectus under the caption "Use of Proceeds."
(m) The Company will use its best efforts, subject to notice of issuance,
to cause the Shares to be approved for quotation on the NASDAQ Stock Market.
[(n) The Company will file with the Commission in a timely manner all
reports on Form SR required by Rule 463 of the Act and will furnish to the
Underwriter copies of any such reports as soon as practicable after the filing
thereof.]
SECTION 5. PAYMENT OF EXPENSES. The Company will pay, or reimburse if
paid by the Underwriter, whether or not the transactions contemplated hereby
are consummated or this Agreement is terminated, all costs and expenses
incident to the performance by it of its obligations under this Agreement and
the Pricing Agreement, including, without limiting the generality of the
foregoing, (a) preparation, printing, filing and distribution (including
postage, air freight charges and charges for counting and packaging) of the
original registration statement, the Registration Statement, each Preliminary
Prospectus, the Prospectus (including any exhibits and financial statements and
any Term Sheet delivered by the Company pursuant to Rule 434 of the Act), each
amendment and/or supplement to any of the foregoing, and this Agreement, the
Pricing Agreement, the Selected Dealers Agreement, Powers of Attorney and
Underwriters' Powers of Attorney and Questionnaires, (b) furnishing to the
Underwriter and dealers copies of the foregoing materials (provided, however,
that any such copies furnished by the Company more than nine months after the
first date upon which the Shares are offered to the public shall be at the
expense of the Underwriter or dealers so requesting as provided in Section 4(f)
above), (c) the registrations or qualifications referred to in Section 4(g)
above (including filing fees and fees and disbursements of counsel in
connection therewith) and expenses of printing and delivering to the
Underwriter copies of the preliminary and final Blue Sky memoranda; provided,
that such expenses (exclusive of filing fees and disbursements) shall not
exceed $15,000, (d) the review of the terms of the public offering of the
Shares by the NASD (including the filing fees paid to the NASD in connection
therewith) and the reasonable fees and disbursements of counsel for the
Underwriter in connection therewith, (e) the performance by the Company of its
other obligations under this Agreement, including the fees of the Company's
counsel and accountants, (f) the issuance of the Shares and the preparation and
printing of the stock certificates representing the Shares, including any stamp
taxes payable in connection with the original issuance of the Shares, (g)
furnishing to the several Underwriters copies of all reports and information
required by Section 4(h) above, including reasonable costs of shipping and
mailing, (h) the designation of the Common Stock as a Nasdaq National Market
security, and (i) an expense allowance to the Underwriter for out-of-pocket
expenses, including the expense of counsel to the Underwriter, not to exceed
1.5% of the aggregate offering amount.
SECTION 6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation
of the Underwriter to purchase the Firm Shares hereunder is subject to the
following conditions:
(a) That the Registration Statement shall have become effective not later
than 1:00 p.m., Chicago time, on the first full business day after the date of
this Agreement, or at such later date and time as shall be consented to in
writing by the Underwriter, and, if the Underwriter and the Company have
elected to rely upon Rule 430A, the price of the Shares and any price-related
or other information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) within the prescribed time
period, and, if the Underwriter and the Company have elected to rely upon a
Term Sheet, such Term Sheet shall have
<PAGE> 12
been transmitted to the Commission for filing pursuant to Rule 434 and Rule
424(b) within the prescribed time period, and on or prior to the Closing Date,
the Company shall have provided evidence satisfactory to the Underwriter of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A. No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for the
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, shall be contemplated by the Commission and there shall not have
come to the attention of the Underwriter any facts that would cause them to
believe that the Prospectus, at the time it was required to be delivered to
purchasers of the Shares, contained any untrue statement of material fact or
omitted to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which there were made, not
misleading.
(b) That subsequent to the effective date of the Registration Statement,
(i) there shall not have occurred any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company or its subsidiaries not contemplated by the Prospectus, which, in
the Underwriter's opinion, would materially adversely affect the market for the
Shares or make it impracticable or inadvisable to proceed with the offering or
the delivery of the Shares, as contemplated herein and in the Prospectus, or to
attempt to enforce contracts for the purchase of Shares, and (ii) the business
and operations of the Company shall not have been adversely affected by strike,
fire, flood, accident or other calamity (whether or not insured).
(c) The Underwriter shall have received from Barack, Ferrazzano,
Kirschbaum & Perlman, counsel for the Company, a favorable opinion dated the
Closing Date and satisfactory to the Underwriter and the Underwriter's counsel
to the effect that:
(i) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations or banks under the
laws of their respective jurisdictions of incorporation with full power
and authority to own, lease and operate their properties and conduct
their businesses as described in the Registration Statement. The
Company and each of its subsidiaries are duly qualified to do business
as foreign corporations and in good standing in each jurisdiction where
the ownership or leasing of their properties or the conduct of their
businesses require such qualification, except in any such case where the
failure to so qualify or be in good standing would not have a material
adverse effect on the condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
(ii) All of the issued and outstanding capital stock of the
subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and non-assessable, and except as disclosed in the
Registration Statement, the Company owns directly or indirectly 100 percent
of the outstanding capital stock of each subsidiary and, to the best
knowledge of such counsel, such stock is owned free and clear of any
security interests, claims, liens, encumbrances or adverse interests of any
nature.
(iii) The issued and outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid and non-assessable and
free of preemptive rights.
(iv) The authorized capitalization of the Company consists
entirely of ________ shares of Common Stock, of which __________ were
issued and outstanding on the date of the Prospectus and ________ shares
of Preferred Stock, of which _________________ were issued and
outstanding on the date of the Prospectus and all of which conforms to
the description thereof in the Registration Statement and the
Prospectus.
(v) The certificates for the Shares to be delivered hereunder are
in due and proper form, and when duly countersigned by the Company's
transfer agent and delivered to the Underwriter against payment of the
agreed consideration therefor in accordance with the provisions of this
Agreement and the Pricing Agreement, the Shares represented thereby will
be duly authorized and validly issued, fully paid and nonassessable and
free of preemptive rights and, to the knowledge of such counsel, will be
free of any security interest, claim, lien, encumbrance or adverse
interest
<PAGE> 13
of any nature, or rights of first refusal in favor of, stockholders with
respect to any of the Shares or the issuance or sale thereof, pursuant to
the Certificate of Incorporation or by-laws of the Company and, to such
counsel's knowledge, there are no contractual preemptive rights, rights of
first refusal, rights of co-sale or other similar rights which exist with
respect to any of the Shares or the issuance and sale thereof; and the
Shares to be sold hereunder have been duly and validly authorized and
qualified for inclusion on The Nasdaq National Market, subject to notice of
issuance.
(vi) This Agreement and the Pricing Agreement have been duly and
validly authorized, executed and delivered by the Company and are legal,
valid and binding obligations of the Company, enforceable in accordance
with their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally and by general principles of equity, and
except that such counsel need express no opinion as to those provisions
relating to indemnities for liabilities under the Act.
(vii) No authorization, approval, order or consent of any
governmental authority or agency is required for the valid issuance and
sale of the Shares, except such as may be required under the Act or
state securities laws as to which such counsel need express no opinion.
(viii) The execution, delivery and performance of this Agreement
and the Pricing Agreement by the Company, the issue and sale of the
Shares, and the consummation of the transactions contemplated hereby and
thereby will not conflict with or result in a breach of any of the
provisions of, or constitute a default under (A) the Company's
Certificate of Incorporation or by-laws or any agreement, franchise,
license, indenture, mortgage, deed of trust or other instrument or
agreement known to such counsel to which the Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries
is bound or to which any of their respective properties is subject or
(B) so far as known to such counsel, any statute, order, rule or
regulation applicable to the Company or any of its subsidiaries of any
court or other governmental authority or body having jurisdiction over
the Company or any of its subsidiaries or any of its properties.
(ix) The Registration Statement has become effective under the
Act, and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(x) The Registration Statement (including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant to
Rule 430A(b), if applicable) as amended or supplemented (except for the
financial statements and notes thereto, the financial statement schedules
and other statistical or financial data included therein as to which such
counsel need express no opinion) and the Prospectus and any supplements or
amendments thereto (except for the financial statements and notes thereto,
the financial statement schedules and other statistical or financial data
included therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the Act and the
rules of the Commission thereunder and nothing has come to the attention of
such counsel that would cause such counsel to believe that the Registration
Statement (including the information deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b), if
applicable) as amended or supplemented (except for the financial statements
and notes thereto, the financial statement schedules and other statistical
or financial data included therein as to which such counsel need express no
opinion) at the time it became effective, at the time the Pricing Agreement
was executed and at the Closing Date, contained any untrue statement of a
material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading,
or that, as of its date, the Prospectus or any amendment or supplement
thereto (except for the financial statements and notes thereto, the
financial statement schedules and other statistical or financial data
included therein as to which such counsel need express no opinion) included
or includes any untrue statement of a material fact or omitted or omits to
state any material fact necessary to make the
<PAGE> 14
statements therein, in light of the circumstances under which they were
made, not misleading. The Rule 434 Prospectus conforms to the
requirements of Rule 434 of the Act.
(xi) The statements in the Prospectus in the sections captioned
"Description of Capital Stock", "The Acquisitions" and "Supervision and
Regulation" in each case insofar as such statements reflect a summary of
the material legal matters or the documents referred to therein, fairly
and accurately present the information called for by the Act and the
applicable rules and regulations promulgated thereunder.
(xii) To the knowledge of such counsel there are no statutes or
regulations, provisions of the Delaware General Corporation Law or any
pending or threatened litigation or governmental proceedings against the
Company required to be described in the Prospectus which are not so
described, nor of any contracts or documents of a character required to
be described in or filed as a part of the Registration Statement which
are not described or filed as required.
(xiii) To such counsel's knowledge, except as disclosed in the
Prospectus, no person has the right, contractual or otherwise, to cause
the Company to register pursuant to the Act any shares of capital stock
of the Company, upon the issuance and sale of the Shares to be sold by
the Company to the Underwriter pursuant to this Agreement.
(xiv) Neither the Company nor any of its subsidiaries is an
"investment company" or a person "controlled by" an "investment company"
within the meaning of the Investment Company Act.
(xv) To such counsel's knowledge, all offers and sales of the
Company's and each of its subsidiaries capital stock prior to the date
hereof were at all relevant times exempt from the registration
requirements of the Act and were duly registered or the subject of an
available exemption from the registration requirements of the applicable
state securities or blue sky laws.
In rendering such opinion, such counsel may state that they are relying
upon the certificate of the officers of the Company and the transfer agent for
the Common Stock, as to the number of shares of Common Stock at any time or
times outstanding, and that insofar as their opinion under clause (x) above
relates to the accuracy and completeness of the Prospectus and Registration
Statement, it is based upon a general review with the Company's representatives
and independent accountants of the information contained therein, without
independent verification by such counsel of the accuracy or completeness of
such information. Such counsel may also rely upon the opinions of other
competent counsel and, as to factual matters, on certificates of officers of
the Company and its subsidiaries and of state officials, in which case their
opinion is to state that they are so doing and copies of such opinions or
certificates are to be attached to the opinion unless such opinions or
certificates (or, in the case of certificates, the information therein) have
been furnished to the Underwriter otherwise.
(d) That the Underwriter shall have received on the Closing Date a
favorable opinion dated the Closing Date from Sidley & Austin, counsel for the
Underwriter, as to such matters as the Underwriter may reasonably require.
(e) That the Underwriter shall have received letters addressed to the
Underwriter and dated the date hereof and the Closing Date from McGladrey &
Pullen, LLP, independent public accountants for the Company, Prairie [and
Country,] to the effect set forth in Schedule I. There shall not have been any
change or decrease specified in the letters referred to in this subparagraph
which makes it impractical or inadvisable in the judgment of the Underwriter to
proceed with the public offering or purchase of the Shares as contemplated
hereby.
(f) That (i) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company nor any
material increase in the short or long-term
<PAGE> 15
debt of the Company from that set forth or contemplated in the Registration
Statement; (iii) there shall not have been, since the respective dates as to
which information is given in the Registration Statement and the Prospectus,
except as may otherwise be set forth or contemplated in the Registration
Statement and the Prospectus, any material adverse change in the financial
condition or results of operations of the Company; (iv) the Company shall not
have incurred any material liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business), other than those reflected
in the Registration Statement, and (v) all of the representations and
warranties of the Company contained in this Agreement shall be true and correct
on and as of the date hereof and the Closing Date as if made on and as of each
such date, and the Underwriter shall have received a certificate, dated the
Closing Date and signed by the chief executive officer and the principal
financial officer (or such other officers as are acceptable to the Underwriter)
to the effect set forth in this Section 6(f) and in Section 6(g) hereof.
(g) That the Company shall not have failed at or prior to the Closing
Date to have performed or complied in all material respects with any of the
agreements herein contained and required to be performed or complied with by it
at or prior to the Closing Date.
(h) Within 24 hours after the Registration Statement becomes effective,
or within such longer period as to which the Underwriter shall have consented,
the Shares shall have been qualified for sale or exempted from such
qualification under the securities laws of such jurisdictions as the
Underwriter shall have designated prior to the time of execution of the Pricing
Agreement and such qualification or exemption shall continue in effect to and
including the Closing Date.
(i) That the Underwriter shall have received from Prairie and Country an
officer's certificate signed by an executive officer of Prairie and Country,
respectively, dated the Closing Date substantially in the form heretofore
approved by the Underwriter and counsel for the Underwriter.
(j) Prior to the Closing Date, the Company shall have furnished to the
Underwriter or the Underwriter's counsel such further information, certificates
and documents as the Underwriter or the Underwriter's counsel may reasonably
request.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of the Option Closing Date
of the conditions set forth in paragraphs (a) through (j); except that the
opinions called for in paragraphs (c) and (d) shall be revised to reflect the
sale of Additional Shares and shall be dated the Option Closing Date, if
different from the Closing Date.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter within the meaning of the Act
or the Exchange Act from and against any and all losses, claims, damages or
liabilities, joint or several, whatsoever (including any investigation, legal
or other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted) to which
the Underwriter, or such controlling person may become subject, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus or the Registration Statement or
the Prospectus or in any amendment or supplement thereto or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Underwriter for any legal or other expenses
reasonably incurred by the Underwriter in connection with investigating or
defending any such action or claim as such expenses are incurred, except
insofar as such losses, claims, damages or liabilities arise out of or are
based upon any such untrue statement or omission or allegation thereof which
has been made therein or omitted therefrom in reliance upon and in conformity
with information relating to the Underwriter furnished in writing to the
Company by the Underwriter expressly for use therein; provided, however, that
the indemnification contained in this paragraph with respect to any Preliminary
Prospectus shall not inure to the benefit of the Underwriter (or of any person
controlling the Underwriter) with respect to any action or claim arising from
the sale of the Shares by the Underwriter brought by any person who purchased
Shares from the Underwriter if (i) a copy of the Prospectus (as amended or
supplemented if any amendments or
<PAGE> 16
supplements thereto shall have been furnished to the Underwriter prior to the
written confirmation of the sale involved) shall not have been given or sent to
such person by or on behalf of the Underwriter with or prior to the written
confirmation of the sale involved and (ii) the untrue statement or omission of
a material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (as amended or supplemented if amended or supplemented as
aforesaid).
(b) If any action or claim shall be brought against the Underwriter or
any person controlling the Underwriter, in respect of which indemnity may be
sought against the Company, the Underwriter shall promptly notify the Company
in writing, and the Company shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. The Underwriter or
any such person controlling the Underwriter 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 shall be at the expense of the
Underwriter or such controlling person unless (i) the Company has agreed in
writing to pay such fees and expenses, (ii) the Company has failed to assume
the defense and employ counsel, or (iii) the named parties to any such action
(including any impleaded party) included the Underwriter or controlling person
and the Company and the Underwriter or controlling person shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Company
and which may also result in a conflict of interest (in which case if the
Underwriter or controlling person notifies the Company, the Company shall not
have the right to assume the defense of such action on behalf of the
Underwriter or controlling person, it being understood, however, that the
Company shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys for the
Underwriter and any such controlling persons, which firm shall be designated in
writing by the Underwriter). The Company shall not be liable for any
settlement or any such action effected without the written consent of the
Company, but if settled with the written consent of the Company, or if there
shall be a final judgment for the plaintiff in any such action and the time for
filing all appeals has expired, the Company agrees to indemnify and hold
harmless the Underwriter and any such controlling person from and against any
loss or liability by reason of such settlement or judgment.
(c) The Underwriter will indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and any person
controlling the Company within the meaning of the Act or the Exchange Act to
the same extent as the foregoing indemnity from the Company to the Underwriter,
but only with respect to information relating to the Underwriter furnished in
writing to the Company by the Underwriter expressly for use in the Registration
Statement, the Prospectus or any Preliminary Prospectus. If any action or
claim shall be brought or asserted against the Company, any of its directors,
any such officer, or any such controlling person based on the Registration
Statement, the Prospectus or any Preliminary Prospectus and in respect of which
indemnity may be sought against the Underwriter, the Underwriter shall have the
rights and duties given to the Company pursuant to Section 7(b) hereof (except
that if the Company shall have assumed the defense thereof, the Underwriter
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of the Underwriter), and the Company, its directors,
any such officer, and any such controlling person shall have the rights and
duties given to the Underwriter by Section 6(b) hereof.
(d) (i) If the indemnification provided for in this Section 7 is
unavailable as a matter of law to any indemnified party under this Section 7 in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by damages,
liabilities or expenses (A) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriter from the offering
of the Shares or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (A) above but also the
relative fault of the Company and the Underwriter in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company and
the Underwriter shall be deemed to be in the same proportion in the case of the
Company, as the total price
<PAGE> 17
paid to the Company for the Shares by the Underwriter (net of underwriting
discount but before deducting expenses), and in the case of the Underwriter, as
the underwriting discount received by it bears to the total of such amounts
paid to the Company and received by the Underwriter as underwriting discount,
in each case as contemplated by the Prospectus. The relative fault of the
Company and the Underwriter shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities and
expenses referred to in this Section shall be deemed to include, subject to the
limitations set forth in this Section, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim.
(ii) The Company and the Underwriter agree that the determination of
contribution pursuant to this Section based on pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph would not be
just and equitable. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(e) The indemnity and contribution agreements contained in this Section
and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of
(i) any investigation made by or on behalf of the Underwriter or any person
controlling the Underwriter, the Company or its directors or officers (or any
person controlling the Company), (ii) acceptance of any Shares and payment
therefor hereunder and (iii) any termination of this Agreement. A successor or
assign of the Underwriter, the Company or its directors or officers, and their
legal and personal representatives (or of any person controlling the
Underwriter or the Company) shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section.
SECTION 8. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective immediately as to Sections 5, 7, 9 and 10 and as to all other
provisions at 10:00 A.M., Chicago Time, on the day following the date upon
which the Pricing Agreement is executed and delivered, unless such a day is a
Saturday, Sunday or holiday (and in that event this Agreement shall become
effective at such hour on the business day next succeeding such Saturday,
Sunday or holiday); but this Agreement shall nevertheless become effective at
such earlier time after the Pricing Agreement is executed and delivered as you
may determine on and by notice to the Company or by release of any Shares for
sale to the public. For the purposes of this Section, the Shares shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Shares or upon the release by you of
telegrams (i) advising the Underwriter that the Shares are released for public
offering, or (ii) offering the Shares for sale to securities dealers, whichever
may occur first.
SECTION 9. TERMINATION OF AGREEMENT. The Underwriter shall have the
right to terminate this Agreement and the Pricing Agreement at any time prior
to the Closing Date (and with respect to the Additional Shares, the Option
Closing Date) by notice to the Company from the Underwriter, without liability
(other than with respect to Section 7) on the Underwriter's part to the Company
if, on or prior to such date, (i) the Company shall have failed, refused or
been unable to perform in any material respect any agreement on its part to be
performed hereunder, (ii) any other condition to the obligations of the
Underwriter hereunder as provided in Section 6 is not fulfilled when and as
required in any material respect, (iii) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the NASD Automated
Quotation System shall have been suspended or materially limited, or minimum
prices shall have been established on any such exchange by the Commission, or
by such exchange or other regulatory body or governmental authority having
jurisdiction, (iv) a general banking moratorium shall have been declared by
Federal, New York or Illinois State authorities, (v) there is a material
outbreak or escalation of armed hostilities involving the United States on or
after the date hereof, or if there has been a declaration by the United States
of a national emergency or war, the effect of which shall be, in the
Underwriters' reasonable judgment, to make it inadvisable or impracticable to
proceed with the public
<PAGE> 18
offering or delivery of the Shares on the terms and in the manner contemplated
in the Prospectus as supplemented or amended prior to the occurrence of such
event, (vi) in the Underwriters' reasonable opinion any material adverse change
shall have occurred since the respective dates as of which information is given
in the Registration Statement or the Prospectus (as supplemented or amended
prior to the occurrence of such event) in the condition (financial or other) of
the Company whether or not arising in the ordinary course of business other
than as set forth in the Prospectus as supplemented or amended prior to the
occurrence of such event, or (vii) there shall have been such a material
adverse change in general economic, political or financial conditions or if the
effect of international conditions on the financial markets in the United
States shall be such as, in the Underwriters' reasonable opinion, makes it
inadvisable or impracticable to proceed with the delivery of the Shares as
contemplated hereby. Notice of such cancellation shall be given to the Company
by telecopy or telephone but shall be subsequently confirmed by letter.
SECTION 10. REIMBURSEMENT OF UNDERWRITER'S EXPENSES. If the sale to the
Underwriter of the Shares on the Closing Date is not consummated because any
condition to the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, unless
such failure to satisfy such condition or to comply with any provision hereof
is due to the default or omission of any Underwriter, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses (including fees and disbursements of counsel) that shall have been
incurred by you and them in connection with the proposed purchase and the sale
of the Shares. Any such termination shall be without liability of any party to
any other party except that the provisions of this Section, Section 5 and
Section 7 shall at all times be effective and shall apply.
SECTION 11. NOTICES. Except as otherwise provided in Section 9 hereof,
notice given pursuant to any of the provisions of this Agreement shall be in
writing and shall be delivered (a) if to the Company, at the office of the
Company at 122 W. Madison Street, Ottawa, Illinois 61350, Attention:
_______________________, with a copy to Barack, Ferrazzano, Kirschbaum &
Perlman, 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606, Attention:
_____________________ or (b) if to the Underwriter, at the offices of Hoefer &
Arnett Incorporated, 353 Sacramento Street, Tenth Floor, San Francisco,
California 94111, Attention: Greg H. Madding, with a copy to Sidley & Austin,
One First National Plaza, Chicago, Illinois 60603, Attention: Richard G.
Clemens, Esq. or in any case to such other address as the person to be notified
may have requested in writing.
SECTION 12. SUCCESSORS. The Agreement and the Pricing Agreement are made
solely for the benefit of the Underwriter, the Company, their directors and
officers and other controlling persons referred to in Section 7 hereof, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement or the Pricing Agreement.
The term "successors and assigns" as used in this Agreement shall not include a
purchaser from the Underwriter of any of the Shares in his status as such
purchaser.
SECTION 13. PARTIAL UNENFORCEABILITY. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section, paragraph or provision hereof.
SECTION 14. APPLICABLE LAW. This Agreement and the Pricing Agreement
shall be governed by and construed in accordance with the laws of the State of
Illinois.
SECTION 15. COUNTERPARTS. This Agreement may be signed in various
counterparts which together shall constitute one and the same instrument.
<PAGE> 19
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the several Underwriters.
Very truly yours,
UNIONBANCORP, INC.
BY: _____________________________
NAME:
TITLE:
ACCEPTED AND DELIVERED AS OF
THE DATE FIRST WRITTEN ABOVE.
HOEFER & ARNETT INCORPORATED
BY: ________________________________
<PAGE> 20
UnionBancorp, Inc.
SCHEDULE I
Comfort Letter of McGladry & Pullen, LLP
(1) They are independent public accountants with respect to the Company
and its subsidiaries (including Prairie and Country) within the meaning of the
Act.
(2) In their opinion the consolidated financial statements and schedules
and unaudited pro forma financial information of the Company and its
subsidiaries included in the Registration Statement and the consolidated
financial statements of the Company from which the information presented under
the caption "Selected Consolidated Financial Data" has been derived which are
stated therein to have been examined by them comply as to form in all material
respects with the applicable accounting requirements of the Act.
(3) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to December 31,
1995, a reading of minutes of meetings of the stockholders and directors of the
Company and its subsidiaries since December 31, 1995, a reading of the latest
available interim unaudited consolidated financial statements of the Company
and its subsidiaries, (with an indication of the date thereof) and other
procedures specified in such letter, nothing came to their attention which
caused them to believe that (i) the unaudited consolidated financial statements
of the Company and its subsidiaries included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the Act or that such unaudited financial statements are not
fairly presented in accordance with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement, (ii) any unaudited pro forma
consolidated financial statements included in the Registration Statement do not
comply in all material respects with the applicable accounting requirements of
the Act or that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements, and (iii) at a
specified date not more than five days prior to the date thereof in the case of
the first letter and not more than two business days prior to the date thereof
in the case of the second and third letters, there was any change in the
capital stock or long-term debt or short-term debt (other than normal payments)
of the Company and its subsidiaries on a consolidated basis or any decrease in
consolidated net current assets or consolidated stockholders' equity as
compared with amounts shown on the latest unaudited balance sheet of the
Company included in the Registration Statement or for the period from the date
of such balance sheet to a date not more than five days prior to the date
thereof in the case of the first letter and not more than two business days
prior to the date thereof in the case of the second and third letters, there
were any decreases, as compared with the corresponding period of the prior
year, in consolidated net interest income, consolidated noninterest income or
in the total or per share amounts of net earnings except, in all instances, for
changes or decreases which the Prospectus discloses have occurred or may occur
or which are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed to
by the Underwriter, with respect to certain information in the Prospectus
specified by the Underwriter, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records
of the Company and its subsidiaries.
<PAGE> 21
Exhibit A
1,100,000 SHARES*
UnionBancorp, Inc.
Common Stock
PRICING AGREEMENT
__________, 1996
HOEFER & ARNETT INCORPORATED
353 Sacramento Street, Tenth Floor
San Francisco, California 94111
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated _______ __, 1996
(the "Underwriting Agreement"), relating to the purchase by Hoefer & Arnett
Incorporated (the "Underwriter") of the above-referenced Common Stock (the
"Shares") of UnionBancorp, Inc. (the "Company").
Pursuant to Section 3 of the Underwriting Agreement, the Company agrees
with the Underwriter as follows:
1. The initial public offering price per share of the Shares determined
as provided in said Section 3 shall be $_______.
2. The purchase price per share of the Shares to be paid by the
Underwriter shall be $________, being an amount equal to the initial public
offering price set forth above, less $_______ per Share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriter and the Company in accordance with its terms.
Very truly yours,
UNIONBANCORP, INC.
By:______________________________
Name:
Title:
Confirmed and Accepted, as of the date
first above written:
HOEFER & ARNETT INCORPORATED
By: ____________________________________
_______________
* Plus an option to purchase up to 165,000 Additional Shares to cover
over-allotments.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
THE RESTATED CERTIFICATE OF INCORPORATION
OF
UNIONBANCORP, INC.
UnionBancorp, Inc. (hereinafter called the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of
the State of Delaware, as amended (hereinafter called the "GCL"), DOES HEREBY
CERTIFY THAT:
FIRST. The Board of Directors and stockholders of the Corporation have
duly adopted resolutions setting forth the proposed amendments to the Restated
Certificate of Incorporation of the Corporation, declaring said amendments to
be advisable. The resolution setting forth the proposed amendments are as
follows:
RESOLVED, that it is advisable and in the Corporation's best
interest to delete the first paragraph of Article IV of the Restated
Certificate of Incorporation of the Corporation in its entirety and to
substitute in lieu thereof the following new first paragraph of Article
IV:
"ARTICLE IV
The total number of shares of capital stock which the corporation shall
have the authority to issue is 10,000,000 shares of Common Stock, par
$1.00 per share, and 200,000 shares of Preferred Stock, no par value per
share."
SECOND. The amendment of the Restated Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the GCL.
Dated as of the 24th of July, 1996.
\s\ R. Scott Grigsby
--------------------------------------
R. Scott Grigsby
Chairman of the Board and President
ATTEST:
\s\ Charles J. Grako
- ---------------------------------
Charles J. Grako
Secretary/Treasurer
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIONBANCORP, INC.
UnionBancorp, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of UnionBancorp, Inc. at a meeting duly
held, adopted resolutions regarding a proposed amendment to the Restated
Certificate of Incorporation of said corporation, declaring said amendment to
be advisable and calling for a meeting of the stockholders of said corporation
for consideration thereof.
SECOND: That the stockholders of UnionBancorp, Inc. duly adopted a
resolution to amend Article IV of the Restated Certificate of Incorporation of
the corporation.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the Restated Certificate of Incorporation of UnionBancorp,
Inc. be amended by deleting the first paragraph of Article IV of the Restated
Certificate of Incorporation, and in lieu thereof, substituting the following
paragraph:
"The total number of shares of capital stock which the
corporation shall have the authority to issue is 2,000,000 shares
of Common Stock, par value of $1.00 per share, and 200,000 shares
of Preferred Stock, no par value per share."
IN WITNESS WHEREOF, UnionBancorp, Inc. has caused this certificate to be
signed by its Executive Vice President and attested by its Assistant Secretary
this 1st day of March, 1994.
UNIONBANCORP, INC.
By: \s\ Charles J. Grako
------------------------
Charles L. Grako
Executive Vice President
ATTEST:
By: \s\ Charles L. Cassidy
----------------------
Charles L. Cassidy
Assistant Secretary
<PAGE> 3
RESTATED
CERTIFICATE OF INCORPORATION
OF
UNIONBANCORP, INC.
This Restated Certificate of Incorporation only restates and integrates
and does not further amend the provisions of the Certificate of Incorporation.
ARTICLE I
The name of the Corporation is
UNIONBANCORP, INC.
ARTICLE II
The address of its registered office in the State of Delaware is 32
Loockerman Square, Suite L-100, in the City of Dover County of Kent. The name
of its registered agent. at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is -
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
ARTICLE IV
The total number of shares of capital stock which the corporation shall
have authority to issue is 1,000,000 shares of Common Stock of the par value of
$1.00 per share and 200,000 shares of Preferred Stock of no par value per
share.
The Board of Directors is expressly authorized to adopt, from time to
time, a resolution or resolutions providing for the issue of one or more series
of Preferred Stock, with such voting powers, full or limited, or no voting
powers, and with such designations,
1
<PAGE> 4
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors.
Any and all right, title, interest and claim in or to any dividends
declared by the corporation, whether in cash, stock, or otherwise, which are
unclaimed by the stockholder entitled thereto for a period of six years after
the close of business on the payment date, shall be and be deemed to be
extinguished and abandoned; and such unclaimed dividends in the possession of
the corporation, its transfer agents or other agents or depositaries shall at
such time become the absolute property of the corporation, free and clear of
any and all claims of any persons whatsoever.
ARTICLE V
The names and mailing addresses of the incorporators are as follows:
Name Mailing Address
- ---------- ---------------
T. Earl McNamara 202 Court Street
Streator, Illinois 61364
John A. Berry 1014 Lowden Road
Streator, Illinois 61364
D. Max G. Mason 7 Ridge Road
Streator, Illinois 61364
H. Dean Reynolds 11 Groveland Avenue
Streator, Illinois 61364
Glen Vissering 1516 East Kent
Streator, Illinois 61364
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(i) to exercise all such powers and do all such acts as may be exercised or
done by the corporation, subject to the provisions of the laws of the
State of Delaware, this
2
<PAGE> 5
Certificate of Incorporation and the by-laws of the corporation, and
(ii) to make, alter or repeal any by-laws of the corporation; provided,
however, that Section 5 of Article II of the by-laws, Sections 1, 2 and 3
of Article III of the by-laws and Section 1 of Article VIII of the by-laws
shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted without the affirmative vote of the holder of
at least seventy percent (70%) of all shares of stock of the corporation
then entitled to vote in the election of directors, considered for this
purpose as one class.
ARTICLE VII
A director of the corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the corporation be liable to account to the corporation for any
profit realized by him from or through any transaction or contract of the
corporation by reason of the fact that he, or any firm of which he is a member,
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in the manner provided in the General
Corporation Law of Delaware for authorization, approval or ratification of
transactions or contracts between the corporation and one or more of its
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest.
ARTICLE VIII
The corporation shall, to the full extent permitted by Section 145 of the
General Corporation Law of Delaware, as amended from time to time, indemnify
all persons who it may indemnify pursuant thereto.
ARTICLE IX
Whenever a compromise or arrangement is proposed between this corporation
and its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this corporation under the provision of
Section 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for this corporation
under Section 279 of Title
3
<PAGE> 6
8 of the Delaware Code order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors, or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise
or arrangement and to any reorganization of this corporation as a consequence
of such compromise or arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all stockholders or class of stockholders of this
corporation, as the case may be, and also on this corporation.
ARTICLE X
The number of directors of the corporation shall be fifteen, or such other
number as may be determined from time to time by the affirmative vote of the
holders of at least seventy percent (70%) of all shares of the corporation then
entitled to vote in the election of directors, considered for this purpose as
one class, or of at least two thirds of the directors of the corporation.
Elections of directors need not be by written ballot unless the by-laws of
the corporation so provide.
The directors, other than those who may be elected by the holders of any
class or series of stock having preference over the common stock as to
dividends or upon liquidation, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in the
by-laws, one class to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1987, another class to hold office
initially for a term expiring at the annual meeting of stockholders held in
1988, and another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1989, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of the stockholders of the corporation, the successors to the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election.
Newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Any director elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors
constituting the
4
<PAGE> 7
Board of Directors shall shorten the term of any incumbent director.
Subject to the rights of any class or series of stock having preference
over the common stock as to dividends or upon liquidation to elect directors
under specified circumstances, a director may be removed from office only for
cause and only by the affirmative vote of the holders of seventy percent (70%)
of all shares of stock of the corporation then entitled to vote in the election
of directors, considered for this purpose as a single class.
ARTICLE XI
The affirmative vote of the holders of seventy percent (70%) of all shares
of stock of the corporation then entitled to vote in the election of directors,
considered for this purpose as one class, shall be required for any one of the
following actions:
(i) for the adoption of any amendment, alteration, change or
repeal of Articles VI, X or XI of this Certificate of Incorporation;
(ii) for the adoption of any agreement for the merger or
consolidation of the corporation with or into any other corporation;
(iii) to authorize any sale, lease or exchange of all or
substantially all of the assets of the corporation; or
(iv) to authorize the dissolution of the corporation.
The above voting requirement shall not be applicable to any one of the
foregoing actions and any such action shall only require the affirmative vote
of the holders of a simple majority of all shares of stock of the corporation
then entitled to vote in the election of directors, considered for this purpose
as one class, if the action shall been approved by two-thirds of all directors.
The provisions of this Article XI shall not be applicable to any merger or
consolidation of this corporation with or into any other corporation of which
this corporation is the owner of at least 80% of the outstanding shares of each
class of stock.
ARTICLE XII
Any action required or permitted to be taken by the holders of capital
stock of the corporation must be effected at a duly called annual or special
meeting of holders of capital stock of the corporation and may not be effected
by any consent in writing by such holders.
5
<PAGE> 8
ARTICLE XIII
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty by such directors as a director; provided, however, that this Article XIII
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
corporation 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 General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article XIII shall apply to or have
any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
ARTICLE XIV
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation was duly
adopted in accordance with the applicable provisions of Section 245 of the
General Corporation Law of the State of Delaware, as amended. This Restated
Certificate of Incorporation has been signed by the President, and attested by
the Secretary of UnionBancorp, Inc., this 13th of May, 1991.
By:\s\ R. Scott Grigsby
--------------------------------
R. Scott Grigsby
President
ATTEST:
\s\ Charles L. Cassady
- ------------------------
Charles L. Cassady
Secretary
6
<PAGE> 1
EXHIBIT 3.2
UNIONBANCORP, INC.
BYLAWS
<PAGE> 2
UNIONBANCORP, INC.
================================================================================
TABLE OF CONTENTS
================================================================================
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
ARTICLE I
NAME
Section 1.1 Name 1
ARTICLE II
OFFICES
Section 2.1 Registered Office 1
Section 2.2 Principal Office 1
Section 2.3 Other Offices 1
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 3.1 Place of Meetings 1
Section 3.2 Annual Meetings 1
Section 3.3 Notice 2
Section 3.4 Nominations For Director 2
Section 3.5 Special Meetings 4
Section 3.6 Voting Lists 4
Section 3.7 Quorum 4
Section 3.8 Adjourned Meeting and Notice Thereof 4
Section 3.9 Voting 4
Section 3.10 Conduct of Meeting 5
Section 3.11 Proxies 5
Section 3.12 Inspectors of Election 6
ARTICLE IV
DIRECTORS
Section 4.1 Powers 6
Section 4.2 Number and Qualifications 6
Section 4.3 Election and Vacancies 7
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Section 4.4 Regular Meetings 7
Section 4.5 Organization Meeting 7
Section 4.6 Special Meetings 7
Section 4.7 Quorum; Majority Action 7
Section 4.8 Action Without Meeting 8
Section 4.9 Telephonic Meetings 8
Section 4.10 Fees and Compensation 8
Section 4.11 Removal 8
Section 4.12 Directors Emeritus/Advisory Directors 8
ARTICLE V
OFFICERS
Section 5.1 Executive Officers 9
Section 5.2 Election 9
Section 5.3 Subordinate Officers 9
Section 5.4 Removal and Resignation 9
Section 5.5 Vacancies 9
Section 5.6 Compensation 9
Section 5.7 Chairman of the Board 10
Section 5.8 Chief Executive Officer 10
Section 5.9 President 10
Section 5.10 Chief Financial Officer 10
Section 5.11 Secretary 10
ARTICLE VI
COMMITTEES
Section 6.1 Executive Committee 10
Section 6.2 Audit Committee 12
Section 6.3 Compensation Committee 13
Section 6.4 Other Committees 13
ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification 14
Section 7.2 Subsequent Amendment 16
Section 7.3 Other Rights; Continuation of Right to Indemnification 17
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Section 7.4 Insurance 17
Section 7.5 Certain Definitions 17
Section 7.6 Savings Clause 18
Section 7.7 Subsequent Legislation 18
ARTICLE VIII
RECORDS AND REPORTS
Section 8.1 Records 18
Section 8.2 Checks and Drafts 18
Section 8.3 Execution of Instruments 18
Section 8.4 Fiscal Year 18
Section 8.5 Annual Audit 19
ARTICLE IX
DIVIDENDS ON STOCK
Section 9.1 Dividends on Stock 19
ARTICLE X
CERTIFICATES
Section 10.1 Issuance 19
Section 10.2 Certificates for Shares 19
Section 10.3 Statements on Certificates 19
Section 10.4 Lost or Destroyed Certificates 19
Section 10.5 Transfer 19
ARTICLE XI
MISCELLANEOUS
Section 11.1 Record Date 20
Section 11.2 Inspection of Corporate Records 20
Section 11.3 Corporate Seal 21
ARTICLE XII
AMENDMENT OF BYLAWS
Section 12.1 Amendment of Bylaws 21
</TABLE>
iii
<PAGE> 5
UNIONBANCORP, INC.
BYLAWS
ARTICLE I
NAME
SECTION 1.1 NAME. The name of this corporation is "UnionBancorp, Inc."
ARTICLE II
OFFICES
SECTION 2.1 REGISTERED OFFICE. The corporation shall at all times
maintain a registered office in the State of Delaware, which, except as
otherwise determined by the Board of Directors of the corporation (the
"Board"), shall be in the City of Wilmington, County of New Castle.
SECTION 2.2 PRINCIPAL OFFICE. The principal office of the corporation
shall be maintained at such place within or without the State of Delaware as
the Board shall designate.
SECTION 2.3 OTHER OFFICES. The corporation may also have offices at such
other places within or without the State of Delaware as the Board shall from
time to time designate or the business of the corporation shall require.
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 3.1 PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at such places within or without the State of
Delaware as the Board may determine.
SECTION 3.2 ANNUAL MEETINGS.
3.2.1 TIME AND PLACE. The regular annual meeting of stockholders
for the election of directors and for the transaction of any other
business of the corporation shall be held each year on the fourth Tuesday
of April, if not a legal holiday, or, if a legal holiday, then on the
next succeeding day not a Saturday, Sunday or legal holiday, or at such
other time, date or place as the Board may determine.
3.2.2 NEW BUSINESS. At the annual meetings, directors shall be
elected and any other business properly proposed and filed with the
Secretary of the corporation as in these Bylaws provided may be
transacted which is within the powers of the stockholders.
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Any new business to be conducted at the annual meeting of the
stockholders shall be stated in writing and filed with the Secretary of
the corporation on or before thirty (30) days in advance of the first
anniversary date (month and day) of the previous year's annual meeting,
and all business so stated, proposed and filed shall, unless prior action
thereon is required by the Board, be considered at the annual meeting.
Any stockholder may make any other proposal at the annual meeting and the
same may be discussed and considered, but unless stated in writing and
filed with the Secretary of the corporation on or before thirty (30) days
in advance of the first anniversary date (month or day) of the previous
year's annual meeting, such proposal may only be voted upon at a meeting
held at least thirty (30) days after the annual meeting at which it is
presented. No other proposal may be acted upon at the annual meeting.
This provision shall not prevent the consideration, approval or
disapproval at the annual meeting of the reports of officers and
committees, but in connection with such reports no business shall be
acted upon at such annual meeting unless stated and filed as herein
provided.
SECTION 3.3 NOTICE. Written notice stating the place, day and hour of the
meeting and the purpose or purposes for which the meeting of the stockholders
is called shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, either personally or by mail, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given when deposited in the U.S. mail, postage prepaid,
and addressed to the stockholder at his or her address as it appears on the
records of the corporation as of the record date prescribed in Section 3.9.1
and Section 11.1.1 of these Bylaws.
SECTION 3.4 NOMINATIONS FOR DIRECTOR. Nominations of candidates for
election as directors at any meeting of stockholders may be made: (a) by, or
at the direction of, a majority of the Executive Committee of the Board (the
"Executive Committee"), or, if there is no Executive Committee of the Board at
such time, by a majority of the Board; or (b) by any stockholder of record
entitled to vote at such meeting; provided that only persons nominated in
accordance with procedures set forth in this Section shall be eligible for
election as directors.
Nominations, other than those made by, or at the direction of, the
Executive Committee or the Board, may only be made pursuant to timely notice in
writing to the Secretary of the corporation as set forth in this Section 3.4. To
be timely, a stockholder's notice shall be delivered to, or mailed and received
by the Secretary of the corporation, for an annual meeting, not less than sixty
(60) days nor more than ninety (90) days in advance of the first anniversary
date (month and day) of the previous year's annual meeting, and for a special
meeting, not less than sixty (60) days nor more than ninety (90) days in
advance of the date (month and day) of the special meeting, regardless of any
postponement or adjournments of that meeting to a later date. Such stockholder
notice shall set forth: (a) as to each person whom the stockholder proposes to
nominate for election as a director: (i) the name, age, business address and
residential address of such person; (ii) the principal occupation or employment
of such person; (iii) the class and number of shares of the corporation's stock
which are beneficially owned by such person on the date of such stockholder
notice; and (iv) any other information relating to such person that would be
required to be disclosed on Schedule 13D pursuant to Regulation 13D-
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G under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
connection with the acquisition of stock, and pursuant to Regulation 14A under
the Exchange Act, in connection with the solicitation of proxies with respect to
nominees for election as directors, regardless of whether such person is subject
to the provisions of such regulations, including, but not limited to,
information required to be disclosed by Items 4(b) and 6 of Schedule 14A of
Regulation 14A with the Securities and Exchange Commission; and (b) as to the
stockholder giving the notice: (a) the name and address, as they appear on the
corporation's books, of such stockholder and the name and principal business or
residential address of any other beneficial stockholders known by such
stockholder to support such nominees; and (b) the class and number of shares of
the corporation's stock which are beneficially owned by such stockholder on the
date of such stockholder notice and the number of shares owned beneficially by
any other record or beneficial stockholders known by such stockholder to be
supporting such nominees on the date of such stockholder notice. At the request
of the Executive Committee or the Board, any person nominated by, or at the
request of, the Executive Committee or the Board for election as a director
shall furnish to the Secretary of the corporation that information required to
be set forth in a stockholder's notice of nomination which pertains to the
nominee.
The Executive Committee or the Board may reject any nomination by a
stockholder not timely made in accordance with the requirements of this Section
3.4. If the Executive Committee or the Board determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 3.4 in any material respect, the Secretary of the
corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder may cure the deficiency by providing additional
information to the Secretary within such period of time, not less than five days
from the date such deficiency notice is given to the stockholder, as the
Executive Committee or the Board shall determine. If the deficiency is not
cured within such period, or if the Executive Committee or the Board determines
that the additional information provided by the stockholder, together with
information previously provided, does not satisfy the requirements of this
Section 3.4 in any material respect, then the Executive Committee or the Board
may reject such stockholder's notice and the proposed nominations shall not be
accepted if presented at the stockholder meeting to which the notice relates.
The Secretary of the corporation shall notify a stockholder in writing whether
his or her nomination has been made in accordance with the time and
informational requirements of this Section 3.4. Notwithstanding the procedure
set forth in this Section 3.4, if neither the Executive Committee nor the Board
makes a determination as to the validity of any nominations by a stockholder,
the presiding officer of the stockholder's meeting shall determine and declare
at the meeting whether a nomination was not made in accordance with the terms of
this Section 3.4. If the presiding officer determines that a nomination was not
made in accordance with the terms of this Section 3.4, he or she shall so
declare at the meeting and the defective nomination shall not be accepted.
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SECTION 3.5 SPECIAL MEETINGS. Special meetings of stockholders for the
purpose of taking any action permitted the stockholders by law and the
Certificate of Incorporation of this corporation may be called at any time by at
least 66 2/3% of directors then in office. Except in special cases where other
express provision is made by statute, notice of such special meetings shall be
given in the same manner as for annual meetings of stockholders.
SECTION 3.6 VOTING LISTS. The officer having charge of the stock transfer
books for shares of the capital stock of the corporation shall make at least
ten (10) days before each meeting of the stockholders a complete list of the
stockholders entitled to vote at such meeting, with the address of and the
number of shares registered in the name of, each stockholder. Such list shall
be subject to inspection by any stockholder, for any purpose germane to the
meeting, at any time during the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified in the notice of the meeting, at the
place where the meeting is to be held. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at any
meeting of stockholders.
SECTION 3.7 QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum for the
transaction of business at a meeting of the stockholders. The stockholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 3.8 ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be
adjourned from time to time by the vote of a majority of the shares present,
whether in person or represented by proxy, but in the absence of a quorum no
other business may be transacted at such meeting, except as provided in Section
3.7 above. When any stockholders' meeting, either annual or special, is
adjourned for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Except as provided above, it shall not be necessary to give any notice of the
adjourned meeting if the time and place thereof are announced at the meeting at
which such adjournment is taken.
SECTION 3.9 VOTING.
3.9.1 RECORD DATE. Unless a record date for voting purposes is
fixed as provided in Section 11.1.1 of these Bylaws then, subject to the
provisions of Section 217 of the General Corporation Law of the State of
Delaware (the "Delaware General Corporation Law") (relating to voting of
shares held by fiduciaries, pledgors and joint owners), only persons in
whose names shares entitled to vote stand on the stock records
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of the corporation at the close of business on the business day next
preceding the day on which notice of the meeting is given or, if such
notice is waived, at the close of business on the business day next
preceding the day on which the meeting of stockholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date
for such meeting.
3.9.2 METHOD; VOTE REQUIRED. Unless otherwise required by law,
voting may be oral or by written ballot; provided, however, that all
elections for directors must be by ballot if demanded by a stockholder
before such voting begins. Except as provided in Section 3.7 and except
with respect to election of directors, the affirmative vote of the
majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) shall be the act
of the stockholders, unless the vote of a greater number or voting by
classes is required by the Delaware General Corporation Law or the
Certificate of Incorporation or these Bylaws. Directors shall be elected
by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election
of directors.
3.9.3 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy
as the bylaws of such corporation may prescribe, or, in the absence of
such provision, as the board of directors of such corporation may
determine. Shares held by an administrator, executor, guardian or
conservator may be voted by him or her, either in person or by proxy,
without a transfer of such shares into his or her name. Shares standing
in the name of a trustee may be voted by the trustee, either in person or
by proxy, but no trustee shall be entitled to vote shares held by him or
her without a transfer of such shares into the trustee's name.
Neither treasury shares of its own stock held by the corporation,
nor shares held by another corporation, if a majority of the shares
entitled to vote for the election of directors of such other corporation
are held directly or indirectly by the corporation, shall be voted at any
meeting or counted in determining the total number of outstanding shares
at any given time for purposes of any meeting.
SECTION 3.10 CONDUCT OF MEETING. The presiding officer at any meeting of
stockholders, either annual or special, shall be the Chairman of the Board or,
in his or her absence, the President or, in the absence of both the Chairman of
the Board and the President, anyone selected by a majority of the Board. The
secretary at such meetings shall be the Secretary of the corporation or, in his
or her absence, anyone appointed by the presiding officer.
SECTION 3.11 PROXIES. At all meetings of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person or by
proxy appointed by an instrument in writing and complying with the requirements
of the Delaware General Corporation Law. No proxy shall be valid after the
expiration of three (3) years from the date thereof unless otherwise provided
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in the proxy. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only so long as, it is coupled with an interest in
the stock of the corporation or in the corporation generally which is sufficient
in law to support an irrevocable power.
SECTION 3.12 INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof.
If inspectors of election are not so appointed, or if any persons so appointed
fail to appear or refuse to act, the presiding officer of any such meeting may,
and on the request of any stockholder or a stockholder's proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. The duties of
such inspectors shall include: (a) determining the number of shares of stock
and the voting power of each share, the shares of stock represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect
of the proxies; (b) receiving votes, ballots or consents; (c) hearing and
determining all challenges and questions in any way arising in connection with
the right to vote; (d) counting and tabulating all votes or consents; (e)
determining the result; and (f) such acts as may be proper to conduct the
election or vote with fairness to all stockholders.
ARTICLE IV
DIRECTORS
SECTION 4.1 POWERS. Subject to any limitations imposed by law, the
Certificate of Incorporation and these Bylaws as to actions which shall be
authorized or approved by the stockholders, and subject to the duties of
directors as prescribed thereby, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under the
direction of the Board.
SECTION 4.2 NUMBER AND QUALIFICATIONS. (a) The exact number of directors
shall be fixed from time to time by the Board pursuant to a resolution adopted
of not less than 66 2/3% of the number of directors which immediately prior to
such change had been fixed, in the manner prescribed herein, by the Board,
subject to the provisions of the Certificate of Incorporation of the
corporation.
(b) Notwithstanding any other provisions of the certificate of
incorporation of the corporation or these bylaws (and notwithstanding the fact
that some lesser percentage may be specified by law, the certificate of
incorporation or these bylaws of the corporation), any director or the entire
board of directors of the corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of not less than 66 2/3%
of the outstanding shares of stock of the corporation entitled to vote generally
in the election of directors (considered for this purpose as one class) cast at
an annual meeting of stockholders or at a meeting of the stockholders called for
that purpose.
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SECTION 4.3 ELECTION AND VACANCIES. Each class of directors to be elected
shall be elected at the annual meeting of the stockholders of the corporation
and shall hold office until their successors are elected and qualified or until
their earlier death, resignation or removal. Any director may resign at any
time upon written notice to the corporation. Thereafter, directors who are
elected at an annual meeting of stockholders, and directors who are elected in
the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders at which directors of such
class are to be elected and until their successors are elected and qualified or
until their earlier death, resignation or removal. In the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the board of directors, including vacancies
resulting from the removal of directors, may be filled by the vote of a
majority of the remaining directors then in office, although less than a
quorum, or by the sole remaining director.
SECTION 4.4 REGULAR MEETINGS. The Board shall meet regularly at the time
and place designated in a resolution of the Board or by written consent of all
members of the Board, whether within or without the State of Delaware, and no
notice of such regular meetings need be given to the directors.
SECTION 4.5 ORGANIZATION MEETING. Following each annual meeting of
stockholders, the Board shall hold a regular meeting at the place of said
annual meeting or at such other place as shall be fixed by the Board, for the
purpose of organization, election of officers, and the transaction of other
business. Call and notice of such meetings are hereby dispensed with.
SECTION 4.6 SPECIAL MEETINGS. Special meetings of the Board may be called
by the Chairman of the Board, the President, the Chief Executive Officer, the
Secretary, or any two directors. Notice of each such meeting shall be given to
each director by the Secretary or by the person or persons calling the meeting.
Such notice shall specify the time and place of the meeting, which may be
within or without the State of Delaware, and the general nature of the business
to be transacted, and no other business may be transacted at the meeting. Such
notice shall be deposited in the mail, postage prepaid, at least four (4) days
prior to the meeting, directed to the address of the director on the records of
the corporation, or delivered in person or by telephone or telegram, telecopy
or other means of electronic transmission to the director at least 48 hours
before the meeting. Notice of a meeting need not be given to any director who
signs a waiver of notice or a consent to holding the meeting, or an approval of
the minutes thereof, whether before or after such meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
SECTION 4.7 QUORUM; MAJORITY ACTION. A majority of the authorized number
of directors shall constitute a quorum for the transaction of business at any
meeting of the Board, but if less than such majority is present at a meeting, a
majority of the directors present may
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adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed in Section 4.6 of these Bylaws. Every
act or decision of a majority of the directors present at a meeting at which a
quorum is present, made or done at a meeting duly held, shall be valid as the
act of the Board, unless a greater number is required by law or the Certificate
of Incorporation or these Bylaws.
SECTION 4.8 ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board may be taken without a meeting if all members of the
Board shall individually or collectively consent in writing to such action.
Such written consent or consents shall be filed with the minutes of the
proceedings of the Board and shall have the same force and effect as a
unanimous vote of the Board.
SECTION 4.9 TELEPHONIC MEETINGS. Members of the Board may participate in
any regular or special meeting, including meetings of committees of the Board,
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this section constitutes presence in
person at such meeting.
SECTION 4.10 FEES AND COMPENSATION. Fees and compensation of directors
and members of committees for their services, and reimbursement for expenses,
shall be fixed or determined by a resolution of the Board. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, employee, agent or otherwise,
and receiving compensation therefor.
SECTION 4.11 REMOVAL. A director may be removed only for cause as
determined by the affirmative vote of the holders of at least 66 2/3% of the
shares then entitled to vote in an election of directors, which vote may only
be taken at an annual meeting or a special meeting. Cause for removal shall be
deemed to exist only if the director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction or has been adjudged
by a court of competent jurisdiction to be liable for gross negligence or
misconduct in the performance of such director's duty to the corporation and
such adjudication is no longer subject to direct appeal.
SECTION 4.12 DIRECTORS EMERITUS/ADVISORY DIRECTORS. The Board of
Directors may by resolution appoint directors emeritus or advisory directors
who shall have such authority and receive such compensation and reimbursement
as the Board of Directors shall provide. Directors emeritus or advisory
directors shall not have the authority to participate by vote in the
transaction of business.
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ARTICLE V
OFFICERS
SECTION 5.1 EXECUTIVE OFFICERS. The executive officers of the corporation
shall be the Chairman of the Board, the Chief Executive Officer, the President,
each Senior Vice President, each Vice President, the Secretary, the Treasurer,
the Chief Financial Officer and any other individual performing functions
similar to those performed by the foregoing persons, including any Senior Vice
President or Vice President designated by the Board as performing such
functions.
SECTION 5.2 ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 5.3
or Section 5.5 of this article shall be chosen annually by the Board. Each
officer shall hold his or her office until he or she shall resign or shall be
removed or otherwise disqualified to serve, or his or her successor shall be
elected and qualified, and shall perform such duties as are prescribed in the
Bylaws or as the Board may from time to time determine.
SECTION 5.3 SUBORDINATE OFFICERS. The corporation may have, at the
discretion of the Board, one or more Senior Vice Presidents, Vice Presidents
and Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Financial Officers and such other officers as may be appointed by the
Board, or by a committee of the Board to which the authority to appoint
subordinate officers has been delegated, each of whom shall hold office for
such period, have such authority and perform such duties as the Board or such
committee may from time to time determine. Any person may hold more than one
office, executive or subordinate.
SECTION 5.4 REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by the Board, at any regular or special meeting thereof,
or by any officer upon whom such power of removal may be conferred by the Board
(without prejudice, however, to the rights, if any, of an officer under any
contract of employment with the corporation).
Any officer may resign at any time by giving written notice to the Board
or to the President or to the Secretary of the corporation, without prejudice,
however, to the rights, if any, of the corporation under any contract to which
such officer is a party. Any such resignation shall take effect at the date of
the receipt or at any later time specified therein.
SECTION 5.5 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled by
the Board for the unexpired portion of the term.
SECTION 5.6 COMPENSATION. The Board shall fix the compensation of the
chief executive officer of the corporation. The compensation of all of the
other officers of the corporation shall be fixed by the Board or by an officer
of the corporation to whom the authority to fix compensation has been delegated
by the Board.
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SECTION 5.7 CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if
present, preside at all meetings of the Board and exercise and perform such
other powers and duties as may be from time to time assigned to him or her by
the Board or prescribed by these Bylaws.
SECTION 5.8 CHIEF EXECUTIVE OFFICER. Subject to any powers that may be
given by the Board to the Chairman of the Board, the Chief Executive Officer
shall be the chief executive officer of the corporation and shall, subject to
the control of the Board, have general supervision, direction and control of
the business and affairs of the corporation.
SECTION 5.9 PRESIDENT. Subject to any powers that may be given by the
Board to the Chairman of the Board and to the Chief Executive Officer, the
President shall be the chief operating officer of the corporation and shall,
subject to the control of the Board, have the general powers and duties of
management usually vested in the office of the president of a corporation, and
shall have such other powers and duties as the Board shall from time to time
prescribe.
SECTION 5.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the corporation, shall
receive and keep all the funds of the corporation and shall pay out corporate
funds on the check of the corporation, signed in such manner as shall be
authorized by the Board. The Chief Financial Officer shall have such other
powers and duties as the Board shall from time to time prescribe.
SECTION 5.11 SECRETARY. The Secretary shall keep, or cause to be kept,
minutes of all meetings of the stockholders and Board in a book to be provided
for that purpose, and shall attend to the giving and serving of all notices of
meetings of stockholders and directors, and any other notices required by law
to be given. The Secretary shall be custodian of the corporate seal, if any,
and shall affix the seal to all documents and papers requiring such seal. The
Secretary shall have such other powers and duties as the Board from time to
time shall prescribe.
ARTICLE VI
COMMITTEES
SECTION 6.1 EXECUTIVE COMMITTEE. The Board may, by a resolution adopted
by a majority of the authorized number of directors, but shall not be required
to, designate an executive committee consisting of three or more directors, one
of which shall be the Chairman of the Board or the Chief Executive Officer, to
serve at the pleasure of the Board. If an executive committee is designated,
it shall have, to the extent provided in the resolution of the Board or in
these Bylaws, all the authority of the Board, except with respect to:
(a) Amending the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as
provided in Section 151(a) of the Delaware
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General Corporation Law, fix the designations and any of the preferences
or rights of such shares relating to dividends, redemption, dissolution,
any distribution of assets of the corporation or the conversion into, or
the exchange of such shares for, shares of any other class or classes or
any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series);
(b) Adopting an agreement of merger or consolidation under Sections
251 or 252 of the Delaware General Corporation Law;
(c) Recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets;
(d) Recommending to the stockholders a dissolution of the
corporation or a revocation of a dissolution;
(e) Amending the Bylaws of the corporation;
(f) Nominating directors to the Board pursuant to Section 3.4 of
these Bylaws; and
(g) Unless the resolution, Bylaws, or Certificate of Incorporation
expressly so provide, no such committee shall have the power or authority
to declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the
Delaware General Corporation Law.
The Board may by resolution fix the regular meeting date of the executive
committee, and notice of any such regular meeting date shall be dispensed with.
Special meetings of the executive committee may be held at the principal
office of the corporation, or at any place which has been designated from time
to time by resolution of the executive committee or by written consent of all
members thereof and may be called by the Chairman of the Board, the President,
any Vice President who is a member of the executive committee or any two
members thereof, upon written notice to the members of the executive committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of the time and place of
special meetings of the Board. Vacancies in the membership of the executive
committee may be filled by the Board. A majority of the authorized number of
members of the executive committee shall constitute a quorum for the
transaction of business; and transactions of any meeting of the executive
committee, however called and noticed, or wherever held, shall be as valid as
though at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the members not
present signs a written waiver of notice or a consent to holding such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporation's records or made a part of the
minutes of the meeting.
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Any action required or permitted to be taken by the executive committee
may be taken without a meeting, if all members of the executive committee shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
executive committee. Such action by written consent shall have the same force
and effect as a unanimous vote of such members of the executive committee. Any
certificate or other document filed under any provision of the Delaware General
Corporation Law which relates to action so taken shall state that the action
was taken by unanimous written consent of the executive committee without
meeting, and that these Bylaws authorize the members of the executive committee
to so act.
SECTION 6.2 AUDIT COMMITTEE. The Board may, by a resolution adopted by a
majority of the authorized number of directors, but shall not be required to,
designate an audit committee consisting of two or more outside directors to
serve at the pleasure of the Board. If an audit committee is designated, it
shall have, to the extent provided in the resolution of the Board or in these
Bylaws, the authority to retain the independent auditor for the corporation,
and to conduct discussions with such auditor concerning the financial
statements, operations, internal controls and other related matters and such
other authority as may be provided to the audit committee by the Board.
The Board may, by resolution, fix the regular meeting date of the audit
committee, and notice of any such regular meeting date shall be dispensed with.
Special meetings of the audit committee may be held at the principal office of
the corporation, or at any place which has been designated from time to time by
resolution of the audit committee or by written consent of all members thereof
and may be called by the chairman of the audit committee, or any members
thereof, upon written notice to the members of the audit committee of the time
and place of such special meeting given in the manner provided for the giving
of written notice to members of the Board of the time and place of special
meetings of the Board. Vacancies in the membership of the audit committee may
be filled by the Board. A majority of the authorized number of members of the
audit committee shall constitute a quorum for the transaction of business; and
transactions of any meeting of the audit committee, however called and noticed,
or wherever held, shall be as valid as though at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the members not present signs a written waiver of notice
or a consent to holding such meeting or an approval of the minutes thereof.
All such waivers, consents or approvals shall be filed with the corporation's
records or made a part of the minutes of the meeting.
Any action required or permitted to be taken by the audit committee may be
taken without a meeting, if all members of the audit committee shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
audit committee. Such action by written consent shall have the same force and
effect as a unanimous vote of such members of the audit committee. Any
certificate or other document filed under any provision of the Delaware General
Corporation Law which relates to action so taken shall state that the action
was taken by unanimous written
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consent of the audit committee without meeting, and that these Bylaws authorize
the members of the audit committee to so act.
SECTION 6.3 COMPENSATION COMMITTEE. The Board may, by a resolution
adopted by a majority of the authorized number of directors, but shall not be
required to, designate a compensation committee consisting of three or more
directors to serve at the pleasure of the Board. If an compensation committee
is designated, it shall have, to the extent provided in the resolution of the
Board or in these Bylaws, the authority to establish the compensation, benefits
and prerequisites for the executive officers, directors and other employees of
the corporation and such other authority as may be provided to the compensation
committee by the Board.
The Board may, by resolution, fix the regular meeting date of the
compensation committee, and notice of any such regular meeting date shall be
dispensed with. Special meetings of the compensation committee may be held at
the principal office of the corporation, or at any place which has been
designated from time to time by resolution of the compensation committee or by
written consent of all members thereof and may be called by the chairman of the
compensation committee, or any two members thereof, upon written notice to the
members of the compensation committee of the time and place of such special
meeting given in the manner provided for the giving of written notice to
members of the Board of the time and place of special meetings of the Board.
Vacancies in the membership of the compensation committee may be filled by the
Board. A majority of the authorized number of members of the compensation
committee shall constitute a quorum for the transaction of business; and
transactions of any meeting of the compensation committee, however called and
noticed, or wherever held, shall be as valid as though at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the members not present signs a written waiver of
notice or a consent to holding such meeting or an approval of the minutes
thereof. All such waivers, consents or approvals shall be filed with the
corporation's records or made a part of the minutes of the meeting.
Any action required or permitted to be taken by the compensation committee
may be taken without a meeting, if all members of the compensation committee
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the compensation committee. Such action by written consent shall have the
same force and effect as a unanimous vote of such members of the compensation
committee. Any certificate or other document filed under any provision of the
Delaware General Corporation Law which relates to action so taken shall state
that the action was taken by unanimous written consent of the compensation
committee without meeting, and that these Bylaws authorize the members of the
compensation committee to so act.
SECTION 6.4 OTHER COMMITTEES. The Board may, but shall not be required
to, designate any other committee consisting of two or more directors, to serve
at the pleasure of the Board. Any such committee shall possess such powers of
the Board as the Board shall by its resolution provide, except that it shall not
in any event have authority with respect to any of
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the transactions which are prohibited to the executive committee by Section 6.1
of this Article VI.
Unless the Board shall otherwise prescribe the manner of proceedings of
any other committee, meetings of such committee may be regularly scheduled in
advance and may be called at any time by the Chairman of the Board, or the
President, or any two members of the committee; otherwise, the provisions of
these Bylaws with respect to notice and conduct of meetings of the Board shall
govern.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION.
7.1.1 ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom,
if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
7.1.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation or is or was serving or has
agreed to serve at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action alleged to have been
taken or omitted in such capacity, against expenses
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(including attorneys' fees) actually and reasonably incurred by him or her
or on his or her behalf in connection with the defense or settlement of
such action or suit and any appeal therefrom, if he or she acted in good
faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and
expenses which the Court of Chancery or such other court shall deem
proper.
7.1.3 INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF SUCCESSFUL
PARTY. Notwithstanding the other provisions of this Section 7.1, to the
extent that a director, officer, employee or agent has been successful,
on the merits or otherwise, including, without limitation, to the extent
permitted by applicable law, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in
Sections 7.1.1 and 7.1.2, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against all costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by
him or her or on his or her behalf in connection therewith.
7.1.4 DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 7.1.1 and 7.1.2, (unless ordered by a
court) shall be paid by the corporation, if a determination is made (a)
by the board of directors by a majority vote of the directors who were
not parties to such action, suit or proceeding, or (b) if such majority
of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders, that indemnification of the
director or officer is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 7.1.1 and
7.1.2.
7.1.5 ADVANCE OF COSTS, CHARGES AND EXPENSES. Expenses (including
attorneys' fees) incurred by a person referred to in Sections 7.1.1 and
7.1.2 in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the corporation in advance of
the final disposition of such action, suit or proceeding; provided,
however, that the payment of such costs, charges and expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
person while a director or officer) in advance of the final disposition of
such action, suit or proceeding shall be made only upon receipt of an
undertaking by or on behalf of the director or officer to repay all
amounts so advanced in the event that it shall ultimately be determined
that such director or officer is not entitled to be indemnified by the
corporation as authorized in this ArticleEVII. Such costs, charges and
expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the majority of the directors deems
appropriate. The majority of the directors may, in the manner set forth
above,
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and upon approval of such director or officer of the corporation,
authorize the corporation's counsel to represent such person, in any
action, suit or proceeding, whether or not the corporation is a party to
such action, suit or proceeding.
7.1.6 PROCEDURE FOR INDEMNIFICATION. Any indemnification under
Sections 7.1.1, 7.1.2 and 7.1.3, or advance of costs, charges and
expenses under Section 7.1.5, shall be made promptly, and in any event
within 60 days, upon the written request of the director, officer,
employee or agent. The right to indemnification or advances as granted
by this ArticleEVII shall be enforceable by the director, officer,
employee or agent in any court of competent jurisdiction, if the
corporation denies such request, in whole or in part, or if no
disposition thereof is made within 60 days. Such person's costs and
expenses incurred in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall
also be indemnified by the corporation. It shall be a defense to any
such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Section 7.1.5, where the
required undertaking, if any, has been received by the corporation) that
the claimant has not met the standard of conduct set forth in Sections
7.1.1 and 7.1.2, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board
of directors, its independent legal counsel and its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in Sections
7.1.1 and 7.1.2, nor the fact that there has been an actual determination
by the corporation (including its board of directors, its independent
legal counsel and its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
7.1.7 SETTLEMENT. The corporation shall not be obligated to
reimburse the costs of any settlement to which it has not agreed. If in
any action, suit or proceeding, including any appeal, within the scope of
Sections 7.1.1 and 7.1.2, the person to be indemnified shall have
unreasonably failed to enter into a settlement thereof offered or
assented to by the opposing party or parties in such action, suit or
proceeding, then, notwithstanding any other provision hereof, the
indemnification obligation of the corporation to such person in
connection with such action, suit or proceeding shall not exceed the
total of the amount at which settlement could have been made and the
expenses incurred by such person prior to the time such settlement could
reasonably have been effected.
SECTION 7.2 SUBSEQUENT AMENDMENT. No amendment, termination or repeal of
this Article VII or of relevant provisions of the Delaware General Corporation
Law or any other applicable law shall affect or diminish in any way the rights
of any director or officer of the corporation to indemnification under the
provisions hereof with respect to any action, suit or proceeding arising out of,
or relating to, any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
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SECTION 7.3 OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification provided by this ArticleEVII shall not be deemed exclusive of
any other rights to which a director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in any other capacity while
holding office or while employed by or acting as agent for the corporation, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. Nothing contained in this
ArticleEVII shall be deemed to prohibit, and the corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth herein.
All rights to indemnification under this ArticleEVII shall be deemed to be a
contract between the corporation and each director or officer of the
corporation who serves or served in such capacity at any time while this
ArticleEVII is in effect. The corporation shall not consent to any
acquisition, merger, consolidation or other similar transaction unless the
successor corporation assumes by operation of law or by agreement the
obligations set forth in this ArticleEVII.
SECTION 7.4 INSURANCE. The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under this ArticleEVII.
SECTION 7.5 CERTAIN DEFINITIONS. For purposes of this ArticleEVII:
(i) references to "the corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, employees or agents,
so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprises, shall stand in the same position under this ArticleEVII with
respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence
had continued;
(ii) references to "other enterprises" shall include employee
benefit plans;
(iii) references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan;
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(iv) references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and
(v) a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation," as
referred to in this Article VII.
SECTION 7.6 SAVINGS CLAUSE. If this ArticleEVII or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director or officer of the
corporation as to any costs, charges, expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the corporation, to the full extent
permitted by any applicable portion of this ArticleEVII that shall not have
been invalidated and to the full extant permitted by applicable law.
SECTION 7.7 SUBSEQUENT LEGISLATION. If the Delaware General Corporation
Law is amended after the date hereof to further expand the indemnification
permitted to directors and officers of the corporation, then the corporation
shall indemnify such person to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
ARTICLE VIII
RECORDS AND REPORTS
SECTION 8.1 RECORDS. The corporation shall maintain adequate and correct
books and records of account of its business and properties.
SECTION 8.2 CHECKS AND DRAFTS. All checks, drafts and other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board.
SECTION 8.3 EXECUTION OF INSTRUMENTS. The Board may authorize any officer
or officers or agent or agents to enter into any contract or execute any
instrument in the name of and on behalf of the corporation. Such authority may
be general or confined to specific instances. Unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the corporation by any contract or engagement, or to pledge its credit, or to
render it liable for any purpose or for any amount.
SECTION 8.4 FISCAL YEAR. The fiscal year of the corporation shall be a
December 31 fiscal year.
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SECTION 8.5 ANNUAL AUDIT. The corporation shall be subject to an annual
audit as of the end of its fiscal year by independent accountants appointed by,
and responsible to, the Board.
ARTICLE IX
DIVIDENDS ON STOCK
SECTION 9.1 DIVIDENDS ON STOCK. Subject to applicable law, the
Certificate of Incorporation and these Bylaws, the Board may, from time to
time, declare, and the corporation may pay, dividends on the outstanding shares
of capital stock of the corporation.
ARTICLE X
CERTIFICATES
SECTION 10.1 ISSUANCE. The corporation, as authorized by the Board, may
issue any and all forms of certificates of stock not inconsistent with law.
SECTION 10.2 CERTIFICATES FOR SHARES. Every holder of shares of the stock
of the corporation or shares of any other class or series of stock that may be
validly authorized and issued by the corporation shall be entitled to have a
certificate signed in the name of the corporation by the Chairman of the Board
or the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the stockholder. Any of the
signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
SECTION 10.3 STATEMENTS ON CERTIFICATES. Any certificates for shares of
stock shall contain such legend or other statement as may be required by law or
applicable rule or regulation, by these Bylaws or by any agreements between the
corporation and the issue thereof.
SECTION 10.4 LOST OR DESTROYED CERTIFICATES. In case any certificate for
stock or other security issued by this corporation is lost or destroyed, the
Board may authorize the issuance of a new certificate or instrument therefor, on
such terms and conditions as it may determine, after proof of such loss or
destruction satisfactory to the Board. The Board may require a bond or other
security in an adequate amount as indemnity for any such certificate or
instrument when, in the Board's judgment, it is proper to do so.
SECTION 10.5 TRANSFER. Stock of the corporation shall be transferable on
the books of the corporation by the person named in the certificate, or by the
person entitled thereto, on surrender of the certificate for cancellation,
accompanied by proper evidence of succession, assignment or authority to
transfer. The corporation shall be entitled to treat the holder of
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record of any stock certificate as owner thereof, and, accordingly, shall not be
bound to recognize any equitable or other claim to, or interest in, such stock
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of Delaware.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 RECORD DATE.
11.1.1 STOCKHOLDERS MEETINGS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or adjournment thereof, the Board may fix, in
advance, a record date, which shall not be more than sixty (60) nor less
than ten (10 days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned
meeting.
11.1.2 OTHER ACTIONS. In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, the Board may fix, in advance, a record date, which shall not be
more than sixty (60) days prior to such action.
11.1.3 SUBSEQUENT TRANSFERS AND CLOSING TRANSFER BOOKS. When a
record date is fixed, only stockholders of record at the close of
business on that date are entitled to notice and to vote or to receive
the dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on
the books of the corporation after the record date, except as otherwise
provided in the Certificate of Incorporation or by agreement or in the
Delaware General Corporation Law. The Board may close the books of the
corporation against transfers of shares during the whole, or any part, of
any such period.
SECTION 11.2 INSPECTION OF CORPORATE RECORDS.
11.2.1 BY STOCKHOLDERS. Any stockholder, in person or by attorney
or other agent, shall, upon written demand under oath stating the purpose
thereof, have the right during the usual hours of business to inspect for
any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean a purpose reasonably
related to such person's interest as a stockholder. In every instance
where an attorney or other agent shall be the person who seeks the right
to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing which authorizes the attorney or other
agent to so act on behalf of the stockholder.
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11.2.2 BY DIRECTORS. Each director shall have the right at any
reasonable time to inspect all books, records, documents of every kind,
and the physical properties of the corporation. The inspection may be
made in person or by agent or attorney, and the right of inspection
includes the right to make extracts and copies thereof.
SECTION 11.3 CORPORATE SEAL. The corporate seal of the corporation, if
any, shall be in such form as the Board shall prescribe.
ARTICLE XII
AMENDMENT OF BYLAWS
SECTION 12.1 AMENDMENT OF BYLAWS. These Bylaws may be adopted, amended or
repealed by the affirmative vote of the holders of at least 66 2/3% of the total
votes eligible to be cast at a legal meeting of the stockholders or by a
resolution adopted by a majority of the directors then in office.
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EXHIBIT 4.1
SELECTED ARTICLES OF RESTATED CERTIFICATE
OF INCORPORATION OF UNIONBANCORP, INC.
ARTICLE IV
The total number of shares of capital stock which the corporation shall
have authority to issue is 10,000,000 shares of Common Stock of the par value of
$1.00 per share and 200,000 shares of Preferred Stock of no par value per
share.
The Board of Directors is expressly authorized to adopt, from time to
time, a resolution or resolutions providing for the issue of one or more series
of Preferred Stock, with such voting powers, full or limited, or no voting
powers, and with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors.
Any and all right, title, interest and claim in or to any dividends
declared by the corporation, whether in cash, stock, or otherwise, which are
unclaimed by the stockholder entitled thereto for a period of six years after
the close of business on the payment date, shall be and be deemed to be
extinguished and abandoned; and such unclaimed dividends in the possession of
the corporation, its transfer agents or other agents or depositaries shall at
such time become the absolute property of the corporation, free and clear of
any and all claims of any persons whatsoever.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized:
(i) to exercise all such powers and do all such acts as may be exercised or
done by the corporation, subject to the provisions of the laws of the
State of Delaware, this Certificate of Incorporation and the by-laws of
the corporation, and
(ii) to make, alter or repeal any by-laws of the corporation; provided,
however, that Section 5 of Article II of the by-laws, Sections 1, 2 and 3
of Article III of the by-laws and Section 1 of Article VIII of the by-laws
shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted without the affirmative vote of the holder of
at least seventy percent (70%) of all shares of stock of the corporation
then entitled to vote in the election of directors, considered for this
purpose as one class.
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ARTICLE VIII
The corporation shall, to the full extent permitted by Section 145 of the
General Corporation Law of Delaware, as amended from time to time, indemnify
all persons who it may indemnify pursuant thereto.
ARTICLE X
The number of directors of the corporation shall be fifteen, or such other
number as may be determined from time to time by the affirmative vote of the
holders of at least seventy percent (70%) of all shares of the corporation then
entitled to vote in the election of directors, considered for this purpose as
one class, or of at least two thirds of the directors of the corporation.
Elections of directors need not be by written ballot unless the by-laws of
the corporation so provide.
The directors, other than those who may be elected by the holders of any
class or series of stock having preference over the common stock as to
dividends or upon liquidation, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, as shall be provided in the manner specified in the
by-laws, one class to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1987, another class to hold office
initially for a term expiring at the annual meeting of stockholders held in
1988, and another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1989, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of the stockholders of the corporation, the successors to the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election.
Newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled solely by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Any director elected
in accordance with the preceding sentence shall hold office for the remainder
of the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Subject to the rights of any class or series of stock having preference
over the common stock as to dividends or upon liquidation to elect directors
under specified circumstances, a director may be removed from office only for
cause and only by the
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affirmative vote of the holders of seventy percent (70%) of all shares of stock
of the corporation then entitled to vote in the election of directors,
considered for this purpose as a single class.
ARTICLE XI
The affirmative vote of the holders of seventy percent (70%) of all shares
of stock of the corporation then entitled to vote in the election of directors,
considered for this purpose as one class, shall be required for any one of the
following actions:
(i) for the adoption of any amendment, alteration, change or
repeal of Articles VI, X or XI of this Certificate of Incorporation;
(ii) for the adoption of any agreement for the merger or
consolidation of the corporation with or into any other corporation;
(iii) to authorize any sale, lease or exchange of all or
substantially all of the assets of the corporation; or
(iv) to authorize the dissolution of the corporation.
The above voting requirement shall not be applicable to any one of the
foregoing actions and any such action shall only require the affirmative vote
of the holders of a simple majority of all shares of stock of the corporation
then entitled to vote in the election of directors, considered for this purpose
as one class, if the action shall been approved by two-thirds of all directors.
The provisions of this Article XI shall not be applicable to any merger or
consolidation of this corporation with or into any other corporation of which
this corporation is the owner of at least 80% of the outstanding shares of each
class of stock.
ARTICLE XII
Any action required or permitted to be taken by the holders of capital
stock of the corporation must be effected at a duly called annual or special
meeting of holders of capital stock of the corporation and may not be effected
by any consent in writing by such holders.
ARTICLE XIII
No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty by such directors as a director; provided, however, that this Article XIII
shall not eliminate or limit the liability of
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a director to the extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the corporation 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 General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or repeal of
this Article XIII shall apply to or have any effect on the liability or alleged
liability of any director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE XIV
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted to this reservation.
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EXHIBIT 4.2
SELECTED ARTICLES OF UNIONBANCORP, INC.'S BYLAWS
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 3.1 PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at such places within or without the State of
Delaware as the Board may determine.
SECTION 3.2 ANNUAL MEETINGS.
3.2.1 TIME AND PLACE. The regular annual meeting of stockholders
for the election of directors and for the transaction of any other
business of the corporation shall be held each year on the fourth Tuesday
of April, if not a legal holiday, or, if a legal holiday, then on the
next succeeding day not a Saturday, Sunday or legal holiday, or at such
other time, date or place as the Board may determine.
3.2.2 NEW BUSINESS. At the annual meetings, directors shall be
elected and any other business properly proposed and filed with the
Secretary of the corporation as in these Bylaws provided may be
transacted which is within the powers of the stockholders.
Any new business to be conducted at the annual meeting of the
stockholders shall be stated in writing and filed with the Secretary of
the corporation on or before thirty (30) days in advance of the first
anniversary date (month and day) of the previous year's annual meeting,
and all business so stated, proposed and filed shall, unless prior action
thereon is required by the Board, be considered at the annual meeting.
Any stockholder may make any other proposal at the annual meeting and the
same may be discussed and considered, but unless stated in writing and
filed with the Secretary of the corporation on or before thirty (30) days
in advance of the first anniversary date (month or day) of the previous
year's annual meeting, such proposal may only be voted upon at a meeting
held at least thirty (30) days after the annual meeting at which it is
presented. No other proposal may be acted upon at the annual meeting.
This provision shall not prevent the consideration, approval or
disapproval at the annual meeting of the reports of officers and
committees, but in connection with such reports no business shall be
acted upon at such annual meeting unless stated and filed as herein
provided.
SECTION 3.3 NOTICE. Written notice stating the place, day and hour of the
meeting and the purpose or purposes for which the meeting of the stockholders
is called shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, either personally or by mail, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be given when deposited in the U.S. mail, postage prepaid,
and addressed to the stockholder at his or her address as it appears on the
records of the corporation as of the record date prescribed in Section 3.9.1
and Section 11.1.1 of these Bylaws.
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SECTION 3.4 NOMINATIONS FOR DIRECTOR. Nominations of candidates for
election as directors at any meeting of stockholders may be made: (a) by, or
at the direction of, a majority of the Executive Committee of the Board (the
"Executive Committee"), or, if there is no Executive Committee of the Board at
such time, by a majority of the Board; or (b) by any stockholder of record
entitled to vote at such meeting; provided that only persons nominated in
accordance with procedures set forth in this Section shall be eligible for
election as directors.
Nominations, other than those made by, or at the direction of, the
Executive Committee or the Board, may only be made pursuant to timely notice in
writing to the Secretary of the corporation as set forth in this Section 3.4.
To be timely, a stockholder's notice shall be delivered to, or mailed and
received by the Secretary of the corporation, for an annual meeting, not less
than sixty (60) days nor more than ninety (90) days in advance of the first
anniversary date (month and day) of the previous year's annual meeting, and for
a special meeting, not less than sixty (60) days nor more than ninety (90) days
in advance of the date (month and day) of the special meeting, regardless of
any postponement or adjournments of that meeting to a later date. Such
stockholder notice shall set forth: (a) as to each person whom the stockholder
proposes to nominate for election as a director: (i) the name, age, business
address and residential address of such person; (ii) the principal occupation
or employment of such person; (iii) the class and number of shares of the
corporation's stock which are beneficially owned by such person on the date of
such stockholder notice; and (iv) any other information relating to such person
that would be required to be disclosed on Schedule 13D pursuant to Regulation
13D-G under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), in connection with the acquisition of stock, and pursuant to Regulation
14A under the Exchange Act, in connection with the solicitation of proxies with
respect to nominees for election as directors, regardless of whether such
person is subject to the provisions of such regulations, including, but not
limited to, information required to be disclosed by Items 4(b) and 6 of
Schedule 14A of Regulation 14A with the Securities and Exchange Commission; and
(b) as to the stockholder giving the notice:
(a) the name and address, as they appear on the corporation's books, of such
stockholder and the name and principal business or residential address of any
other beneficial stockholders known by such stockholder to support such
nominees; and (b) the class and number of shares of the corporation's stock
which are beneficially owned by such stockholder on the date of such
stockholder notice and the number of shares owned beneficially by any other
record or beneficial stockholders known by such stockholder to be supporting
such nominees on the date of such stockholder notice. At the request of the
Executive Committee or the Board, any person nominated by, or at the request
of, the Executive Committee or the Board for election as a director shall
furnish to the Secretary of the corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
The Executive Committee or the Board may reject any nomination by a
stockholder not timely made in accordance with the requirements of this Section
3.4. If the Executive Committee or the Board determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 3.4 in any material respect, the Secretary of the
corporation shall promptly notify such stockholder of the deficiency in the
notice. The stockholder may cure the deficiency by providing additional
information to the
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Secretary within such period of time, not less than five days from the
date such deficiency notice is given to the stockholder, as the Executive
Committee or the Board shall determine. If the deficiency is not cured within
such period, or if the Executive Committee or the Board determines that the
additional information provided by the stockholder, together with information
previously provided, does not satisfy the requirements of this Section 3.4 in
any material respect, then the Executive Committee or the Board may reject such
stockholder's notice and the proposed nominations shall not be accepted if
presented at the stockholder meeting to which the notice relates. The Secretary
of the corporation shall notify a stockholder in writing whether his or her
nomination has been made in accordance with the time and informational
requirements of this Section 3.4. Notwithstanding the procedure set forth in
this Section 3.4, if neither the Executive Committee nor the Board makes a
determination as to the validity of any nominations by a stockholder, the
presiding officer of the stockholder's meeting shall determine and declare at
the meeting whether a nomination was not made in accordance with the terms of
this Section 3.4. If the presiding officer determines that a nomination was
not made in accordance with the terms of this Section 3.4, he or she shall so
declare at the meeting and the defective nomination shall not be accepted.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of stockholders for the
purpose of taking any action permitted the stockholders by law and the
Certificate of Incorporation of this corporation may be called at any time by
at least 66 2/3% of directors then in office. Except in special cases where
other express provision is made by statute, notice of such special meetings
shall be given in the same manner as for annual meetings of stockholders.
SECTION 3.6 VOTING LISTS. The officer having charge of the stock transfer
books for shares of the capital stock of the corporation shall make at least
ten (10) days before each meeting of the stockholders a complete list of the
stockholders entitled to vote at such meeting, with the address of and the
number of shares registered in the name of, each stockholder. Such list shall
be subject to inspection by any stockholder, for any purpose germane to the
meeting, at any time during the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice
of the meeting, or, if not so specified in the notice of the meeting, at the
place where the meeting is to be held. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at any
meeting of stockholders.
SECTION 3.7 QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum for the
transaction of business at a meeting of the stockholders. The stockholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
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SECTION 3.8 ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be
adjourned from time to time by the vote of a majority of the shares present,
whether in person or represented by proxy, but in the absence of a quorum no
other business may be transacted at such meeting, except as provided in Section
3.7 above. When any stockholders' meeting, either annual or special, is
adjourned for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Except as provided above, it shall not be necessary to give any notice of the
adjourned meeting if the time and place thereof are announced at the meeting at
which such adjournment is taken.
SECTION 3.9 VOTING.
3.9.1 RECORD DATE. Unless a record date for voting purposes is
fixed as provided in Section 11.1.1 of these Bylaws then, subject to the
provisions of Section 217 of the General Corporation Law of the State of
Delaware (the "Delaware General Corporation Law") (relating to voting of
shares held by fiduciaries, pledgors and joint owners), only persons in
whose names shares entitled to vote stand on the stock records of the
corporation at the close of business on the business day next preceding
the day on which notice of the meeting is given or, if such notice is
waived, at the close of business on the business day next preceding the
day on which the meeting of stockholders is held, shall be entitled to
vote at such meeting, and such day shall be the record date for such
meeting.
3.9.2 METHOD; VOTE REQUIRED. Unless otherwise required by law,
voting may be oral or by written ballot; provided, however, that all
elections for directors must be by ballot if demanded by a stockholder
before such voting begins. Except as provided in Section 3.7 and except
with respect to election of directors, the affirmative vote of the
majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) shall be the act
of the stockholders, unless the vote of a greater number or voting by
classes is required by the Delaware General Corporation Law or the
Certificate of Incorporation or these Bylaws. Directors shall be elected
by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election
of directors.
3.9.3 VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy
as the bylaws of such corporation may prescribe, or, in the absence of
such provision, as the board of directors of such corporation may
determine. Shares held by an administrator, executor, guardian or
conservator may be voted by him or her, either in person or by proxy,
without a transfer of such shares into his or her name. Shares standing
in the name of a trustee may be voted by the trustee, either in person or
by proxy, but no trustee shall be entitled
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to vote shares held by him or her without a transfer of such shares
into the trustee's name.
Neither treasury shares of its own stock held by the corporation,
nor shares held by another corporation, if a majority of the shares
entitled to vote for the election of directors of such other corporation
are held directly or indirectly by the corporation, shall be voted at any
meeting or counted in determining the total number of outstanding shares
at any given time for purposes of any meeting.
SECTION 3.10 CONDUCT OF MEETING. The presiding officer at any meeting of
stockholders, either annual or special, shall be the Chairman of the Board or,
in his or her absence, the President or, in the absence of both the Chairman of
the Board and the President, anyone selected by a majority of the Board. The
secretary at such meetings shall be the Secretary of the corporation or, in his
or her absence, anyone appointed by the presiding officer.
SECTION 3.11 PROXIES. At all meetings of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person or by
proxy appointed by an instrument in writing and complying with the requirements
of the Delaware General Corporation Law. No proxy shall be valid after the
expiration of three (3) years from the date thereof unless otherwise provided
in the proxy. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only so long as, it is coupled with an interest in
the stock of the corporation or in the corporation generally which is
sufficient in law to support an irrevocable power.
SECTION 3.12 INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof.
If inspectors of election are not so appointed, or if any persons so appointed
fail to appear or refuse to act, the presiding officer of any such meeting may,
and on the request of any stockholder or a stockholder's proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. The duties of
such inspectors shall include: (a) determining the number of shares of stock
and the voting power of each share, the shares of stock represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect
of the proxies; (b) receiving votes, ballots or consents; (c) hearing and
determining all challenges and questions in any way arising in connection with
the right to vote; (d) counting and tabulating all votes or consents; (e)
determining the result; and (f) such acts as may be proper to conduct the
election or vote with fairness to all stockholders.
ARTICLE IV
DIRECTORS
SECTION 4.1 POWERS. Subject to any limitations imposed by law, the
Certificate of Incorporation and these Bylaws as to actions which shall be
authorized or approved by the
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stockholders, and subject to the duties of directors as prescribed
thereby, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board.
SECTION 4.2 NUMBER AND QUALIFICATIONS. (a) The exact number of directors
shall be fixed from time to time by the Board pursuant to a resolution adopted
of not less than 66_% of the number of directors which immediately prior to
such change had been fixed, in the manner prescribed herein, by the Board,
subject to the provisions of the Certificate of Incorporation of the
corporation.
(b) Notwithstanding any other provisions of the certificate of
incorporation of the corporation or these bylaws (and notwithstanding the fact
that some lesser percentage may be specified by law, the certificate of
incorporation or these bylaws of the corporation), any director or the entire
board of directors of the corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of not less than 66 2/3%
of the outstanding shares of stock of the corporation entitled to vote generally
in the election of directors (considered for this purpose as one class) cast at
an annual meeting of stockholders or at a meeting of the stockholders called
for that purpose.
SECTION 4.3 ELECTION AND VACANCIES. Each class of directors to be elected
shall be elected at the annual meeting of the stockholders of the corporation
and shall hold office until their successors are elected and qualified or until
their earlier death, resignation or removal. Any director may resign at any
time upon written notice to the corporation. Thereafter, directors who are
elected at an annual meeting of stockholders, and directors who are elected in
the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders at which directors of such
class are to be elected and until their successors are elected and qualified or
until their earlier death, resignation or removal. In the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the board of directors, including vacancies
resulting from the removal of directors, may be filled by the vote of a
majority of the remaining directors then in office, although less than a
quorum, or by the sole remaining director.
SECTION 4.4 REGULAR MEETINGS. The Board shall meet regularly at the time
and place designated in a resolution of the Board or by written consent of all
members of the Board, whether within or without the State of Delaware, and no
notice of such regular meetings need be given to the directors.
SECTION 4.5 ORGANIZATION MEETING. Following each annual meeting of
stockholders, the Board shall hold a regular meeting at the place of said
annual meeting or at such other place as shall be fixed by the Board, for the
purpose of organization, election of officers, and the transaction of other
business. Call and notice of such meetings are hereby dispensed with.
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SECTION 4.6 SPECIAL MEETINGS. Special meetings of the Board may be
called by the Chairman of the Board, the President, the Chief Executive
Officer, the Secretary, or any two directors. Notice of each such meeting
shall be given to each director by the Secretary or by the person or persons
calling the meeting. Such notice shall specify the time and place of the
meeting, which may be within or without the State of Delaware, and the general
nature of the business to be transacted, and no other business may be
transacted at the meeting. Such notice shall be deposited in the mail, postage
prepaid, at least four (4) days prior to the meeting, directed to the address
of the director on the records of the corporation, or delivered in person or by
telephone or telegram, telecopy or other means of electronic transmission to
the director at least 48 hours before the meeting. Notice of a meeting need
not be given to any director who signs a waiver of notice or a consent to
holding the meeting, or an approval of the minutes thereof, whether before or
after such meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to such director. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 4.7 QUORUM; MAJORITY ACTION. A majority of the authorized number
of directors shall constitute a quorum for the transaction of business at any
meeting of the Board, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time.
Notice of any adjourned meeting shall be given in the same manner as prescribed
in Section 4.6 of these Bylaws. Every act or decision of a majority of the
directors present at a meeting at which a quorum is present, made or done at a
meeting duly held, shall be valid as the act of the Board, unless a greater
number is required by law or the Certificate of Incorporation or these Bylaws.
SECTION 4.8 ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board may be taken without a meeting if all members of the
Board shall individually or collectively consent in writing to such action.
Such written consent or consents shall be filed with the minutes of the
proceedings of the Board and shall have the same force and effect as a
unanimous vote of the Board.
SECTION 4.9 TELEPHONIC MEETINGS. Members of the Board may participate in
any regular or special meeting, including meetings of committees of the Board,
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
Participation in a meeting pursuant to this section constitutes presence in
person at such meeting.
SECTION 4.10 FEES AND COMPENSATION. Fees and compensation of directors
and members of committees for their services, and reimbursement for expenses,
shall be fixed or determined by a resolution of the Board. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, employee, agent or otherwise,
and receiving compensation therefor.
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SECTION 4.11 REMOVAL. A director may be removed only for cause as
determined by the affirmative vote of the holders of at least 66 2/3% of the
shares then entitled to vote in an election of directors, which vote may only
be taken at an annual meeting or a special meeting. Cause for removal shall be
deemed to exist only if the director whose removal is proposed has been
convicted of a felony by a court of competent jurisdiction or has been adjudged
by a court of competent jurisdiction to be liable for gross
negligence or misconduct in the performance of such director's duty to the
corporation and such adjudication is no longer subject to direct appeal.
SECTION 4.12 DIRECTORS EMERITUS/ADVISORY DIRECTORS. The Board of
Directors may by resolution appoint directors emeritus or advisory directors
who shall have such authority and receive such compensation and reimbursement
as the Board of Directors shall provide. Directors emeritus or advisory
directors shall not have the authority to participate by vote in the
transaction of business.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION.
7.1.1 ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT
OF THE CORPORATION. The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom,
if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
7.1.2 ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation
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to procure a judgment in its favor by reason of the fact that he or she
is or was a director, officer, employee or agent of the corporation or is
or was serving or has agreed to serve at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity,
against expenses (including attorneys' fees) actually and reasonably
incurred by him or her or on his or her behalf in connection with the
defense or settlement of such action or suit and any appeal therefrom, if
he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for
such costs, charges and expenses which the Court of Chancery or such
other court shall deem proper.
7.1.3 INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF SUCCESSFUL
PARTY. Notwithstanding the other provisions of this Section 7.1, to the
extent that a director, officer, employee or agent has been successful,
on the merits or otherwise, including, without limitation, to the extent
permitted by applicable law, the dismissal of an action without
prejudice, in defense of any action, suit or proceeding referred to in
Sections 7.1.1 and 7.1.2, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against all costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by
him or her or on his or her behalf in connection therewith.
7.1.4 DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 7.1.1 and 7.1.2, (unless ordered by a
court) shall be paid by the corporation, if a determination is made (a)
by the board of directors by a majority vote of the directors who were
not parties to such action, suit or proceeding, or (b) if such majority
of disinterested directors so directs, by independent legal counsel in a
written opinion, or (c) by the stockholders, that indemnification of the
director or officer is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 7.1.1 and
7.1.2.
7.1.5 ADVANCE OF COSTS, CHARGES AND EXPENSES. Expenses (including
attorneys' fees) incurred by a person referred to in Sections 7.1.1 and
7.1.2 in defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the corporation in advance of
the final disposition of such action, suit or proceeding; provided,
however, that the payment of such costs, charges and expenses incurred by
a director or officer in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by
such person while a director or officer) in advance of the final
disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by or on behalf of the director or officer to
repay all
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amounts so advanced in the event that it shall ultimately be
determined that such director or officer is not entitled to be
indemnified by the corporation as authorized in this Article VII.
Such costs, charges and expenses incurred by other employees and
agents may be so paid upon such terms and The majority of the directors
may, in the manner set forth above, and upon approval of such director
or officer of the corporation, authorize
the corporation's counsel to represent such person, in any action, suit
or proceeding, whether or not the corporation is a party to such action,
suit or proceeding.
7.1.6 PROCEDURE FOR INDEMNIFICATION. Any indemnification under
Sections 7.1.1, 7.1.2 and 7.1.3, or advance of costs, charges and
expenses under Section 7.1.5, shall be made promptly, and in any event
within 60 days, upon the written request of the director, officer,
employee or agent. The right to indemnification or advances as granted
by this Article VII shall be enforceable by the director, officer,
employee or agent in any court of competent jurisdiction, if the
corporation denies such request, in whole or in part, or if no
disposition thereof is made within 60 days. Such person's costs and
expenses incurred in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall
also be indemnified by the corporation. It shall be a defense to any
such action (other than an action brought to enforce a claim for the
advance of costs, charges and expenses under Section 7.1.5, where the
required undertaking, if any, has been received by the corporation) that
the claimant has not met the standard of conduct set forth in Sections
7.1.1 and 7.1.2, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board
of directors, its independent legal counsel and its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in Sections
7.1.1 and 7.1.2, nor the fact that there has been an actual determination
by the corporation (including its board of directors, its independent
legal counsel and its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
7.1.7 SETTLEMENT. The corporation shall not be obligated to
reimburse the costs of any settlement to which it has not agreed. If in
any action, suit or proceeding, including any appeal, within the scope of
Sections 7.1.1 and 7.1.2, the person to be indemnified shall have
unreasonably failed to enter into a settlement thereof offered or
assented to by the opposing party or parties in such action, suit or
proceeding, then, notwithstanding any other provision hereof, the
indemnification obligation of the corporation to such person in
connection with such action, suit or proceeding shall not exceed the
total of the amount at which settlement could have been made and the
expenses incurred by such person prior to the time such settlement could
reasonably have been effected.
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SECTION 7.2 SUBSEQUENT AMENDMENT. No amendment, termination or repeal of
this Article VII or of relevant provisions of the Delaware General Corporation
Law or any other applicable law shall affect or diminish in any way the rights
of any director or officer of the corporation to indemnification under the
provisions hereof with respect to any action, suit or proceeding arising out
of, or relating to, any actions, transactions or facts occurring prior to the
final adoption of such amendment, termination or repeal.
SECTION 7.3 OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification provided by this Article VII shall not be deemed exclusive of
any other rights to which a director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in any other capacity while
holding office or while employed by or acting as agent for the corporation, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. Nothing contained in this Article
VII shall be deemed to prohibit, and the corporation is specifically authorized
to enter into, agreements with officers and directors providing indemnification
rights and procedures different from those set forth herein. All rights to
indemnification under this Article VII shall be deemed to be a contract between
the corporation and each director or officer of the corporation who serves or
served in such capacity at any time while this Article VII is in effect. The
corporation shall not consent to any acquisition, merger, consolidation or
other similar transaction unless the successor corporation assumes by operation
of law or by agreement the obligations set forth in this Article VII.
SECTION 7.4 INSURANCE. The corporation shall have the power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such liability
under this Article VII.
SECTION 7.5 CERTAIN DEFINITIONS. For purposes of this Article VII:
(i) references to "the corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or
other enterprises, shall stand in the same position under this Article
VII with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued;
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(ii) references to "other enterprises" shall include employee
benefit plans;
(iii) references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan;
(iv) references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and
(v) a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation," as
referred to in this Article VII.
SECTION 7.6 SAVINGS CLAUSE. If this Article VII or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each director or officer of the
corporation as to any costs, charges, expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
including an action by or in the right of the corporation, to the full extent
permitted by any applicable portion of this Article VII that shall not have
been invalidated and to the full extant permitted by applicable law.
SECTION 7.7 SUBSEQUENT LEGISLATION. If the Delaware General Corporation
Law is amended after the date hereof to further expand the indemnification
permitted to directors and officers of the corporation, then the corporation
shall indemnify such person to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
ARTICLE IX
DIVIDENDS ON STOCK
SECTION 9.1 DIVIDENDS ON STOCK. Subject to applicable law, the
Certificate of Incorporation and these Bylaws, the Board may, from time to
time, declare, and the corporation may pay, dividends on the outstanding shares
of capital stock of the corporation.
ARTICLE XII
AMENDMENT OF BYLAWS
SECTION 12.1 AMENDMENT OF BYLAWS. These Bylaws may be adopted, amended or
repealed by the affirmative vote of the holders of at least 66 2/3% of the total
votes eligible to be cast at a legal meeting of the stockholders or by a
resolution adopted by a majority of the directors then in office.
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EXHIBIT 4.3
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
UNIONBANCORP, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
UNIONBANCORP, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on August 5, 1996, adopted the
following resolution creating a series of 2,765 shares of Preferred Stock
designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions
of the Certificate of Incorporation, a series of Preferred Stock,
no par value per share, of the Corporation be and hereby is
created, and that the designation and number of shares thereof and
the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such
series and the qualifications, limitations and restrictions
thereof are as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
1. ISSUANCE. The board of directors (the "Board") of UnionBancorp,
Inc., a Delaware corporation (the "Company"), has designated 2,765 shares of
the Company's authorized and unissued preferred stock as "Series A
Convertible Preferred Stock," has authorized such shares for issuance at a
price of $1,000 per share (the "Series A Preferred Stock") and has determined
that no further shares of Series A Preferred Stock shall be issued.
2. DIVIDENDS. (a) The holders of record of the then outstanding shares
of Series A Preferred Stock shall be entitled to receive when, as and if
declared by the Board out of any funds legally available therefor, cumulative
dividends at the annual rate of $75.00 per share payable in four equal cash
payments on the 20th day (or if not a business day, as defined below, on the
next business day thereafter) of April, July, October and January commencing
October, 1996, provided, however, that any such quarterly cash payment shall be
prorated with respect to any shares of Series A Preferred Stock that were
outstanding less than the total number of days in the calendar quarter
immediately preceding any such payment date. The amount of any such prorated
cash payment shall be computed on the basis of the actual number of days in any
calendar quarter during which such shares of Series A Preferred Stock were
outstanding. Each such dividend shall be payable to holders of record as they
appear on the stock books of the Company on such record dates, not less than 10
and not more than 60 days preceding the dividend payment date, as shall be
fixed by the Board. No dividends, other than those payable solely in the
Company's common stock, $1.00 par value ("Common Stock"), shall be paid during
any fiscal year of the Company with respect to shares of Common Stock or any
other security issued by the Company, except for outstanding shares of the
Company's Series B Preferred Stock (the "Series B Preferred Stock"), until
dividends in the total amount of $75.00 per share on Series A Preferred Stock
shall have been paid. Such dividends shall accrue on each share of Series A
Preferred Stock from the date of issuance and from day to day thereafter,
whether or not earned or declared. Notwithstanding the foregoing, such
dividends shall be cumulative so that if such dividends in respect of any
previous or current annual dividend period, at the annual rate specified above,
shall not have been paid or
<PAGE> 2
declared and a sum sufficient for the payment thereof set apart, the
deficiency for any prior year and the amount owed in the current year shall
first be fully paid before any dividend or other distribution shall be paid on
or declared and set apart for the shares of Common Stock. A "business day"
shall be deemed to be any day when trading of securities occurs on the New York
Stock Exchange.
(b) Unless full dividends on Series A Preferred Stock for all past
dividend periods and the then current dividend period shall have been paid or
declared and a sum sufficient for the payment thereof set apart: no dividend
whatsoever whether in cash, securities or other property (other than a dividend
payable solely in shares of Common Stock) shall be paid or declared and set
aside for payment, and no distribution shall be made, on any shares of Common
Stock or other class of preferred stock authorized after the date hereof except
for the Series B Preferred Stock; and no shares of Common Stock or other class
of preferred stock authorized after the date hereof, except the Series B
Preferred Stock, shall be purchased, redeemed or otherwise acquired by the
Company and no funds shall be paid into or set aside or made available for a
sinking fund for the purchase, redemption or other acquisition thereof without
the approval of the holders of at least a majority of the then outstanding
shares of Series A Preferred Stock.
(c) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (b) of this Section 2,
purchase or otherwise acquire such shares at such time and such manner.
3. CONVERSION. The holders of Series A Preferred Stock shall have the
following conversion rights (the "Conversion Rights") and be subject to the
following provisions with respect to the conversion of the shares of Series A
Preferred Stock:
(a) RIGHT TO CONVERT. The shares of Series A Preferred Stock shall be
convertible at the holder's option into the number of fully paid and
nonassessable shares of Common Stock that is calculated in accordance with the
terms of this Section 3. Unless earlier permitted by the Company, the
outstanding shares of Series A Preferred Stock are convertible at the holder's
option after the fourth anniversary of the date of issuance. The number of
shares of Common Stock into which the outstanding Series A Preferred Stock is
convertible shall be determined for all purposes on the first date such shares
of Series A Preferred Stock become convertible (referred to as the
"Determination Date"). Notwithstanding the occurrence of the Determination
Date for any outstanding shares of Series A Preferred Stock, the holder of such
shares may continue to hold these shares of Series A Preferred Stock and may at
any time thereafter, subject to the provisions of this Section 3, convert those
shares into Common Stock.
(b) CONVERSION PRICE. The Conversion Price shall be equal to 1.075
times the per share book value of Common Stock, computed in accordancewith
generally accepted accounting principles, as of the end of the month immediately
prior to the Determination Date. Each share of Series A Preferred Stock shall
be convertible into the number of shares of Common Stock that results from
dividing $1,000 by the Conversion Price.
(c) MECHANICS OF VOLUNTARY CONVERSION; UNPAID DIVIDENDS.
(i) Before any holder of shares of Series A Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Company or of any transfer agent of Series A Preferred Stock or Common
Stock, with a written notice that he elects to convert the same and shall state
therein the number of shares of Series A Preferred Stock being converted and the
name or names in which the certificate or certificates for shares of Common
Stock are to be issued. Except as otherwise expressly provided for herein, the
date the Company receives such surrendered certificates and written notice shall
be deemed to be the Conversion Date. Thereupon the Company shall promptly issue
and deliver at such office to such holder of shares of Series A Preferred Stock
or to the nominee or nominees of such holder a certificate or certificates
representing: the number of shares of Common Stock to which he
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<PAGE> 3
shall be entitled; and any shares of Series A Preferred Stock that were
represented by any certificate surrendered as required by the provisions of
this paragraph, but which were not converted and which he continues to own.
(ii) Such conversion shall be deemed to have been made immediately
prior to the close of business on the Conversion Date and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date. A holder of shares of Series A
Preferred Stock who surrenders shares of Series A Preferred Stock for conversion
shall be entitled to receive from the Company on the date of such surrender an
amount in cash equal to the accrued dividends on such surrendered shares of
Series A Preferred Stock through such Conversion Date, less the aggregate amount
of dividends which would have accrued since the last dividend payment date for
Series A Preferred Stock on the number of shares of the Common Stock into which
such shares of Series A Preferred Stock are converted if dividends on such
shares of Common Stock accrued at an annual rate based upon the dividends paid
by the Company on the Common Stock for the most recently ended fiscal period for
which Common Stock dividends were paid, but any future dividends with respect to
the surrendered shares of Series A Preferred Stock shall cease to accrue after
such surrender and all rights with respect to such shares shall forthwith after
such surrender terminate.
(d) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Company at any time or from time to time after the Issuance Date shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Series A Preferred Stock shall
receive upon conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Company that they
would have received had their Series A Preferred Stock been converted into
Common Stock on the date of such event and had thereafter, during the period
from the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period giving
application to all adjustments called for during such period under this
paragraph 3 with respect to the rights of the holders of Series A Preferred
Stock.
(e) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. If the
shares of Common Stock issuable upon the conversion of the shares of Series A
Preferred Stock shall be changed into the same or a different number of shares
of any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than an event provided for elsewhere in
this paragraph 3), then and in each such event the holder of each share of
Series A Preferred Stock shall have the right thereafter to convert such share
into the kind and amounts of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(f) REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If at a
ny time or from time to time there shall be a capital reorganization of the
Common Stock (other than an event provided for elsewhere in this paragraph 3)
or a merger, consolidation or statutory exchange of securities of the Company
with or into another corporation, or the sale of all or substantially all the
Company's properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the shares of Series A Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of the successor
corporation resulting from such merger or consolidation or sale, to which a
holder of that number of shares of Common Stock deliverable upon conversion of
the shares of Series A Preferred Stock would have been entitled on such capital
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this paragraph
3 with respect to the rights of the holders of Series A Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the provisions
of this paragraph 3 (including, if necessary, adjustment of the Conversion Price
then in effect and the number of shares purchasable upon
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<PAGE> 4
conversion of the shares of Series A Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable. The foregoing
provisions shall similarly apply to successive consolidations, mergers,
statutory exchanges, sales or conveyances.
(g) SALE OF SHARES BELOW CONVERSION PRICE.
(i) If at any time or from time to time after the Issuance Date,
the Company shall issue or sell Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend as provided in paragraph 3(e)
above, for a consideration per share less than the then existing Conversion
Price for Series A Preferred Stock (or, if an adjusted Conversion Price shall be
in effect by reason of a previous adjustment, then less than such adjusted
Conversion Price), then and in each case the then applicable Conversion Price
for Series A Preferred Stock shall be reduced, as of the opening of business on
the date of such issue or sale, to a price determined by multiplying the
Conversion Price by a fraction, the numerator of which shall be the sum of:
the number of shares of Common Stock outstanding immediately prior to such issue
or sale; plus the number of shares of Common Stock that the aggregate
consideration received by the Company for the total number of Additional Shares
of Common Stock so issued would purchase at the Conversion Price, and the
denominator of which shall be the sum of: (X) the number of shares of Common
Stock outstanding immediately prior to such issue or sale; plus (Y) the number
of such Additional Shares of Common Stock so issued.
(ii) For the purpose of making any adjustment in the Conversion
Price or number of shares of Common Stock purchasable on the conversion of the
shares of Series A Preferred Stock as provided above, the consideration
received by the Company for any issue or sale of securities shall:
(A) to the extent it consists of cash, be computed at the net
amount of cash received by the Company after deduction of any underwriting or
similar commissions, concessions or compensation paid or allowed by the Company
in connection with such issue or sale;
(B) to the extent it consists of services or property other
than cash, be computed at the fair value of such services or property as
determined in good faith by the Board; and
(C) if Additional Shares of Common Stock, Convertible
Securities (as defined below), or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Company for a
consideration that covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board to be
allocable to such Additional Shares of Common Stock, Convertible Securities or
rights or options.
(iii) For the purpose of the adjustment provided in subparagraph
(i) of this paragraph 3(g), if at any time or from time to time after the
Issuance Date the Company shall issue any rights or options for the purchase of,
or stock or other securities convertible into, Additional Shares of Common Stock
(such convertible stock or securities being referred to as "Convertible
Securities"), then, in each case, if the Effective Price (as defined below) of
such rights, options or Convertible Securities shall be less than the then
existing Conversion Price for Series A Preferred Stock, the Company shall be
deemed to have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the rights or
options or Convertible Securities, plus, in the case of such options or rights,
the minimum amounts of consideration, if any, payable to the Company upon
exercise or conversion of such options or rights. For purposes of the
foregoing, "Effective Price" shall mean the quotient determined by dividing the
total of all such consideration by such maximum number of Additional Shares of
Common Stock. No further adjustment of the Conversion Price adjusted upon the
issuance of such rights, options or Convertible Securities shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any
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<PAGE> 5
such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the
Conversion Price adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Conversion Price that would
have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the Additional Shares of
Common Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted
plus the consideration, if any, actually received by the Company on the
conversion of such Convertible Securities.
(iv) For the purpose of the adjustment provided for in
subparagraph (i) of this paragraph 3(g), if at any time or from time to
time after the Issuance Date the Company shall issue any rights or options for
the purchase of Convertible Securities, then, in each such case, if the
Effective Price thereof is less than the current Conversion Price, the Company
shall be deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock issuable upon
conversion of the total amount of Convertible Securities covered by such rights
or options and to have received as consideration for the issuance of such
Additional Shares of Common Stock an amount equal to the amount of
consideration, if any, received by the Company for the issuance of such rights
or options, plus the minimum amounts of consideration, if any, payable to the
Company upon the conversion of such Convertible Securities. For purposes of the
foregoing, "Effective Price" shall mean the quotient determined by dividing the
total amount of such consideration by such maximum number of Additional Shares
of Common Stock. No further adjustment of such Conversion Price adjusted upon
the issuance of such rights or options shall be made as a result of the actual
issuance of the Convertible Securities upon the exercise of such rights or
options or upon the actual issuance of Additional Shares of Common Stock upon
the conversion of such Convertible Securities. The provisions of subparagraph
(iii) of this paragraph 3(h) for the readjustment of such Conversion Price upon
the expiration of rights or options or the rights of conversion of Convertible
Securities, shall apply mutatis mutandis to the rights, options and Convertible
Securities referred to in this subparagraph (iv).
(h) DEFINITION OF ADDITIONAL SHARES. The term "Additional Shares of
Common Stock" as used herein shall mean all shares of Common Stock issued or
deemed issued by the Company after the Issuance Date, whether or not
subsequently reacquired or retired by the Company, other than: shares of
Common Stock issued upon conversion of the shares of Series A Preferred Stock;
any shares of Common Stock (as adjusted for all stock dividends, stock splits,
subdivisions and combinations) issued to employees, officers, directors,
consultants or other persons performing services for the Company (if so issued
solely because of any such person's status as an officer, director, employee,
consultant or other person performing services for the Company and not as part
of any general offering of the Company's securities) pursuant to any stock
option plan, stock purchase plan or management incentive plan, agreement or
arrangement approved by the Board; and (iii) any shares of Common Stock issued
by the Company as full or partial consideration by the Company in connection
with a merger, consolidation, purchase of assets or other transaction resulting
in the acquisition by the Company of greater than 25% of the voting securities
of any other corporation, financial institution or other entity, provided that
the Common Stock used in such transaction is valued for purposes thereof at not
less than its then book value.
(i) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price for the number of shares
of Common Stock or other securities issuable upon conversion of the shares of
Series A Preferred Stock, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent certified public accountants then auditing the books of
the Company) to compute such adjustment or readjustment in accordance herewith
and prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to each registered
holder of shares of Series A Preferred Stock at the holder's address as shown on
the Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon
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which such adjustment or readjustment is based including a statement of: (i)
the consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued or sold;
the Conversion Price at the time in effect for each series of Series A
Preferred Stock; and the number of Additional Shares of Common Stock and the
type and amount, if any, of other property which at the time would be received
upon conversion of the shares of Series A Preferred Stock.
(j) NOTICES OF RECORD DATE. In the event of any taking by the Company
of a record of the holders of any class or series of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any reclassification or recapitalization of
the capital stock of the Company, any merger, consolidation or share exchange
involving the Company, or any transfer of all or substantially all the assets
of the Company to any other corporation, entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, the Company shall mail to each holder of shares of Series A Preferred
Stock (other than any such holder who is also a holder of record, or the
affiliate of a holder of record, of shares of Common Stock, or is a director or
executive officer, or an affiliate of a director or executive officer, of the
Company) at least 30 days prior to the record date specified therein, a notice
specifying: the date on which any such record is to be taken for the purpose of
such dividend or distribution and a description of such dividend or
distribution; the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective; and the time, if any is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled
to exchange their shares of Common Stock (or other securities) for securities
or other property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up.
(k) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of shares of Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Company
shall pay cash equal to the product of such fraction multiplied by the
Conversion Price on the Conversion Date. Whether or not the fractional shares
are issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock the holder is at the time
converting into shares of Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(l) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock. As a condition precedent to
the taking of any action which would cause an adjustment to the Conversion
Price, the Company will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient in order that it
may validly and legally issue the shares of its Common Stock issuable based
upon such adjusted Conversion Price.
(m) NOTICES. Any notice required or permitted by the provisions of this
paragraph 3 to be given to the holder of shares of Series A Preferred Stock or
the Company, respectively, shall be deemed given when personally delivered to
such holder or the Company or five business days after the same has been
deposited in the United States mail, first class postage prepaid and addressed
to each holder of record at his address appearing on the books of the Company
or the Company's registered office in the state of Illinois, as the case may
be, provided, however, that the written notice to be delivered to the Company
by the holder of shares of Series A Preferred Stock in connection with the
conversion of such stock shall be effective only upon actual receipt by the
Company.
(n) PAYMENT OF TAXES. The Company will pay all taxes and other
governmental charges (other than taxes measured by the revenue or income of the
holders of shares of Series A Preferred Stock) that may be imposed in respect
of the issue or delivery of shares of Common Stock upon conversion of shares of
Series A Preferred Stock.
6
<PAGE> 7
(o) NO DILUTION OR IMPAIRMENT. The Company shall not amend its
Certificate of Incorporation or participate in any reorganization,
recapitalization, transfer of assets, consolidation, merger, share exchange,
dissolution, issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in carrying out all such action as may be reasonably
necessary or appropriate to protect the conversion rights of the holders of
shares of Series A Preferred Stock against dilution or other impairment.
(p) DUTY TO MAKE FAIR ADJUSTMENTS IN CERTAIN CASES. If any event occurs
as to which the other provisions of this paragraph 3 are not strictly
applicable or if strictly applicable would not fairly protect the Conversion
Rights of the holders of shares of Series A Preferred Stock in accordance with
the essential intent and principles of such provisions, then the Board shall
make an adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as adequately to protect such
Conversion Rights.
4. VOTING RIGHTS. The holders of each share of Series A Preferred Stock
shall not be entitled to vote, except: as required by law; to approve the
authorization or issuance of any shares of any class or series of stock which
ranks senior or on a parity with, the Series A Preferred Stock in respect of
dividends and distributions upon the dissolution, liquidation or winding up of
the Company; and the holders of Series A Preferred Stock shall have full
voting rights in the following situations: during any period of time when two
dividend payments on shares of Series A Preferred Stock have accrued but have
remained unpaid; upon conversion of the shares of Series A Preferred Stock
into shares of Common Stock; and if the holders of Common Stock vote on a
proposal to merge or otherwise enter into a transaction with a third party
pursuant to which Union is not the surviving entity. In such event, the holder
of shares of Series A Preferred Stock shall be entitled to notice of any
holders' meeting in accordance with the bylaws of the Company unless such
holder is also a holder of record, or the affiliate of a holder of record, of
shares of Common Stock, or is a director or executive officer, or an affiliate
of a director or executive officer, of the Company, and shall be entitled to a
number of votes equal to the number of full shares of Common Stock into which
such shares of Series A Preferred Stock are fully convertible pursuant to
paragraph 3 above, at the record date for the determination of stockholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of stockholders is
solicited.
(b) Notwithstanding anything contained herein to the contrary, the
holders of Series A Preferred Stock shall vote as a separate class when
required by law and to approve the matters set forth in Section 4(a)(ii).
In such circumstances, the affirmative vote of the holders of a majority (or
such greater percentage as may be required by law or the Company's certificate
of incorporation or bylaws) of the Common Stock and of the voting rights
provided in this Section for the Series A Preferred Stock, with each voting
separately as a class, shall be necessary to approve such proposed action. In
all other circumstances described in Section 4(a), the holders of Series A
Preferred Stock shall vote with the holders of Common Stock and the affirmative
vote of the holders of a majority (or such greater percentage as may be
required by law or the Company's certificate of incorporation or bylaws) of the
Common Stock and of the voting rights provided in this Section for the Series A
Preferred Stock, voting together as a single group, shall be necessary to
approve such proposed action.
5. LIQUIDATION. Upon the dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, the holders of shares of Series A
Preferred Stock shall be entitled to receive out of the assets of the Company
available for distribution to stockholders, the amount of $1,000 per share,
plus any dividends whether or not declared or due which have accrued thereon
through the date of such distribution, but which remain unpaid, before any
payment or distribution shall be made on shares of Common Stock or any other
securities issued by the Company, except that holders of shares of Series A
Preferred Stock shall share pro rata in any such payment or distribution with
the holders of Series B Preferred Stock. In the event the assets of the
Company available for distribution to the holders of shares of Series A
Preferred Stock upon any dissolution, liquidation or winding up of the Company
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to this
7
<PAGE> 8
paragraph, then all of the assets of the Company to be distributed shall be
distributed ratably to the holders of Series A Preferred Stock and Series B
Preferred Stock. After the payment to the holders of the shares of Series A
Preferred Stock of the full amounts provided for in this paragraph, the holders
of shares of Series A Preferred Stock as such shall have no right or claim to
any of the remaining assets of the Company.
6. INFORMATION RIGHTS. The holders of shares of Series A Preferred Stock
shall be entitled to receive audited annual financial statements of the
Company, as soon as such statements become available.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 2nd day of August, 1996.
ATTEST UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- --------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President and Chief
Executive Officer
STATE OF ILLINOIS )
) SS:
COUNTY OF LA SALLE )
BE IT REMEMBERED that, on _______________, 1996, before me, a Notary
Public duly authorized by law to take acknowledgement of deeds, personally came
each of R. Scott Grigsby and Charles J. Grako, the President and Chief
Executive Officer and the Secretary/Treasurer of UnionBancorp, Inc.,
respectively, who duly signed the foregoing instrument before me and
acknowledged that such signing is his respective act and deed, that such
instrument as executed is the act and deed of said corporation and that the
facts stated therein are true.
GIVEN under my hand on _______________, 1996.
______________________________________
Notary Public
8
<PAGE> 1
EXHIBIT 4.4
CERTIFICATE OF DESIGNATION
OF
SERIES B PREFERRED STOCK
OF
UNIONBANCORP, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
UNIONBANCORP, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on August 5, 1996, adopted the
following resolution creating a series of 1,092 shares of Preferred Stock
designated as "Series B Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions
of the Certificate of Incorporation, a series of Preferred Stock,
no par value per share, of the Corporation be and hereby is
created, and that the designation and number of shares thereof and
the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such
series and the qualifications, limitations and restrictions
thereof are as follows:
SERIES B PREFERRED STOCK
1. DESIGNATION AND AMOUNT. The board of directors (the "Board") of
UnionBancorp, Inc., a Delaware corporation (the "Company"), has designated
1,092 shares of the Company's authorized and unissued preferred stock as
"Series B Preferred Stock," has authorized such shares for issuance at a price
of $1,000 per share (the "Series B Preferred Stock") and has determined that no
further shares of Series B Preferred Stock shall be issued.
2. DIVIDENDS. (a) The holders of record of the then outstanding shares
of Series B Preferred Stock shall be entitled to receive when, as and if
declared by the Board out of any funds legally available therefor, cumulative
dividends at the annual rate of $60.00 per share payable in four equal cash
payments on the 20th day (or if not a business day, as defined below, on
the next business day thereafter) of April, July, October and January
commencing October, 1996, provided, however, that any such quarterly cash
payment shall be prorated with respect to any shares of Series B Preferred
Stock that were outstanding less than the total number of days in the calendar
quarter immediately preceding any such payment date. The amount of any such
prorated cash payment shall be computed on the basis of the actual number of
days in any calendar quarter during which such shares of Series B Preferred
Stock were outstanding. Each such dividend shall be payable to holders of
record as they appear on the stock books of the Company on such record dates,
not less than 10 and not more than 60 days preceding the dividend payment date,
as shall be fixed by the Board. No dividends, other than those payable solely
in the Company's common stock, $1.00 par value ("Common Stock"), shall be paid
during any fiscal year of the Company with respect to shares of Common Stock or
any other security issued by the Company other than Series A until dividends in
the total amount of $60.00 per share on Series B Preferred Stock shall have
been paid. Such dividends shall accrue on each share of Series B Preferred
Stock from the date of issuance and from day to day thereafter, whether or not
earned or declared. Notwithstanding the foregoing, such dividends shall be
cumulative so that if such dividends in respect of any previous or current
annual dividend period, at the annual rate specified above, shall not have been
paid or declared and a sum sufficient for the payment thereof set apart, the
deficiency for any prior
<PAGE> 2
year and the amount owed in the current year shall first be fully paid
before any dividend or other distribution shall be paid on or declared and set
apart for the shares of Common Stock. A "business day" shall be deemed to be
any day when trading of securities occurs on the New York Stock Exchange.
(b) Unless full dividends on Series B Preferred Stock for all past
dividend periods and the then current dividend period shall have been paid or
declared and a sum sufficient for the payment thereof set apart: (i) no dividend
whatsoever whether in cash, securities or other property (other than a dividend
payable solely in shares of Common Stock) shall be paid or declared and set
aside for payment, and no distribution shall be made, on any shares of Common
Stock or other class of preferred stock authorized after the date hereof except
for the Series A Convertible Preferred Stock (the "Series A Preferred Stock");
and (ii) no shares of Common Stock or other class of preferred stock authorized
after the date hereof except the Series A Preferred Stock shall be purchased,
redeemed or otherwise acquired by the Company and no funds shall be paid into
or set aside or made available for a sinking fund for the purchase, redemption
or other acquisition thereof without the approval of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock.
(c) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of
the Company unless the Company could, under paragraph (b) of this Section 2,
purchase or otherwise acquire such shares at such time and such manner.
3. REDEMPTION. (a) Each issued and outstanding share of Series B
Preferred Stock may be redeemed at the option of the holder or his or her
estate for cash as set forth below at any time after the first to occur of:
(i) the death of the original holder of such share of Series B Preferred
Stock; or (ii) the tenth anniversary of the original issuance of such share, in
either case at a price of $1,000 per share, plus any accrued but unpaid
dividends thereon whether or not declared, through the Redemption Date, as
defined below (collectively, the "Redemption Price").
(b) Before any holder of shares of Series B Preferred Stock shall be
entitled to redeem any such shares for cash, he shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Company or of
any transfer agent of Series B Preferred Stock or Common Stock, with a written
notice that he elects to redeem the same and shall state therein the number of
shares of Series B Preferred Stock being redeemed for cash and the name or
names to whom such payment shall be made. The date the Company receives such
surrendered certificates and written notice shall be deemed to be the
Redemption Date. Thereupon the Redemption Price for such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired.
(c) If on the Redemption Date the Redemption Price is paid, then the
dividends with respect to the shares of Series B Preferred Stock redeemed shall
cease to accrue after the Redemption Date.
(d) Notwithstanding anything contained in this paragraph 3(c) to the
contrary, the Company shall not be obligated to redeem for cash any shares of
Series B Preferred Stock if such redemption would cause the Company to be in
violation of any statute, rule, order, regulation or agreement to which the
Company is a party relating to minimum capital requirements. The Company shall
use its best efforts promptly to remedy any such violation if the same has the
effect of preventing the redemption of any shares of Series B Preferred Stock,
and shall promptly complete the redemption of shares after such violation has
been cured.
4. VOTING RIGHTS. (a) The holders of each share of Series B Preferred
Stock shall not be entitled to vote, except: (i) as required by law; and (ii)
to approve the authorization or issuance of any shares of any class or
series of stock which ranks senior or on a parity with, the Series B Preferred
Stock in respect of dividends and distributions upon the dissolution,
liquidation or winding up of the Company.
2
<PAGE> 3
(b) Notwithstanding anything contained herein to the contrary, the
holders of Series B Preferred Stock shall vote as a separate class when
required by law and to approve the matters set forth in Section 4(a)(ii). In
such circumstances, the affirmative vote of the holders of a majority (or such
greater percentage as may be required by law or the Company's certificate of
incorporation or bylaws) of the voting rights provided in this Section for the
Series B Preferred Stock, voting separately as a class, shall be necessary to
approve such proposed action by the holders of Series B Preferred Stock.
5. LIQUIDATION. Upon the dissolution, liquidation or winding up of the
Company, whether voluntary or involuntary, the holders of shares of Series B
Preferred Stock shall be entitled to receive out of the assets of the Company
available for distribution to stockholders, the amount of $1,000 per share,
plus any dividends whether or not declared or due which have accrued thereon
through the date of such distribution, but which remain unpaid, before any
payment or distribution shall be made on shares of Common Stock or any other
securities issued by the Company, except that holders of shares of Series B
Preferred Stock shall share pro rata in any such payment or distribution with
the holders of Series A Preferred Stock. In the event the assets of the
Company available for distribution to the holders of shares of Series B
Preferred Stock upon any dissolution, liquidation or winding up of the Company
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to this paragraph, then all of the assets of the Company to
be distributed shall be distributed ratably to the holders of Series B
Preferred Stock and Series A Preferred Stock. After the payment to the holders
of the shares of Series B Preferred Stock of the full amounts provided for in
this paragraph, the holders of shares of Series B Preferred Stock as such shall
have no right or claim to any of the remaining assets of the Company.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
this 2nd day of August, 1996.
ATTEST UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
----------------------------- --------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President and Chief
Executive Officer
STATE OF ILLINOIS )
) SS:
COUNTY OF LA SALLE )
BE IT REMEMBERED that, on _______________, 1996, before me, a Notary
Public duly authorized by law to take acknowledgement of deeds, personally came
each of R. Scott Grigsby and Charles J. Grako, the President and Chief
Executive Officer and the Secretary/Treasurer of UnionBancorp, Inc.,
respectively, who duly signed the foregoing instrument before me and
acknowledged that such signing is his respective act and deed, that such
instrument as executed is the act and deed of said corporation and that the
facts stated therein are true.
GIVEN under my hand on _______________, 1996.
___________________________________
Notary Public
3
<PAGE> 1
EXHIBIT 4.5
CERTIFICATE OF DESIGNATION
OF
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
OF
UNIONBANCORP, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
UNIONBANCORP, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware, in accordance with the provisions of
Section 103 thereof, DOES HEREBY CERTIFY:
That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Certificate of Incorporation of the said
Corporation, the said Board of Directors on July 17, 1996 adopted the following
resolution creating a series of 4,500 shares of Preferred Stock designated as
"Series C Junior Participating Preferred Stock":
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions
of the Certificate of Incorporation, a series of Preferred Stock,
no par value, of the Corporation be and hereby is created, and
that the designation and number of shares thereof and the voting
and other powers, preferences and relative, participating,
optional or other rights of the shares of such series and the
qualifications, limitations and restrictions thereof are as
follows:
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. There shall be a series of Preferred Stock
that shall be designated as "Series C Junior Participating Preferred Stock,"
and the number of shares constituting such series shall be 4,500. Such number
of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of
shares of Series C Junior Participating Preferred Stock to less than the
number of shares then issued and outstanding plus the number of shares issuable
upon exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.
<PAGE> 2
2. Dividends and Distribution.
(A) Subject to the prior and superior rights of the holders of any shares
of any class or series of stock of the Corporation ranking prior and superior
to the shares of Series C Junior Participating Preferred Stock with respect to
dividends, the holders of shares of Series C Junior Participating Preferred
Stock, in preference to the holders of shares of any class or series of stock
of the Corporation ranking junior to the Series C Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the 20th day of April, July,
October and January, in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series C Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $3.00 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $1.00 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series C Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 1000. In the
event the Corporation shall at any time after July 17, 1996 (the "Rights
Declaration Date") (i) declare and pay any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
C Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
C Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of
issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series C Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly
2
<PAGE> 3
Dividend Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series C Junior Participating Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series C Junior Participating Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date
fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series C Junior Participating
Preferred Stock shall have the following voting rights:
(A) Each share of Series C Junior Participating Preferred Stock shall
entitle the holder thereof to a number of votes equal to the Adjustment Number
on all matters submitted to a vote of the stockholders of the Corporation.
(B) Except as required by law and by Section 10 hereof, holders of
Series C Junior Participating Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series C Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series C Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series C Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Junior Participating
Preferred Stock, except dividends paid ratably on the Series C Junior
Participating Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled; or
(iii) purchase or otherwise acquire for consideration any shares of
Series C Junior Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series
3
<PAGE> 4
C Junior Participating Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of Series C Junior Participating Preferred Stock, or
to such holders and holders of any such shares ranking on a parity therewith,
upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series C Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired promptly after the acquisition thereof. All
such shares shall upon their retirement become authorized but unissued shares
of Preferred Stock and may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of Directors,
subject to any conditions and restrictions on issuance set forth herein.
6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation,
dissolution or winding up of the Corporation, voluntary or otherwise, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series C Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Series C Junior Participating Preferred Stock shall have
received an amount per share (the "Series C Liquidation Preference") equal to
the greater of (i) $100 plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such
payment, or (ii) the Adjustment Number times the per share amount of all cash
and other property to be distributed in respect of the Common Stock upon such
liquidation, dissolution or winding up of the Corporation.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series C Liquidation Preference and
the liquidation preferences of all other classes and series of stock of the
Corporation, if any, that rank on a parity with the Series C Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series C
Junior Participating Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation into or with
another corporation nor the merger or consolidation of any other corporation
into or with the Corporation shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of this Section 6.
4
<PAGE> 5
7. Consolidation, Merger, Etc. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the
outstanding shares of Common Stock are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such case each
share of Series C Junior Participating Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share equal to the
Adjustment Number times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged.
8. No Redemption. Shares of Series C Junior Participating Preferred Stock
shall not be subject to redemption by the Company.
9. Ranking. The Series C Junior Participating Preferred Stock shall rank
junior to all other series of the Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.
10. Amendment. At any time that any shares of Series C Junior
Participating Preferred Stock are outstanding, the Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series C Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds of the outstanding
shares of Series C Junior Participating Preferred Stock, voting separately as a
class.
11. Fractional Shares. Series C Junior Participating Preferred Stock may
be issued in fractions of a share that shall entitle the holder, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit of all other
rights of holders of Series C Junior Participating Preferred Stock.
5
<PAGE> 6
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 2nd
day of August, 1996.
ATTEST UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
---------------------------- --------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President and Chief
Executive Officer
STATE OF ILLINOIS )
) SS:
COUNTY OF LA SALLE )
BE IT REMEMBERED that, on _______________, 1996, before me, a Notary
Public duly authorized by law to take acknowledgement of deeds, personally came
each of R. Scott Grigsby and Charles J. Grako, the President and Chief
Executive Officer and the Secretary/Treasurer of UnionBancorp, Inc.,
respectively, who duly signed the foregoing instrument before me and
acknowledged that such signing is his respective act and deed, that such
instrument as executed is the act and deed of said corporation and that the
facts stated therein are true.
GIVEN under my hand on _______________, 1996.
Notary Public
6
<PAGE> 1
EXHIBIT 4.6
[UNIONBANCORP, LOGO]
NUMBER SHARES
------ ------
INCORPORATED UNDER THE LAWS PAR VALUE $1.00
OF THE STATE OF DELAWARE
THIS CERTIFIES that SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CAPITAL STOCK,
PAR VALUE $1.00 PER SHARE, OF
UNIONBANCORP, INC. (hereinafter called the "Corporation") transferable on the
books of the Corporation, in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued under and shall be subject to all of the
provisions of the Certificate of Incorporation and By-Laws of the Corporation
and of the amendments thereto, copies of which are on file with and obtainable
upon request from the Corporation, to all of which the holder, by acceptance
hereof, assents.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed
by its duly authorized officers and its seal to be hereunto affixed.
DATED
- ----------------------------------- ----------------------------------
SECRETARY PRESIDENT
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-_______CUSTODIAN______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
suvivorship and not as tenants Act__________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,________________________ hereby sell, assign and transfer unto
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________________________________________
______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
______________________________________________________________________________
______________________________________________________________________________
_________________________________________________________________________Shares
of the Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint
_____________________________________________________________________Attorney,
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated___________________
X____________________________________________
X NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature Guaranteed By:
__________________________
__________________________
Banker or Member Firm of a major Stock Exchange
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE LAW, AND
SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED UNLESS (A) THEY ARE
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE LAW OR (B) SUCH SALE OR
TRANSFER IS EXEMPT FROM SUCH REGISTRATION AND THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL ACCEPTABLE TO IT TO THE EFFECT THAT SUCH SALE OR TRANSFER IS
SO EXEMPT.
<PAGE> 1
EXHIBIT 4.7
-------------------------
UNIONBANCORP, INC.
AND
HARRIS TRUST AND SAVING BANK, AS RIGHTS AGENT
------------------------------------
RIGHTS AGREEMENT
DATED AS OF AUGUST 5, 1996
------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
Section 1. Certain Definitions 1
Section 2. Appointment of Rights Agent 6
Section 3. Issue of Right Certificates 6
Section 4. Form of Right Certificates 7
Section 5. Countersignature and Registration 8
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates 8
Section 7. Exercise of Rights, Purchase Price; Expiration Date of Rights 9
Section 8. Cancellation and Destruction of Right Certificates 10
Section 9. Availability of Shares of Preferred Stock 11
Section 10. Preferred Stock Record Date 12
Section 11. Adjustment of Purchase Price, Number of Shares and Number
of Rights 12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares 20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power 21
Section 14. Fractional Rights and Fractional Shares 24
Section 15. Rights of Action 25
Section 16. Agreement of Right Holders 26
Section 17. Right Certificate Holder Not Deemed a Stockholder 26
Section 18. Concerning the Rights Agent 27
Section 19. Merger or Consolidation or Change of Name of Rights Agent 27
i
<PAGE> 3
Section 20. Duties of Rights Agent 28
Section 21. Change of Rights Agent 30
Section 22. Issuance of New Right Certificates 31
Section 23. Redemption 31
Section 24. Exchange 32
Section 25. Notice of Certain Events 33
Section 26. Notices 33
Section 27. Supplements and Amendments 34
Section 28. Successors 35
Section 29. Benefits of this Agreement 35
Section 30. Determinations and Actions by the Board of Directors 35
Section 31. Severability 35
Section 32. Governing Law 35
Section 33. Counterparts 35
Section 34. Descriptive Headings 36
ii
<PAGE> 4
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT, dated as of August 5, 1996 (this "Agreement"), is
between UNIONBANCORP, INC., a Delaware corporation (the "Company"), and HARRIS
TRUST AND SAVINGS BANK, an Illinois bank, as Rights Agent (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the
Close of Business (as defined below) on August 5, 1996 (the "Record Date"),
each Right representing the right to purchase one one-thousandth (subject to
adjustment) of a share of Preferred Stock (as hereinafter defined), upon the
terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right (subject to adjustment as
provided herein) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earlier of the Distribution Date
and the Expiration Date (as such terms are hereinafter defined); provided,
however, that Rights may be issued with respect to shares of Common Stock that
shall become outstanding after the Distribution Date and prior to the
Expiration Date in accordance with Section 22.
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); provided, however, that (i) if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be an
"Acquiring Person" became such inadvertently (including, without limitation,
because (A) such Person was unaware that it beneficially owned a percentage of
Common Stock that would otherwise cause such Person to be an "Acquiring Person"
or (B) such Person was aware of the extent of its Beneficial Ownership of
Common Stock but had no actual knowledge of the consequences of such Beneficial
Ownership under this Agreement) and without any intention of changing or
influencing control of the Company, and if such Person as promptly as
practicable divested or divests itself of Beneficial Ownership of a sufficient
number of shares of Common Stock so that such Person would no longer be an
"Acquiring Person," then such Person shall not be deemed to be or to have
become an "Acquiring Person" for any purposes of this Agreement; (ii) if, as of
the date hereof, any Person is the Beneficial Owner of 15% or more of the
shares of Common Stock outstanding, such Person shall not be or become an
"Acquiring Person" unless and until such time as such Person shall become the
Beneficial Owner of additional shares of Common Stock (other than pursuant to a
dividend or distribution paid by the
<PAGE> 5
Company on the outstanding Common Stock in shares of Common Stock or pursuant
to a split or subdivision of the outstanding Common Stock), unless, upon
becoming the Beneficial Owner of such additional shares of Common Stock, such
Person is not then the Beneficial Owner of 15% or more of the shares of Common
Stock then outstanding; and (iii) no Person shall become an "Acquiring Person"
as the result of an acquisition of shares of Common Stock by the Company which,
by reducing the number of shares outstanding, increases the proportionate
number of shares of Common Stock beneficially owned by such Person to 15% or
more of the shares of Common Stock then outstanding, provided, however, that if
a Person shall become the Beneficial Owner of 15% or more of shares of Common
Stock then outstanding by reason of such share acquisitions by the Company and
shall thereafter become the Beneficial Owner of any additional shares of Common
Stock (other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Stock in shares of Common Stock or pursuant
to a split or subdivision of the outstanding Common Stock), then such Person
shall be deemed to be an "Acquiring Person" unless upon becoming the Beneficial
Owner of such additional shares of Common Stock such Person does not
beneficially own 15% or more of the shares of Common Stock then outstanding.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common
Stock of which any Person is the Beneficial Owner, shall be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date hereof. Notwithstanding anything
contained in this Agreement to the contrary, neither Wayne W. Whalen nor Dennis
J. McDonnell, either individually or together, shall be deemed to be an
Acquiring Person solely by virtue of the acquisition of shares of Common Stock
by one or both of them pursuant to the Merger Agreement or as expressly
permitted by the Standstill Agreements, and no person appointed as proxy
pursuant to the Standstill Agreements shall be deemed to be an Acquiring Person
by virtue of such appointment; provided, however, that in the event Wayne W.
Whalen or Dennis J. McDonnell becomes the Beneficial Owner of any shares of
Common Stock other than pursuant to the Merger Agreement or as expressly
permitted by the Standstill Agreements, or upon the occurrence of events or the
discovery of additional facts or circumstances not currently known by the Board
of Directors of the Company, the provisions of this sentence (other than the
provisions relating to a person appointed as proxy pursuant to the Standstill
Agreements and other than this proviso) shall not be applicable.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be deemed to
have "Beneficial Ownership" of and shall be deemed to "beneficially own" any
securities:
2
<PAGE> 6
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly, within the
meaning of Rule l3d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date hereof;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which such Person
has a right to acquire upon the exercise of Rights at any time prior to the
time that any Person becomes an Acquiring Person or (z) securities issuable
upon the exercise of Rights from and after the time that any Person becomes an
Acquiring Person if such Rights were acquired by such Person or any of such
Person's Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof ("Original Rights") or pursuant to Section
11(i) or Section 11(n) with respect to an adjustment to Original Rights; or (B)
the right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial Owner of,
or to beneficially own, any security by reason of such agreement, arrangement
or understanding if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations promulgated under
the Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person and with respect to which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B)) or disposing of such securities of the Company;
provided, however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section l(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.
3
<PAGE> 7
(d) "Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of Illinois or the city in which
the principal office of the Rights Agent is located are authorized or obligated
by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M., Ottawa,
Illinois time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Ottawa, Illinois time, on the next
succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall mean the
Common Stock, presently par value $1.00 per share, of the Company. "Common
Stock" when used with reference to any Person other than the Company shall mean
the common stock (or, in the case of an unincorporated entity, the equivalent
equity interest) with the greatest voting power of such other Person or, if
such other Person is a subsidiary of another Person, the Person or Persons
which ultimately control such first-mentioned Person.
(g) "Common Stock Equivalents" shall have the meaning set forth in Section
11(a)(iii) hereof.
(h) "Current Value" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(i) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(j) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(k) "Exempt Person" shall mean the Company or any Subsidiary (as such term
is hereinafter defined) of the Company, in each case including, without
limitation, in its fiduciary capacity, or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity or trustee holding
Common Stock for or pursuant to the terms of any such plan or for the purpose
of funding any such plan or funding other employee benefits for employees of
the Company or of any Subsidiary of the Company.
(l) "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.
(m) "Expiration Date" shall have the meaning set forth in Section 7
hereof.
(n) "Flip-In Event" shall have the meaning set forth in Section 11(a)(ii)
hereof.
4
<PAGE> 8
(o) "Final Expiration Date" shall have the meaning set forth in Section 7
hereof.
(p) "Merger Agreement" shall mean the Agreement and Plan of Merger, dated
January 22, 1996, between the Company and Prairie Bancorp, Inc., an Illinois
corporation, as the same may be amended from time to time.
(q) "Nasdaq" shall mean The Nasdaq Stock Market.
(r) "New York Stock Exchange" shall mean the New York Stock Exchange, Inc.
(s) "Person" shall mean any individual, firm, corporation, partnership,
limited liability company, trust, bank or other entity, and shall include any
successor (by merger or otherwise) to such entity.
(t) "Preferred Stock" shall mean the Series C Junior Participating
Preferred Stock, no par value, of the Company having the rights and preferences
set forth in the Form of Certificate of Designation attached to this Agreement
as Exhibit A.
(u) "Principal Party" shall have the meaning set forth in Section 13(b)
hereof.
(v) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(w) "Redemption Price" shall have the meaning set forth in Section 23
hereof.
(x) "Right Certificate" shall have the meaning set forth in Section 3
hereof.
(y) "Securities Act" shall mean the Securities Act of 1933, as amended.
(z) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(aa) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(bb) "Standstill Agreements" shall mean the Standstill Agreement, dated
August 6, 1996, between the Company and Wayne W. Whalen, as the same may be
amended from time, and the Standstill Agreement, dated August 6, 1996, between
the Company and Dennis J. McDonnell, as the same may be amended from time to
time.
(cc) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a
5
<PAGE> 9
report filed pursuant to Section 13(d) of the Exchange Act) by the Company or
an Acquiring Person that an Acquiring Person has become such, or such earlier
date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(dd) "Subsidiary" of any Person shall mean any corporation, bank or other
entity of which securities or other ownership interests having ordinary voting
power sufficient to elect a majority of the board of directors or other persons
performing similar functions are beneficially owned, directly or indirectly, by
such Person, and any corporation, bank or other entity that is otherwise
controlled by such Person.
(ee) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ff) "Summary of Rights" shall have the meaning set forth in Section 3
hereof.
(gg) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
be the holders of Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
SECTION 3. ISSUE OF RIGHT CERTIFICATES.
(a) Until the Close of Business on the earlier of (i) the tenth day after
the Stock Acquisition Date or (ii) the tenth Business Day (or such later date
as may be determined by action of the Board of Directors prior to such time as
any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public
announcement of the intention of such Person (other than an Exempt Person) to
commence, a tender or exchange offer the consummation of which would result in
any Person (other than an Exempt Person) becoming the Beneficial Owner of
shares of Common Stock aggregating 15% or more of the Common Stock then
outstanding (including any such date which is after the date of this Agreement
and prior to the issuance of the Rights; the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Stock registered in the names of the holders thereof and not by separate
Right Certificates, and (y) the Rights will be transferable only in connection
with the transfer of Common Stock. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights
6
<PAGE> 10
Agent will countersign and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, insured, postage-prepaid
mail, to each record holder of Common Stock as of the close of business on the
Distribution Date (other than any Acquiring Person or any Associate or
Affiliate of an Acquiring Person), at the address of such holder shown on the
records of the Company, a Right Certificate, in substantially the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right (subject to
adjustment as provided herein) for each share of Common Stock so held. As of
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Shares of Preferred Stock,
in substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Stock as of
the Close of Business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of
the holders thereof together with the Summary of Rights. Until the
Distribution Date (or, if earlier, the Expiration Date), the surrender for
transfer of any certificate for Common Stock outstanding on the Record Date,
with or without a copy of the Summary of Rights, shall also constitute the
transfer of the Rights associated with the Common Stock represented thereby.
(c) Certificates issued for Common Stock (including, without limitation,
upon transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earlier of the
Distribution Date and the Expiration Date shall have impressed on, printed
on, written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder
hereof to certain rights as set forth in a Rights
Agreement between UnionBancorp, Inc. (the "Company") and
Harris Trust and Savings Bank, as Rights Agent, dated as
of August 5, 1996 as the same may be amended from time to
time (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of the
Company. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by
this certificate. The Company will mail to the holder of
this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights
Agreement, Rights owned by or trans-
7
<PAGE> 11
ferred to any Person who is or becomes an Acquiring
Person (as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will
no longer be transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Stock which are no longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the
forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or interdealer quotation system on which the Rights may from time to
time be listed or quoted, or to conform to usage. Subject to the provisions of
Sections 11, 13 and 22 hereof, the Right Certificates shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of Preferred
Stock as shall be set forth therein at the price per one one-thousandth of a
share of Preferred Stock set forth therein (the "Purchase Price"), but the
number of such one one-thousandths of a share of Preferred Stock and the
Purchase Price shall be subject to adjustment as provided herein.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the Company by
the President of the Company, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof and shall be
attested by the Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the
Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as
though the Person who signed such Right
8
<PAGE> 12
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any Person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause
to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Sections 7(e), 11(a)(ii), 13 and 14
hereof, at any time after the Distribution Date and prior to the Expiration
Date, any Right Certificate or Right Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one
one-thousandths of a share of Preferred Stock as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the office
or agency of the Rights Agent designated for such purpose. Thereupon the
Rights Agent shall countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any time
after the Distribution Date and prior to the Expiration Date, upon receipt by
the Company and the Rights Agent of evidence reasonably satisfactory to them of
the loss, theft, destruction or mutilation of a Right Certificate, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
9
<PAGE> 13
SECTION 7. EXERCISE OF RIGHTS, PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which the Rights are exercised, at any
time which is both after the Distribution Date and prior to the time (the
"Expiration Date") that is the earliest of (i) the Close of Business on August
4, 2006 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall be initially $50.00 for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent
to comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing interests in such number of one
one-thousandths of a share of Preferred Stock as are to be purchased (in which
case certificates for the Preferred Stock represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such
Right Certificate, registered in such name or names as may be designated
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by such holder and (iv) when appropriate, after receipt, promptly deliver such
cash to or upon the order of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the registered holder of
any Right Certificate shall exercise less than all of the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company shall be obligated to undertake any action
with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Right Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Right Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
SECTION 9. AVAILABILITY OF SHARES OF PREFERRED STOCK.
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued shares of Preferred Stock or
any shares of Preferred Stock held in its treasury, the number of shares of
Preferred Stock that will be sufficient to permit the exercise in full of all
outstanding Rights.
(b) So long as the shares of Preferred Stock issuable upon the exercise of
Rights may be listed or admitted to trading on any national securities
exchange, or quoted on Nasdaq, the Company shall use its best efforts to cause,
from and after such time as the Rights become exercisable, all shares reserved
for such issuance to be listed or
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<PAGE> 15
admitted to trading on such exchange, or quoted on Nasdaq, upon official notice
of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the Company
shall use its best efforts, if then necessary to permit the issuance of shares
of Preferred Stock upon the exercise of Rights, to register and qualify such
shares of Preferred Stock under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 90 days,
the exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration
statement under the Securities Act (if required) shall have been declared
effective.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all shares of Preferred Stock delivered upon
exercise of Rights shall, at the time of delivery of the certificates therefor
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of Preferred Stock upon the exercise of Rights. The Company shall
not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a Person other
than, or the issuance or delivery of certificates or depositary receipts for
the Preferred Stock in a name other than that of, the registered holder of the
Right Certificate evidencing Rights surrendered for exercise or to issue or
deliver any certificates or depositary receipts for Preferred Stock upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by that holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
SECTION 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any
certificate for Preferred Stock is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated,
the date upon which the Right
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<PAGE> 16
Certificate evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided, however,
that if the date of such surrender and payment is a date upon which the
Preferred Stock transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Stock
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Preferred Stock for which the Rights shall be
exercisable, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.
SECTION 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES AND
NUMBER OF RIGHTS. The Purchase Price, the number of shares of Preferred Stock
or other securities or property purchasable upon exercise of each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of this
Agreement (A) declare and pay a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the
continuing or surviving corporation), except as otherwise provided in this
Section 11(a), the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of capital stock issuable
on such date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been exercised
immediately prior to such date and at a time when the Preferred Stock transfer
books of the Company were open, the holder would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person (the first occurrence of such event being referred
to hereinafter as the "Flip-In Event"), then (A) the Purchase Price shall be
adjusted to be the Purchase Price in effect immediately prior to the Flip-In
Event multiplied by the number of one one-thousandths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such Flip-In
Event, whether or not such Right was then exercisable, and (B) each holder of a
Right, except as otherwise provided in this Section 11(a)(ii) and
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<PAGE> 17
Section 11(a)(iii) hereof, shall thereafter have the right to receive, upon
exercise thereof at a price equal to the Purchase Price (as so adjusted), in
accordance with the terms of this Agreement and in lieu of shares of Preferred
Stock, such number of shares of Common Stock as shall equal the result obtained
by dividing the Purchase Price (as so adjusted) by 50% of the current per share
market price of the Common Stock (determined pursuant to Section 11(d) hereof)
on the date of such Flip-In Event; provided, however, that the Purchase Price
(as so adjusted) and the number of shares of Common Stock so receivable upon
exercise of a Right shall, following the Flip-In Event, be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof.
Notwithstanding anything in this Agreement to the contrary, however, from and
after the Flip-In Event, any Rights that are beneficially owned by (x) any
Acquiring Person (or any Affiliate or Associate of any Acquiring Person), (y) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the Flip-In Event or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the Flip-In Event pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to
any Person with whom it has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (II) a transfer which the
Board of Directors has determined is part of a plan, arrangement or
understanding which has the purpose or effect of avoiding the provisions of
this paragraph, and subsequent transferees of such Persons, shall be void
without any further action and any holder of such Rights shall thereafter have
no rights whatsoever with respect to such Rights under any provision of this
Agreement. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 11(a)(ii) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of
its failure to make any determinations with respect to an Acquiring Person or
its Affiliates, Associates or transferees hereunder. From and after the
Flip-In Event, no Right Certificate shall be issued pursuant to Section 3 or
Section 6 hereof that represents Rights that are or have become void pursuant
to the provisions of this paragraph, and any Right Certificate delivered to the
Rights Agent that represents Rights that are or have become void pursuant to
the provisions of this paragraph shall be canceled. From and after the
occurrence of an event specified in Section 13(a) hereof, any Rights that
theretofore have not been exercised pursuant to this Section 11(a)(ii) shall
thereafter be exercisable only in accordance with Section 13 and not pursuant
to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of Common Stock
issuable upon the exercise of Rights in accordance with the foregoing
subparagraph (ii) a number of shares of Preferred Stock or fraction thereof
such that the current per share market price of one share of Preferred Stock
multiplied by such number or fraction is equal to the current per share market
price of one share of Common Stock. In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party (A) determine the excess (such excess, the "Spread") of
(1) the value of the shares of
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<PAGE> 18
Common Stock issuable upon the exercise of a Right in accordance with the
foregoing subparagraph (ii) (the "Current Value") over (2) the Purchase Price
(as adjusted in accordance with the foregoing subparagraph (ii)), and (B) with
respect to each Right (other than Rights which have become void pursuant to the
foregoing subparagraph (ii)), make adequate provision to substitute for the
shares of Common Stock issuable in accordance with the foregoing subparagraph
(ii) upon exercise of the Right and payment of the Purchase Price (as adjusted
in accordance therewith), (1) cash, (2) a reduction in such Purchase Price, (3)
shares of Preferred Stock or other equity securities of the Company (including,
without limitation, shares or fractions of shares of preferred stock which, by
virtue of having dividend, voting and liquidation rights substantially
comparable to those of the shares of Common Stock, are deemed in good faith by
the Board of Directors to have substantially the same value as the shares of
Common Stock (such shares of Preferred Stock and shares or fractions of shares
of preferred stock are hereinafter referred to as "Common Stock Equivalents")),
(4) debt securities of the Company, (5) other assets, or (6) any combination of
the foregoing, having a value which, when added to the value of the shares of
Common Stock issued upon exercise of such Right, shall have an aggregate value
equal to the Current Value (less the amount of any reduction in such Purchase
Price), where such aggregate value has been determined by the Board of
Directors upon the advice of a nationally recognized investment banking firm
selected in good faith by the Board of Directors; provided, however, that if
the Company shall not make adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the Flip-In Event (the
"Section 11(a) (ii) Trigger Date"), then the Company shall be obligated to
deliver, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party, upon the surrender for exercise
of a Right and without requiring payment of such Purchase Price, shares of
Common Stock (to the extent available), and then, if necessary, such number or
fractions of shares of Preferred Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. If, upon the occurrence of the Flip-In Event, the Board of Directors
shall determine in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon exercise in full
of the Rights, then, if the Board of Directors so elects, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a) (ii) Trigger Date, in order that
the Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is
herein called the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the second and/or third
sentence of this Section 11(a)(iii), the Company (x) shall provide, subject to
Section 11(a)(ii) hereof and the last sentence of this Section 11(a)(iii)
hereof, that such action shall apply uniformly to all outstanding Rights and
(y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant to
such second sentence and to determine the value thereof. In the event of any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the
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<PAGE> 19
suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the shares of Common Stock shall be the current per share market
price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common Stock
Equivalent" shall be deemed to equal the current per share market price of the
Common Stock. The Board of Directors of the Company may, but shall not be
required to, establish procedures to allocate the right to receive shares of
Common Stock upon the exercise of the Rights among holders of Rights pursuant
to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("equivalent preferred
shares")) or securities convertible into Preferred Stock or equivalent
preferred shares at a price per share of Preferred Stock or equivalent
preferred shares (or having a conversion price per share, if a security
convertible into shares of Preferred Stock or equivalent preferred shares) less
than the then current per share market price of the Preferred Stock (determined
pursuant to Section 11(d) hereof) on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Preferred Stock and
equivalent preferred shares outstanding on such record date plus the number of
shares of Preferred Stock and equivalent preferred shares which the aggregate
offering price of the total number of shares of Preferred Stock and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price, and the denominator of which shall be the number
of shares of Preferred Stock and equivalent preferred shares outstanding on
such record date plus the number of additional shares of Preferred Stock and/or
equivalent preferred shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.
Shares of Preferred Stock and equivalent preferred shares owned by or held for
the account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever such
a record date is fixed; and in the event that such rights, options or warrants
are not so issued, the Purchase Price shall be adjusted to be the Purchase
Price which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in
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<PAGE> 20
connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness or assets
(other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Stock
(determined pursuant to Section 11(d) hereof) on such record date, less the
fair market value (as determined in good faith by the Board of Directors of the
Company whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to
be distributed or of such subscription rights or warrants applicable to one
share of Preferred Stock, and the denominator of which shall be such current
per share market price (determined pursuant to Section 11(d) hereof) of the
Preferred Stock; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d)(i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price " of any security (a
"Security " for the purpose of this Section 11(d)(i)) on any date shall be
deemed to be the average of the daily closing prices per share of such Security
for the 30 consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that in the event that the
current per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or
securities convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security, and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or reclassification, then, and in
each such case, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of such
Security. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported by the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Security is not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Security is listed or admitted to trading or, if the Security is not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use, or, if on any such date the Security is not
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<PAGE> 21
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the Security is listed or admitted to trading is open for the transaction
of business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred Stock
is publicly traded, the "current per share market price" of the Preferred Stock
shall be determined in accordance with the method set forth in Section
11(d)(i). If the Preferred Stock is not publicly traded but the Common Stock
is publicly traded, the "current per share market price" of the Preferred Stock
shall be conclusively deemed to be the current per share market price of the
Common Stock as determined pursuant to Section 11(d)(i) multiplied by the then
applicable Adjustment Number (as defined in and determined in accordance with
the Certificate of Designation for the Preferred Stock). If neither the Common
Stock nor the Preferred Stock is publicly traded, "current per share market
price" shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one hundred-thousandth of a
share of Preferred Stock or one-hundredth of a share of Common Stock or other
share or security as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be made no
later than the earlier of (i) three years from the date of the transaction
which requires such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than the Preferred Stock,
thereafter the Purchase Price and the number of such other shares so receivable
upon exercise of a Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Stock contained in Sections 11(a), 11(b), 11(c),
11(e), 11(h), 11(i) and 11(m) hereof, as applicable, and the provisions of
Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred Stock shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of
a share of Preferred
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<PAGE> 22
Stock purchasable from time to time hereunder upon exercise of the Rights,
all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and 11(c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence
the right to purchase, at the adjusted Purchase Price, that number of one
one-thousandth of a share of Preferred Stock (calculated to the nearest one
hundred-thousandth of a share of Preferred Stock) obtained by (i) multiplying
(x) the number of one one-thousandths of a share purchasable upon the exercise
of a Right immediately prior to such adjustment by (y) the Purchase Price in
effect immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect immediately
after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the number
of Rights, in substitution for any adjustment in the number of one
one-thousandths of a share of Preferred Stock purchasable upon the exercise of
a Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number
of Rights shall become that number of Rights (calculated to the nearest
one-hundredth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. Such record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
may, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein and
shall be registered in the names of the holders of record of Right Certificates
on the record date specified in the public announcement.
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<PAGE> 23
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-thousandths of a share of Preferred Stock issuable upon the
exercise of a Right, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one
one-thousandths of a share of Preferred Stock which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then par value, if any, of the fraction of Preferred
Stock or other shares of capital stock issuable upon exercise of a Right, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Preferred Stock or other such shares at
such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event
issuing to the holder of any Right exercised after such record date the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current
market price, issuance wholly for cash of Preferred Stock or securities which
by their terms are convertible into or exchangeable for Preferred Stock,
dividends on Preferred Stock payable in shares of Preferred Stock or issuance
of rights, options or warrants referred to hereinabove in Section 11(b),
hereafter made by the Company to holders of its Preferred Stock shall not be
taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Rights Agreement and prior to the
Distribution Date, the Company shall (i) declare and pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of a dividend payable in Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event
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shall equal the result obtained by multiplying the number of Rights associated
with each share of Common Stock immediately prior to such event by a fraction
the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution Date or
the Stock Acquisition Date, it will not, except as permitted by Sections 23, 24
or 27 hereof, take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will
diminish substantially or eliminate the benefits intended to be afforded by the
Rights.
SECTION 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file
with the Rights Agent and with each transfer agent for the Common Stock and the
Preferred Stock a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof (if
so required under Section 25 hereof). The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER.
(a) In the event, directly or indirectly, at any time after the Flip-In
Event (i) the Company shall consolidate with or shall merge into any other
Person, (ii) any Person shall merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more
wholly-owned Subsidiaries of the Company), then upon the first occurrence of
such event, proper provision shall be made so that: (A) each holder of a Right
(other than Rights which have become void pursuant to Section 11(a)(ii) hereof)
shall thereafter have the right to receive, upon the exercise thereof at the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof), in accordance with the terms of this Agreement and in lieu of shares
of Preferred Stock or Common Stock of the Company, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares
of Common Stock of the Principal Party (as such term is hereinafter defined),
not subject to any liens,
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encumbrances, rights of first refusal or other adverse claims, as shall equal
the result obtained by dividing the Purchase Price (as theretofore adjusted in
accordance with Section 11(a)(ii) hereof) by 50% of the current per share
market price of the Common Stock of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; provided, however, that the Purchase Price (as
theretofore adjusted in accordance with Section 11(a)(ii) hereof) and the
number of shares of Common Stock of such Principal Party so receivable upon
exercise of a Right shall be subject to further adjustment as appropriate in
accordance with Section 11(f) hereof to reflect any events occurring in respect
of the Common Stock of such Principal Party after the occurrence of such
consolidation, merger, sale or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company
pursuant to this Rights Agreement; (C) the term "Company" shall thereafter be
deemed to refer to such Principal Party; and (D) such Principal Party shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with
the terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in (i) or (ii) of the first
sentence of Section 13(a) hereof: (A) the Person that is the issuer of the
securities into which the shares of Common Stock are converted in such merger
or consolidation, or, if there is more than one such issuer, the issuer the
shares of Common Stock of which have the greatest aggregate market value of
shares outstanding, or (B) if no securities are so issued, (x) the Person that
is the other party to the merger, if such Person survives said merger, or, if
there is more than one such Person, the Person the shares of Common Stock of
which have the greatest aggregate market value of shares outstanding or (y) if
the Person that is the other party to the merger does not survive the merger,
the Person that does survive the merger (including the Company if it survives)
or (z) the Person resulting from the consolidation; and
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(ii) in the case of any transaction described in (iii) of the first
sentence in Section 13(a) hereof, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons is the
issuer of Common Stock having the greatest aggregate market value of shares
outstanding; provided, however, that in any such case described in the
foregoing clause (b)(i) or (b)(ii), if the Common Stock of such Person is not
at such time or has not been continuously over the preceding 12-month period
registered under Section 12 of the Exchange Act, then (1) if such Person is a
direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, the term "Principal Party" shall refer to such
other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stock of all of which is and has been so
registered, the term "Principal Party" shall refer to whichever of such Persons
is the issuer of Common Stock having the greatest aggregate market value of
shares outstanding, or (3) if such Person is owned, directly or indirectly, by
a joint venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2)
above shall apply to each of the owners having an interest in the venture as if
the Person owned by the joint venture was a Subsidiary of both or all of such
joint venturers, and the Principal Party in each such case shall bear the
obligations set forth in this Section 13 in the same ratio as its interest in
such Person bears to the total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale or
transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections
13(a) and (b) hereof shall promptly be performed in accordance with their terms
and that such consolidation, merger, sale or transfer of assets shall not
result in a default by the Principal Party under this Agreement as the same
shall have been assumed by the Principal Party pursuant to Sections 13(a) and
(b) hereof and providing that, as soon as practicable after executing such
agreement pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the Securities Act, if
necessary, with respect to the Rights and the securities purchasable upon
exercise of the Rights on an appropriate form, use its best efforts to cause
such registration statement to become effective as soon as practicable after
such filing and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date and similarly comply with
applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal Party
shall be listed or admitted to trading on the New York Stock Exchange or on
another national securities exchange, to list or admit to trading (or continue
the listing of) the
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Rights and the securities purchasable upon exercise of the Rights on the New
York Stock Exchange or such securities exchange, or, if the Common Stock of the
Principal Party shall not be listed or admitted to trading on the New York
Stock Exchange or a national securities exchange, to cause the Rights and the
securities receivable upon exercise of the Rights to be authorized for
quotation on Nasdaq or on such other system then in use;
(iii) deliver to holders of the Rights historical financial statements for
the Principal Party which comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive rights in
respect of the Common Stock of the Principal Party subject to purchase upon
exercise of outstanding Rights.
(d) In case the Principal Party has provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence
of, the consummation of a transaction referred to in this Section 13, shares of
Common Stock or Common Stock Equivalents of such Principal Party at less
than the then current market price per share thereof (determined pursuant to
Section 11(d) hereof) or securities exercisable for, or convertible into,
Common Stock or Common Stock Equivalents of such Principal Party at less than
such then current market price, or (ii) providing for any special payment, tax
or similar provision in connection with the issuance of the Common Stock of
such Principal Party pursuant to the provisions of Section 13, then, in such
event, the Company hereby agrees with each holder of Rights that it shall not
consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time after
the Flip-In Event, enter into any transaction of the type described in clauses
(i) through (iii) of Section 13(a) hereof if (i) at the time of or immediately
after such consolidation, merger, sale, transfer or other transaction there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such consolidation, merger, sale,
transfer or other transaction, the stockholders of the Person who constitutes,
or would constitute, the Principal Party for purposes of Section 13(b) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or
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Associates or (iii) the form or nature of organization of the Principal Party
would preclude or limit the exercisability of the Rights.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights (except prior to
the Distribution Date in accordance with Section 11(n) hereof). In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Rights are listed or admitted to
trading or, if the Rights are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported
by Nasdaq or such other system then in use or, if on any such date the Rights
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Rights selected by the Board of Directors of the Company. If on any such date
no such market maker is making a market in the Rights, the fair value of the
Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Stock (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock) or to distribute certificates which evidence
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock) upon the
exercise or exchange of Rights. Interests in fractions of Preferred Stock in
integral multiples of one one-thousandth of a share of Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised or exchanged as herein provided an amount in cash
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<PAGE> 29
equal to the same fraction of the current market value of a whole share of
Preferred Stock (as determined in accordance with Section 14(a) hereof) for the
Trading Day immediately prior to the date of such exercise or exchange.
(c) The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional shares
of Common Stock would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right (except as provided above).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided therein and in
this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of, the
obligations of any Person subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only
in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office or
agency of the
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Rights Agent designated for such purpose, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
Common Stock certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the Common Stock certificate made by
anyone other than the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected by any notice to
the contrary.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise or exchange of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in this Agreement), or to
receive dividends or subscription rights, or otherwise, until the Rights
evidenced by such Right Certificate shall have been exercised or exchanged in
accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the administration and execution of this Agreement
and the exercise and performance of its duties hereunder. The Company also
agrees to indemnify the Rights Agent for, and to hold it harmless against, any
loss, liability or expense, incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or omitted by the
Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability for,
or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper
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<PAGE> 31
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
SECTION 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any bank or corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation or bank resulting from any merger or consolidation to which the
Rights Agent or any successor Rights Agent shall be a party, or any bank or
corporation succeeding to the stock transfer or corporate trust powers of the
Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided, that
such bank or corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in
its changed name and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact
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<PAGE> 32
or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the President and the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have
been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including
the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights provided for in Sections 3, 11, 13, 23
and 24, or the ascertaining of the existence of facts that would require any
such change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after receipt of a certificate furnished
pursuant to Section 12, describing such change or adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock or other
securities to be issued pursuant to this Agreement or any Right Certificate or
as to whether any shares of Preferred Stock or other securities will, when
issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the President or
the Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions
from
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<PAGE> 33
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on and/or after which such action shall be taken or such omission
shall be effective. The Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application (which
date shall not be less than five Business Days after the date any officer of
the Company actually receives such application unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys or agents or for any loss to the Company resulting from any such act,
default, neglect or misconduct, provided reasonable care was exercised in the
selection and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has not been completed to certify the holder is
not an Acquiring Person (or an Affiliate or Associate thereof), the Rights
Agent shall not take any further action with respect to such requested exercise
or transfer without first consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer
agent of the Common Stock or Preferred Stock by registered or certified mail,
and, following the Distribution Date, to the holders of the Right Certificates
by first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock or Preferred Stock by registered or certified mail, and, following
the Distribution Date, to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable
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of acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of 30 days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a bank or corporation
organized and doing business under the laws of the United States or the laws of
any state of the United States or the District of Columbia, in good standing,
having an office in the State of Illinois, which is authorized under such laws
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Stock or Preferred Stock, and, following the Distribution
Date, mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such
forms as may be approved by its Board of Directors to reflect any adjustment or
change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Stock following the Distribution Date and
prior to the Expiration Date, the Company may with respect to shares of Common
Stock so issued or sold pursuant to (i) the exercise of stock options, (ii)
under any employee plan or arrangement, (iii) upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company or (iv) a
contractual obligation of the Company, in each case existing prior to the
Distribution Date, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale.
SECTION 23. REDEMPTION.
(a) The Board of Directors of the Company may, at any time prior to the
Flip-In Event, redeem all but not less than all the then outstanding Rights at
a redemption
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<PAGE> 35
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (the
redemption price being hereinafter referred to as the "Redemption
Price"). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the Board of Directors in its sole
discretion may establish. The Redemption Price shall be payable, at the option
of the Company, in cash, shares of Common Stock, or such other form of
consideration as the Board of Directors shall determine.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness
of such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price. The Company
shall promptly give public notice of any such redemption; provided, however,
that the failure to give, or any defect in, any such notice shall not affect
the validity of such redemption. Within 10 days after such action of the Board
of Directors ordering the redemption of the Rights (or such later time as the
Board of Directors may establish for the effectiveness of such redemption), the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption shall state the method by
which the payment of the Redemption Price will be made.
SECTION 24. EXCHANGE.
(a) The Board of Directors of the Company may, at its option, at any time
after the Flip-In Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such amount per Right being hereinafter referred to as
the "Exchange Ratio"). Notwithstanding the foregoing, the Board of Directors
shall not be empowered to effect such exchange at any time after an Acquiring
Person shall have become the Beneficial Owner of shares of Common Stock
aggregating 50% or more of the shares of Common Stock then outstanding. From
and after the occurrence of an event specified in Section 13(a) hereof, any
Rights that theretofore have not been exchanged pursuant to this Section 24(a)
shall thereafter be exercisable only in accordance with Section 13 and may not
be exchanged pursuant to this Section 24(a). The exchange of the Rights by the
Board of Directors may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
32
<PAGE> 36
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure to give, or
any defect in, such notice shall not affect the validity of such exchange. The
Company shall promptly mail a notice of any such exchange to all of the holders
of the Rights so exchanged at their last addresses as they appear upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the
exchange of the shares of Common Stock for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be exchanged.
Any partial exchange shall be effected pro rata based on the number of Rights
(other than Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Rights.
(c) The Company may at its option substitute, and, in the event that there
shall not be sufficient shares of Common Stock issued but not outstanding or
authorized but unissued to permit an exchange of Rights for Common Stock as
contemplated in accordance with this Section 24, the Company shall substitute
to the extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of shares of Preferred
Stock or fraction thereof (or equivalent preferred shares, as such term is
defined in Section 11(b)) such that the current per share market price
(determined pursuant to Section 11(d) hereof) of one share of Preferred Stock
(or equivalent preferred share) multiplied by such number or fraction is equal
to the current per share market price of one share of Common Stock (determined
pursuant to Section 11(d) hereof) as of the date of such exchange.
SECTION 25. NOTICE OF CERTAIN EVENTS.
(a) In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision or combination of
outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or
winding up of the Company, or (v) to pay any dividend on the Common Stock
payable in Common Stock or to effect a subdivision, combination or
consolidation of the Common Stock (by reclassification or otherwise than by
payment of dividends in Common Stock), then, in each such case, the
33
<PAGE> 37
Company shall give to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of such proposed action, which shall specify the
record date for the purposes of such stock dividend, or distribution of rights
or warrants, or the date on which such liquidation, dissolution or winding up
is to take place and the date of participation therein by the holders of
the Common Stock and/or Preferred Stock, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered by clause (i)
or (ii) above at least 10 days prior to the record date for determining holders
of the Preferred Stock for purposes of such action, and in the case of any such
other action, at least 10 days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of the Common Stock
and/or Preferred Stock, whichever shall be the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13 shall
occur then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate (or if occurring prior to the Distribution Date,
the holders of the Common Stock) in accordance with Section 26 hereof, a notice
of the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) and
Section 13 hereof.
SECTION 26. NOTICES. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
UnionBancorp, Inc.
122 West Madison Street
Ottawa, Illinois 61359
Attention: Mr. R. Scott Grigsby
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Harris Trust and Savings Bank
P.O. Box A3309
Chicago, Illinois 60690
Attention: Mr. Kenneth Penn
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
34
<PAGE> 38
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of
this Agreement in any respect without the approval of any holders of the
Rights. At any time when the Rights are no longer redeemable, except as
provided in the penultimate sentence of this Section 27, the Company may, and
the Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights in order to (i) cure
any ambiguity, (ii) correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, (iii) shorten
or lengthen any time period hereunder, or (iv) change or supplement the
provisions hereunder in any manner which the Company may deem necessary or
desirable; provided that no such supplement or amendment shall adversely affect
the interests of the holders of Rights as such (other than an Acquiring Person
or an Affiliate or Associate of an Acquiring Person), and no such amendment may
cause the Rights again to become redeemable or cause this Agreement again to
become amendable other than in accordance with this sentence. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or
amendment shall be made which changes the Redemption Price. Upon the delivery
of a certificate from an appropriate officer of the Company which states that
the proposed supplement or amendment is in compliance with the terms of this
Section 27, the Rights Agent shall execute such supplement or amendment.
SECTION 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders
of the Right Certificates (and, prior to the Distribution Date, the Common
Stock).
SECTION 30. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may
be necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable
for the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend this Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
that are done
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<PAGE> 39
or made by the Board of Directors of the Company in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights, as such, and all other parties, and (y) not subject the Board of
Directors to any liability to the holders of the Rights.
SECTION 31. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
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.
SECTION 32. GOVERNING LAW. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
SECTION 33. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
UNIONBANCORP, INC. HARRIS TRUST AND SAVINGS
BANK, AS RIGHTS AGENT
By: \s\ R. Scott Grigsby By: \s\ Kenneth Penn
------------------------- ---------------------------
Name: R. Scott Grigsby Name: Kenneth Penn
--------------------- --------------------
Title: President Title: Asst. Vice President
--------------------- --------------------
36
<PAGE> 1
EXHIBIT 5.1
[BARACK, FERRAZZANO, KIRSCHBAUM & PERLMAN LETTERHEAD]
August 8, 1996
UnionBancorp, Inc.
122 W. Madison Street
Ottawa, Illinois 61350
Ladies and Gentlemen:
We have acted as special counsel to UnionBancorp, Inc., a Delaware
corporation (the "Company"), in connection with the proposed offering of
1,265,000 shares (including 165,000 shares available pursuant to an
over-allotment option granted to the underwriter) of its common stock, $1.00
par value ("Common Shares"), and 1,265,000 Preferred Stock Purchase Rights
("Rights") attached to such Shares, pursuant to an initial public offering (the
"Offering") as described in the Form S-1 Registration Statement to be filed
with the Securities and Exchange Commission (the "SEC") on or about August 9,
1996 (the "Registration Statement"). Capitalized terms used, but not defined,
herein shall have the meanings given such terms in the Registration Statement.
You have requested our opinion concerning certain matters in connection with
the Offering.
We have made such legal and factual investigation as we deemed necessary
for purposes of this opinion. In our investigation, we have assumed the
genuineness of all signatures, the proper execution of all documents submitted
to us as originals, the conformity to the original documents of all documents
submitted to us as copies and the authenticity of the originals of such copies.
In arriving at the opinions expressed below, we have reviewed and examined
the following documents:
a. the Restated Certificate of Incorporation of the Company
filed with the Secretary of State of the State of Delaware on May
13, 1991, as amended on March 4, 1994 and July 29, 1996, and the
Company's Bylaws;
b. the Registration Statement, including the prospectus
constituting a part thereof (the "Prospectus");
c. a form of share certificate representing the Common Shares
approved by the Board; and
d. the Rights Agreement (the "Rights Agreement") between the
Company and Harris Trust and Savings Bank, as Rights Agent; and
<PAGE> 2
BARACK, FERRAZZANO, KIRSCHBAUM & PERLMAN
UnionBancorp, Inc.
August 8, 1996
Page 2
e. resolutions of the board of directors of the Company (the
"Board") relating to the Offering and the Rights Agreement.
We call your attention to the fact that our firm only requires lawyers to
be qualified to practice law in the State of Illinois and, in rendering the
foregoing opinions, we express no opinion with respect to any laws relevant to
this opinion other than the Securities Act of 1933, as amended, and the rules
and regulations thereunder, the laws and regulations of the State of Illinois,
the General Corporation Law of the State of Delaware and United States federal
law.
Based upon the foregoing, but assuming no responsibility for the accuracy
or the completeness of the data supplied by the Company and subject to the
qualifications, assumptions and limitations set forth herein, it is our opinion
that:
1. The Company has been duly organized and is validly existing in good
standing under the laws of the State of Delaware and has due corporate
authority to carry on its business as it is presently conducted.
2. The Company is authorized to issue up to 10,000,000 Common Shares, of
which 2,851,404 Common Shares have been issued and are presently outstanding
prior to the Offering.
3. When the Registration Statement shall have been declared effective by
order of the SEC and the Common Shares and the Rights attached thereto to be
sold thereunder shall have been issued and sold upon the terms and conditions
set forth in the Registration Statement, then such Common Shares and Rights
will be legally issued, fully paid and non-assessable.
We express no opinion with respect to any specific legal issues other than
those explicitly addressed herein. We assume no obligation to advise you of
any change in the foregoing subsequent to the date of this opinion (even though
the change may affect the legal conclusions stated in this opinion letter).
We hereby consent (i) to be named in the Registration Statement, and in
the Prospectus, as attorneys who will pass upon the legality of the Common
Shares to be sold thereunder and (ii) to the filing of this opinion as an
Exhibit to the Registration Statement.
Sincerely,
BARACK, FERRAZZANO, KIRSCHBAUM & PERLMAN
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This Agreement, made this first day of January, 1992, by and among
UNIONBANK, a state banking corporation, UNIONBANCORP, INC., a Delaware
corporation (UnionBank and UnionBancorp, Inc. being hereinafter collectively
referred to as the "Employer"), and R. SCOTT GRIGSBY (hereinafter referred to
as the "Employee").
WHEREAS, the Employee and the Employer desire to enter into an employment
agreement to fully recognize the contributions of the Employee to the Employer
and to assure continuous harmonious management of the affairs of the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, it is mutually agreed by and among the parties
hereto as follows:
Section 1. Employment; Term.
1.1 Employment. The Employer hereby hires the Employee as President and
Chief Executive Officer of UnionBank and UnionBancorp, Inc. and the Employee
does hereby accept such employment, upon the terms and conditions hereinafter
set forth and agrees to perform the duties required of him to the best of his
ability.
1.2 Term of Employment. The term of this Agreement shall commence as of
January 1, 1992 and shall continue through December 31, 1994, unless extended
as provided in paragraph 1.3 or sooner terminated as provided in Section 5.
1.3 Extension of Term of Employment. On January 1, 1993 and on each
January 1 thereafter, the term of this Agreement shall be automatically
extended for one additional year, unless prior to January 1, 1993 or January 1
of any subsequent year, as the case may be, either party shall have notified
the other in writing that the term of this Agreement shall not be so extended.
Once such notification is given by either party, the term of this Agreement
shall not thereafter be extended.
Section 2. Compensation.
2.1 Base Salary. For the calendar year beginning January 1, 1992, the
Employer shall pay to the Employee as compensation for his services a base
salary of $108,000.00, payable in bi-weekly installments, subject to
withholding for state and federal income taxes and FICA.
2.2 Salary Adjustments. On January 1, 1993 and on each January 1
thereafter, the Employee's base salary for the ensuing year shall be
automatically increased not less than five percent (5.0%) above the prior
year's base salary, as of December 31 of the prior year.
2.3 Bonus. The Employee shall be entitled to participate in such
executive bonus plans and/or incentive compensation plans as may be established
from time to time by the respective boards of directors of UnionBank and/or
UnionBancorp, Inc.
2.4 Other Benefits. The Employee shall also receive the following
benefits:
(a) Employee shall be entitled to participate in the Employer's
Employee Stock Ownership Plan.
<PAGE> 2
(b) The Employee shall be entitled to participate in the Employer's
Benefit Package according to the terms and conditions thereof as amended from
time to time.
(c) The Employee shall have twelve (12) paid sick days per year.
(d) The Employee shall have two (2) paid personal days per year.
(e) The Employee shall be entitled to a minimum paid vacation of four (4)
weeks during each calendar year.
(f) The Employee shall be entitled to participate in the Employer's group
major medical insurance program according to the terms and conditions thereof
as amended from time to time.
(g) The Employee shall be entitled to receive such other fringe benefits
as he was receiving prior to the date of this Agreement.
2.5 Expenses. The Employee is authorized to incur reasonable expenses on
behalf of the Employer in performing his duties including, but not limited to,
expenses for travel, entertainment, meals, lodging and attendance at seminars.
The Employer shall reimburse the Employee for all such expenses incurred by the
Employee upon presentation of an itemized account thereof.
Section 3. Duties.
3.1 Employee's Duties. The Employee's duties shall include:
(a) Overall management responsibility for the business of UnionBank
and UnionBancorp, Inc.
(b) Direct supervision of senior level management personnel.
(c) Ensuring compliance with all state and federal laws and
regulations affecting the business of UnionBank and UnionBancorp, Inc.
(d) Timely and thorough reporting of the financial condition,
profitability and any other significant matters affecting UnionBank and/or
UnionBancorp, Inc. to the respective boards or directors thereof.
(e) Such other duties as may be assigned from time to time by the
respective boards of directors of UnionBank and UnionBancorp, Inc.
3.2 Extent of Employee's Services. The Employee shall devote his entire
time, attention and energies to the business of UnionBank and
UnionBancorp, Inc. and shall not during the term of this Agreement be engaged
in any other business activity whether or not such business activity is pursued
for gain, profit or other pecuniary advantage without the prior knowledge and
consent of the board of directors of UnionBank and UnionBancorp, Inc.;
provided, however, that the foregoing restriction shall not be construed as
preventing the Employee from investing, when such investment will not interfere
with the Employee's full time employment by the Employer.
2
<PAGE> 3
Section 4. Protection of Confidential Information.
4.1 Nondisclosure. The Employee recognizes and acknowledges that he will
have access to certain confidential information of the Employer and of entities
affiliated with the Employer and that such information constitutes valuable,
special and unique property of the Employer and such other entities. The
Employee shall not, during or after the term of this Agreement, directly or
indirectly, divulge, disclose or communicate in any manner whatsoever any of
such confidential information to any person, firm, corporation or other entity
for any reason or purpose whatsoever, except to authorized representatives of
the Employer and its affiliated entities. For purpose of this Agreement, the
parties expressly acknowledge and agree that all information, whether written
or otherwise, regarding the Employer's business, including, but not limited to,
information regarding customers, employees, employees' salaries, costs, prices,
earnings, any financial or accounting reports or data, regulatory matters,
pending or threatened litigation or claims, products, services, data processing
and other systems, operations, potential acquisitions, new location plans,
prospective and executed contracts and other business arrangements, shall be
conclusively presumed to be confidential, material and important information of
the Employer, except to the extent that such information is otherwise lawfully
and readily available to the general public.
4.2 Use of Confidential Information. During the term of this Agreement,
the Employee may only use confidential information for purposes reasonably
necessary to the carrying out of the Employee's duties as President and Chief
Executive Officer, and the Employee may not make use of any confidential
information after the severance of this employment. Upon the severance of his
employment with the Employer, the Employee shall return to the Employer all
books, records, lists and other written, typed or printed materials, whether
furnished by the Employer or prepared by the Employee, which contain any
information relating to the Employer's business. The Employee further agrees
that he will neither make nor retain any copies of such materials after
severance of his employment.
4.3 Remedies. In event of a breach or threatened breach by the Employee
of the provisions contained in paragraphs 4.1 or 4.2, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, using or retaining such confidential information. Nothing herein
contained shall be construed as prohibiting the Employer from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Employee. The Employee's covenants with
respect to confidential information, as contained in paragraphs 4.1 and 4.2,
shall continue in effect notwithstanding the severance of the Employee's
employment, whether by the Employer or by the Employee, upon the expiration of
the term of this Agreement or otherwise.
Section 5. Termination.
5.1 Termination by Employee. The Employee may terminate this Agreement,
and sever his employment with the Employer, by giving the Employer at least
thirty (30) days' prior written notice thereof specifying the effective date of
termination.
5.2 Termination Upon Death or Disability. This Agreement shall be
terminated, and the Employee's employment severed, upon the death or
disability of the Employee. For purposes of this Agreement, "disability" means
the Employee's inability, for any reason, to perform his duties as President
and Chief Executive Officer of the Employer for any period of ninety (90)
consecutive days or for more than one hundred eighty (180) days in any
twenty-four (24) month period.
3
<PAGE> 4
5.3 Termination by Employer for Cause. The Employer may terminate this
Agreement, and sever the Employee's employment, only "for cause". Cause for
termination shall exist if:
(a) The board of directors of UnionBank or UnionBancorp, Inc. or any
bank regulatory agency determines that the Employee has committed an act or
acts of dishonesty.
(b) The Employee is convicted in a judicial proceeding of an offense
involving moral turpitude.
(c) The Employee improperly discloses or uses any confidential
information of the Employer.
(d) The Employee repeatedly and willfully fails or refuses to perform
his duties.
(e) The Employee grossly neglects his duties.
(f) The Employee fails or refuses to comply with the policies,
standards and regulations of the Employer which from time to time may be
established.
(g) The Employee engages in any activities detrimental to the
reputation of the Employer, including but not limited to activities involving
a conflict of interest.
(h) The Employee conducts himself in an unethical, immoral or
fraudulent manner or in a manner which causes him to be held in public
ridicule or scorn or causes a public scandal.
5.4 Notice of Termination for Cause; Employee's Opportunity to Correct.
In the event the Employer intends to terminate this Agreement, and sever the
Employee's employment, for cause, the Employer shall first give the Employee
written notice thereof specifying with particularity the acts, omissions or
conduct constituting causes and stating the effective date of termination,
which date shall not be less than thirty (30) days from the date the notice is
given. If the grounds for termination for cause are those specified in
subparagraphs (a), (b) or (c) of paragraph 5.3, this Agreement shall be
terminated and the Employee's employment shall be severed on the date set forth
in the notice of termination. However, if the grounds alleged in the notice of
termination are other than those specified in subparagraphs (a), (b) or (c) of
paragraph 5.3, the Employee, if he so elects by giving written notice to the
Employer's boards of directors prior to the effective date of termination
stated in the notice, shall be afforded an opportunity to discuss the alleged
grounds with the Employer's boards of directors and the Employee shall then be
given a reasonable period of time, not less than ninety (90) days, within which
to correct the acts, omissions or conduct complained of.
5.5 Compensation Upon Termination. If for any reason this Agreement is
terminated and the Employee's employment is severed:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued sick days, personal days and vacation days.
4
<PAGE> 5
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP) account.
Section 6. Miscellaneous Provisions.
6.1 Mandatory Purchase by Employer of Employee's Stock.
Upon the
(i) death of the Employee
(ii) disability of the Employee or
(iii) termination of this Agreement and severance of the
Employee's employment
the Employee or his personal representative may require UnionBancorp, Inc. to
purchase the shares of UnionBancorp, Inc. stock owned by the Employee and his
immediate family. To exercise this privilege, the Employee or his personal
representative shall give UnionBancorp, Inc. written notice thereof, indicating
the number of shares to be purchased, within six (6) months after the
Employee's death, disability or severance of employment. The purchase price
for such shares shall be determined annually based upon the appraised value of
UnionBancorp, Inc. shares as determined in the most recent appraisal obtained
for purchases of UnionBank's Employee Stock ownership Plan (ESOP). Each year,
for five (5) consecutive years, UnionBancorp, Inc. shall purchase from the
Employee or his personal representative one-fifth (1/5) of the shares with
respect to which notice exercising the privilege afforded by this paragraph 6.1
was given.
6.2 Relocation of Employee. This Agreement contemplates that the Employee
will discharge his duties hereunder primarily at the Employer's principal
offices in Streator, Illinois. The Employer may not relocate the Employee to
another office or location without the Employee's consent.
6.3 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered in
person or when mailed, by certified mail, postage prepaid, return receipt
requested, to the Employer at 201 East Main Street, Streator, Illinois, 61364
or to the Employee at 2206 Eastwood Avenue, Streator, Illinois, 61364.
6.4 Captions. The Section and paragraph captions contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
6.6 Severability. If any provision of this Agreement shall be held by a
court of competent
5
<PAGE> 6
jurisdiction to be invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions of this Agreement which
can be given effect without the invalid or unenforceable provision and, to this
end, the provisions of this Agreement are severable.
6.7 Disputes. In case of any dispute or disagreement arising out of, or
in connection with, this Agreement, until the final determination of such
dispute or disagreement, the Employer shall continue to pay to the Employee all
of the compensation provided in this Agreement, and the Employee shall be
entitled to continue to receive all of the other benefits provided herein. If
any party commences an action to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to recover in such action its
costs and expenses incurred in prosecuting or defending such action, including
reasonable attorneys' fees, as may be awarded by the court which hears and
determines the controversy.
6.8 Employer's Obligations are Joint and Several. The obligations of
UnionBank and UnionBancorp, Inc. under this Agreement are joint and several.
6.9 Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely in Illinois.
6.10 Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, supersedes all
prior negotiations, agreements and understandings, both written and oral,
between the parties, and cannot be amended, supplemented or modified, nor can
any of its provisions be waived, except by an instrument in writing signed by
all parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
UnionBank
By/s/ C. Robert Myers
--------------------------
Chairman of the Board
ATTEST:
/s/ Charles J. Grako
- -----------------------
Secretary
UnionBancorp, Inc.
/s/ Charles J. Grako
---------------------------
Executive Vice President
ATTEST:
/s/ Margaret A. Swain
- ----------------------
Assistant Treasurer
/s/ R. Scott Grigsby
--------------------------
R. Scott Grigsby
6
<PAGE> 7
EMPLOYMENT AGREEMENT
AMENDMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UNIONBANK, a state
banking corporation, UNIONBANCORP, INC., a Delaware corporation (UnionBank and
UnionBancorp, Inc. being hereinafter collectively referred to as the
"Employer"), and R. SCOTT GRIGSBY (hereinafter referred to as the "Employee").
Paragraph 5.5 of the Agreement is hereby modified and amended to read as
follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the
provisions of paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base
salary through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on
the Employee's accrued sick days, personal days and vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of this Employee Stock Ownership Plan (ESOP)
account.
(ii) If this Agreement is terminated by the Employer other than in
accordance with the provisions of paragraph 5.2 or 5.3 prior to the last day of
the then current term, and for any reason other than a termination in
accordance with the provisions of subparagraph (iii) of this paragraph 5.5,
then notwithstanding any mitigation of damages by the Employee, the Employee
shall receive all amounts under subparagraph (i) of this paragraph 5.5 and the
Employer shall pay the Employee the base salary then payable to the Employee,
the value of any bonus or incentive payments the Employee would have received
had he remained employed, the value of the contributions that would have been
made or credited by the Employer under all employee retirement plans for the
benefit of the Employee and shall continue to provide coverage for the Employee
under the health, life and disability insurance programs maintained by the
Employer for the remainder of the term of this Agreement.
(a) Payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement. At the election of the Employer,
payments may be made in a lump sum. Such payments shall not be reduced
in the event the Employee obtains other employment following the
termination of employment by the Employer.
1
<PAGE> 8
(b) If the Employer is not in compliance with its minimum capital
requirements or if the payments required under this subparagraph would
cause the Employer's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.
(c) It is the intention of the Employer and the Employee that no
portion of any payment under this Agreement, or payments to or for the
benefit of the Employee under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Employee in the nature of compensation, receipt of
which is contingent on the Change of Control (as defined below) of the
Employer, and to which Section 280G of the Code applies (in the aggregate
"Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount which the Employer may pay without loss of
deduction under Section 280G(a) of the Code. Present value for purposes
of this Agreement shall be calculated in accordance with Section
280G(d)(4) of the Code. Within sixty (60) days following the earlier of
(A) the giving of the notice of termination or (B) the giving of notice
by the Employer to the Employee of its belief that there is a payment or
benefit due the Employee which will result in an excess parachute payment
as defined in Section 280G of the Code, the Employee and the Employer, at
the Employer's expense, shall obtain the opinion of such legal counsel
and certified public accountants as the Employee may choose
(notwithstanding the fact that such persons have acted or may also be
acting as the legal counsel or certified public accountants for the
Employer), which opinions need not be unqualified, which sets forth (A)
the amount of the Base Period Income of the Employee, (B) the present
value of Total Payments and (C) the amount and present value of any
excess parachute payments. In the event that such opinions determine
that there would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in Total
Payments shall be modified, reduced or eliminated as specified by the
Employee in writing delivered to the Employer within thirty (30) days of
his receipt of such opinions or, if the Employee fails to so notify the
Employer, then as the Employer shall reasonably determine, so that under
the bases of calculation set forth in such opinions there will be no
excess parachute payment. The provisions of this subparagraph, including
the calculations, notices and opinions provided for herein shall be based
upon the conclusive presumption that (A) the compensation and benefits
provided for in Section 2 hereof and (B) any other compensation earned by
the Employee pursuant to the Employer's compensation programs which would
have been paid in any event, are reasonable compensation for services
rendered, even though the timing of such payment is triggered by the
Change of Control; provided, however, that in the event such legal
counsel so requests in connection with the opinion required by this
subparagraph, the Employee and the Employer shall obtain, at the
Employer's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to be
received by the Employee. In the event that the provisions of Sections
280G and 4999 of the Code are repealed without succession, this
subparagraph shall be
2
<PAGE> 9
of no further force or effect.
(d) If at any time during the term of this Agreement,
the Employee is Constructively Discharged (as hereinafter defined) then
the Employee shall have the right, by written notice to the Employer
within sixty (60) days of such Constructive Discharge, to terminate his
services hereunder, effective as of thirty (30) days after such notice,
and the Employee shall have no further obligations under this Agreement.
The Employee shall in such event be entitled to a lump sum payment of
compensation and benefits and continuation of the health, life and
disability insurance as if such termination of his employment was
pursuant to subparagraph (ii) of this paragraph 5.5.
For purposes of this Agreement, the Employee shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(i) The Employee is not re-elected or is removed from the
positions with the Employer set forth in Section 1 hereof, other
than as a result of the Employee's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Employee shall fail to be vested by the Employer with
the powers, authority and support services of any of said offices;
or
(iii) The Employer shall notify the Employee that the
employment term of the Employee will not be extended or further
extended, as set forth in paragraph 1.3; or
(iv) The Employer changes the primary employment location of
the Employee to a place that is more than fifty (50) miles from the
primary employment location as of the date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(iii) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Employee's employment under (a) or (b)
below, the Employee shall be entitled to (i) a lump sum payment equal to three
(3) times his most recent base salary and the value of the other amounts and
benefits payable or accrued under Section 2, and (ii) continued coverage under
the health, life and disability insurance programs for three years following
such termination. The following shall constitute termination for purposes of
this subparagraph:
(a) The Employee terminates his employment under
this Agreement by a written notice to that effect delivered to the
Employer's boards of directors within one (1) year after the Change in
Control.
3
<PAGE> 10
(b) This Agreement is terminated by the Employer or
its successor either in contemplation of or after the Change in
Control.
(iv) For purposes of this paragraph, the term "Change in Control" shall
mean the following:
(a) The consummation of the acquisition by any person (as such
term is defined in Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act")) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three
percent (33%) or more of the combined voting power of the then
outstanding voting securities; or
(b) The individuals who, as of the date hereof, are members of the
Employer's boards of directors cease for any reason to constitute a
majority of their respective board, unless the election, or nomination
for election by the stockholders, of any new director was approved by a
vote of a majority of their respective board, and such new director
shall, for purposes of this Agreement, be considered as a member of their
respective board; or
(c) Approval by stockholders of: (1) a merger or consolidation if
the stockholders immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of the entity.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because thirty-three percent (33%) or more of the combined voting
power of the then outstanding securities is acquired by (1) a trustee or other
fiduciary holding securities under one or more employee benefit plans
maintained for employees of the entity or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock immediately
prior to such acquisition."
Paragraph 6.11 is hereby added to the Agreement and shall read as follows:
"6.11 INDEMNIFICATION.
(a) The Employer shall provide the Employee (including his
heirs, personal representatives, executors and administrators) for the
term of this Agreement with coverage under a standard directors' and
officers' liability insurance policy at its expense.
4
<PAGE> 11
(b) In addition to the insurance coverage provided for in
subparagraph (a) of this paragraph 6.11, the Employer shall hold
harmless and indemnify the Employee (and his heirs, executors and
administrators) to the fullest extent permitted under applicable law against
all expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been an officer of the Employer (whether or not he
continues to be an officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
(c) In the event the Employee becomes a party, or is threatened
to be made a party, to any action, suit or proceeding for which the
Employer has agreed to provide insurance coverage or indemnification under this
paragraph 6.11, the Employer shall, to the full extent permitted under
applicable law, advance all expenses (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement (collectively "Expenses")
incurred by the Employee in connection with the investigation, defense,
settlement, or appeal of any threatened, pending or completed action, suit or
proceeding, subject to receipt by the Employer of a written undertaking from
the Employee (i) to reimburse the Employer for all Expenses actually paid by
the Employer to or on behalf of the Employee in the event it shall be
ultimately determined that the Employee is not entitled to indemnification by
the Employer for such Expenses and (ii) to assign to the Employer all rights of
the Employee to indemnification, under any policy of directors' and officers'
liability insurance or otherwise, to the extent of the amount of Expenses
actually paid by the Employer to or on behalf of the Employee."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 1st day of October, 1993.
UnionBank
By/s/ C. Robert Myers
--------------------------
Chairman of the Board
ATTEST:
/s/ Charles J. Grako
- ---------------------
Secretary
UnionBancorp, Inc.
/s/ Charles J. Grako
--------------------------
EVP & CFO
ATTEST:
/s/ Charles L. Cassidy
- ----------------------
Assistant Secretary
/s/ R. Scott Grigsby
--------------------------
R. Scott Grigsby
5
<PAGE> 12
ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UnionBancorp, Inc., a
Delaware corporation (hereinafter referred to as the "Employer"), and R. Scott
Grigsby (hereinafter referred to as the "Employee").
Paragraph 5.5 (i) of the agreement is hereby modified and amended to read
as follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions of
paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP) account."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 4th day of April, 1996.
UnionBancorp, Inc.
By: /s/ Wayne L. Bismark
--------------------------
Executive Vice President
ATTEST:
/s/ Charles J. Grako
--------------------
Secretary
/s/ R. Scott Grigsby
-------------------------
R. Scott Grigsby
<PAGE> 13
SECOND ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement (the "Agreement") entered into as of January 1, 1992 by and between
UNIONBANCORP, INC., a Delaware corporation (hereinafter referred to as the
"Employer"), and R. SCOTT GRIGSBY (hereinafter referred to as the "Employee"),
as amended.
Paragraph 6.1 of the Agreement is hereby deleted in its entirety and shall
be reserved for future use by inserting "[Reserved]" in its place.
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 5th day of August, 1996.
UnionBancorp, Inc
By: /s/ Wayne L. Bismark
-------------------------
Executive Vice President
ATTEST:
/s/ Charles J. Grako
--------------------
Assistant Secretary
/s/ R. Scott Grigsby
-------------------------
R. Scott Grigsby
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement, made this first day of March, 1994, by and among
UNIONBANK, a state banking corporation, UNIONBANCORP, INC., a Delaware
corporation (hereinafter collectively referred to as the "Employer"), and WAYNE
L. BISMARK (hereinafter referred to as the "Employee").
WHEREAS, the Employee and the Employer desire to enter into an employment
agreement to fully recognize the contributions of the Employee to the Employer
and to assure continuous harmonious management of the affairs of the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, it is mutually agreed by and among the parties
hereto as follows:
Section 1. Employment; Term.
1.1 Employment. The Employer hereby hires the Employee as Executive Vice
President and Chief Credit Officer of UnionBank and UnionBancorp, Inc. and the
Employee does hereby accept such employment, upon the terms and conditions
hereinafter set forth and agrees to perform the duties required of him to the
best of his ability.
1.2 Term of Employment. The term of this Agreement shall commence as of
March 1, 1994 and shall continue through December 31, 1996 unless extended as
provided in paragraph 1.3 or sooner terminated as provided in Section 5.
1.3 Extension of Term of Employment. On January 1, 1995 and on each
January 1 thereafter, the term of this Agreement shall be automatically
extended for one additional year, unless prior to January 1, 1995 or January 1
of any subsequent year, as the case may be, either party shall have notified
the other in writing that the term of this Agreement shall not be so extended.
Once such notification is given by either party, the term of this Agreement
shall not thereafter be extended.
Section 2. Compensation.
2.1 Base Salary. For the calendar year beginning January 1, 1994, the
Employer shall pay to the Employee as compensation for his services a base
salary of $90,000.00,(1) payable in bi-weekly installments, subject to
withholding for state and federal income taxes and FICA.
2.2 Salary Adjustments. On January 1, 1995 and on each January 1
thereafter, the Employee's base salary for the ensuing year shall be
automatically increased not less than five percent (5.0%) above the prior
year's base salary, as of December 31 of the prior year.
2.3 Bonus. The Employee shall be entitled to participate in such
executive bonus plans and/or incentive compensation plans as may be established
from time to time by the respective boards of directors of UnionBank and/or
UnionBancorp, Inc.
2.4 Other Benefits. The Employee shall also receive the following
benefits:
(a) Employee shall be entitled to participate in the Employer's Employee
Stock
- ---------------
(1) Employee's 1994 base salary shall be prorated to $75,000.00 based on
employment date of March 1, 1994.
<PAGE> 2
Ownership Plan.
(b) The Employee shall be entitled to participate in the Employer's
Benefit Package according to the terms and conditions thereof as amended from
time to time.
(c) The Employee shall have twelve (12) paid sick days per year.
(d) The Employee shall have three (3) paid personal days per year.
(e) The Employee shall be entitled to a minimum paid vacation of four
(4) weeks during each calendar year.
(f) The Employee and his dependents shall be entitled to participate in
the Employer's group major medical insurance program according to the terms and
conditions thereof as amended from time to time.
(g) The Employee shall be entitled to receive such other fringe
benefits as he was receiving prior to the date of this Agreement.
2.5 Expenses. The Employee is authorized to incur reasonable expenses on
behalf of the Employer in performing his duties including, but not limited to,
expenses for travel, entertainment, meals, lodging and attendance at seminars.
The Employer shall reimburse the Employee for all such expenses incurred by the
Employee upon presentation of an itemized account thereof.
Section 3. Duties.
3.1 Employee's Duties. The Employee's duties shall include:
(a) Overall management of the lending activities for UnionBancorp, Inc.
and all affiliates.
(b) Direct supervision of all lending personnel.
(c) Timely and thorough monitoring and reporting of the lending
activity, profitability of lending function and any other significant matters
relating to asset quality of UnionBancorp, Inc. and all affiliates.
(d) Develop and recommend lending objectives, policies and practices as
they relate to overall corporate plan. Ensure compliance with all policies
directed by Board and all Federal and State regulations.
(e) Participate in the overall development strategy of UnionBancorp,
Inc. and affiliates.
(f) Such other duties as may be assigned from time to time by the Chief
Executive Officer.
3.2 Extent of Employee's Services. The Employee shall devote his entire
time, attention and
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<PAGE> 3
energies to the business of UnionBancorp, Inc. and shall not during the term of
this Agreement be engaged in any other business activity whether or not such
business activity is pursued for gain, profit or other pecuniary advantage
without the prior knowledge and consent of the Chief Executive Officer or the
Board of Directors of UnionBank and UnionBancorp, Inc.; provided, however, that
the foregoing restriction shall not be construed as preventing the Employee
from investing, when such investment will not interfere with the Employee's
full time employment by the Employer.
Section 4. Protection of Confidential Information.
4.1 Nondisclosure. The Employee recognizes and acknowledges that he will
have access to certain confidential information of the Employer and of entities
affiliated with the Employer and that such information constitutes valuable,
special and unique property of the Employer and such other entities. The
Employee shall not, during or after the term of this Agreement, directly or
indirectly, divulge, disclose or communicate in any manner whatsoever any of
such confidential information to any person, firm, corporation or other entity
for any reason or purpose whatsoever, except to authorized representatives of
the Employer and its affiliated entities. For purpose of this Agreement, the
parties expressly acknowledge and agree that all information, whether written
or otherwise, regarding the Employer's business, including, but not limited to,
information regarding customers, employees, employees' salaries, costs, prices,
earnings, any financial or accounting reports or data, regulatory matters,
pending or threatened litigation or claims, products, services, data processing
and other systems, operations, potential acquisitions, new location plans,
prospective and executed contracts and other business arrangements, shall be
conclusively presumed to be confidential, material and important information of
the Employer, except to the extent that such information is otherwise lawfully
and readily available to the general public.
4.2 Use of Confidential Information. During the term of this Agreement,
the Employee may only use confidential information for purposes reasonably
necessary to the carrying out of the Employee's duties as Executive Vice
President and Chief Credit Officer, and the Employee may not make use of any
confidential information after the severance of this employment. Upon the
severance of his employment with the Employer, the Employee shall return to the
Employer all books, records, lists and other written, typed or printed
materials, whether furnished by the Employer or prepared by the Employee, which
contain any information relating to the Employer's business. The Employee
further agrees that he will neither make nor retain any copies of such
materials after severance of his employment.
4.3 Remedies. In event of a breach or threatened breach by the Employee
of the provisions contained in paragraphs 4.1 or 4.2, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, using or retaining such confidential information. Nothing herein
contained shall be construed as prohibiting the Employer from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Employee. The Employee's covenants with
respect to confidential information, as contained in paragraphs 4.1 and 4.2,
shall continue in effect notwithstanding the severance of the Employee's
employment, whether by the Employer or by the Employee, upon the expiration of
the term of this Agreement or otherwise.
Section 5. Termination.
5.1 Termination by Employee. The Employee may terminate this Agreement,
and sever his employment with the Employer, by giving the Employer at least
thirty (30) days' prior written notice thereof specifying the effective date of
termination.
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<PAGE> 4
5.2 Termination Upon Death or Disability. This Agreement shall be
terminated, and the Employee's employment severed, upon the death or disability
of the Employee. For purposes of this Agreement, "disability" means the
Employee's inability, for any reason, to perform his duties as Senior
Agriculture Representative of the Employer for any period of ninety (90)
consecutive days or for more than one hundred eighty (180) days in any
twenty-four (24) month period.
5.3 Termination by Employer for Cause. The Employer may terminate this
Agreement, and sever the Employee's employment, only "for cause". Cause for
termination shall exist if:
(a) The Chief Executive Officer or the Board of Directors of UnionBank
or UnionBancorp, Inc. or any bank regulatory agency determines that the
Employee has committed an act or acts of dishonesty.
(b) The Employee is convicted in a judicial proceeding of an offense
involving moral turpitude.
(c) The Employee improperly discloses or uses any confidential
information of the Employer.
(d) The Employee repeatedly and willfully fails or refuses to perform
his duties.
(e) The Employee grossly neglects his duties.
(f) The Employee fails or refuses to comply with the policies,
standards and regulations of the Employer which from time to time may be
established.
(g) The Employee engages in any activities detrimental to the
reputation of the Employer, including but not limited to activities involving a
conflict of interest.
(h) The Employee conducts himself in an unethical, immoral or
fraudulent manner or in a manner which causes him to be held in public ridicule
or scorn or causes a public scandal.
5.4 Notice of Termination for Cause; Employee's Opportunity to Correct.
In the event the Employer intends to terminate this Agreement, and sever the
Employee's employment, for cause, the Employer shall first give the Employee
written notice thereof specifying with particularity the acts, omissions or
conduct constituting causes and stating the effective date of termination,
which date shall not be less than thirty (30) days from the date the notice is
given. If the grounds for termination for cause are those specified in
subparagraphs (a), (b) or (c) of paragraph 5.3, this Agreement shall be
terminated and the Employee's employment shall be severed on the date set forth
in the notice of termination. However, if the grounds alleged in the notice of
termination are other than those specified in subparagraphs (a), (b) or (c) of
paragraph 5.3, the Employee, if he so elects by giving written notice to the
Employer's boards of directors prior to the effective date of termination
stated in the notice, shall be afforded an opportunity to discuss the alleged
grounds with the Employer's boards of directors and the Employee shall then be
given a reasonable period of time, not less than ninety (90) days, within which
to correct the acts, omissions or conduct complained of.
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<PAGE> 5
5.5 Compensation Upon Termination.
(i) If this Agreement is terminated in accordance with the provisions
of paragraph 5.1, 5.2 and 5.3.
(a) The Employer shall continue to pay the Employee his base
salary through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based
on the Employee's accrued sick days, personal days and vacation
days.
(c) The Employer shall pay to the Employee any accrued bonus
or incentive compensation.
(d) The Employer shall as soon as practicable, distribute to
the Employee in cash the value of his Employee Stock Ownership Plan
(ESOP) account.
(ii) If this Agreement is terminated by the Employer other than in
accordance with the provisions of paragraph 5.2 or 5.3 prior to the last day of
the then current term, and for any reason other than a termination in
accordance with the provisions of subparagraph (iii) of this paragraph 5.5,
then notwithstanding any mitigation of damages by the Employee, the Employee
shall receive all amounts under subparagraph (i) of this paragraph 5.5 and the
Employer shall pay the Employee the base salary then payable to the Employee,
the value of any bonus or incentive payments the Employee would have received
had he remained employed, the value of the contributions that would have been
made or credited by the Employer under all employee retirement plans for the
benefit of the Employee and shall continue to provide coverage for the Employee
under the health, life and disability insurance programs maintained by the
Employer for the remainder of the term of this Agreement.
(a) Payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement. At the election of the Employer,
payments may be made in a lump sum. Such payments shall not be reduced
in the event the Employee obtains other employment following the
termination of employment by the Employer.
(b) If the Employer is not in compliance with its minimum capital
requirements or if the payments required under this subparagraph would
cause the Employer's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.
(c) It is the intention of the Employer and the Employee that no
portion of any payment under this Agreement, or payments to or for the
benefit of the Employee under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Employee in the nature of compensation, receipt of
which is contingent on the Change of Control (as defined below) of the
Employer, and to which Section 280G of the Code applies (in the aggregate
"Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount which the Employer may pay without loss of
deduction under Section 280G(a) of the Code. Present value for purposes
of this Agreement shall be calculated in accordance with Section
280G(d)(4) of the Code. Within sixty (60) days following the earlier of
(A) the giving of the notice of termination or (B) the giving of notice
by the Employer to the Employee of its belief that there is a payment or
benefit due the
5
<PAGE> 6
Employee which will result in an excess parachute payment as defined in
Section 280G of the Code, the Employee and the Employer, at the
Employer's expense, shall obtain the opinion of such legal counsel and
certified public accountants as the Employee may choose (notwithstanding
the fact that such persons have acted or may also be acting as the legal
counsel or certified public accountants for the Employer), which opinions
need not be unqualified, which sets forth (A) the amount of the Base
Period Income of the Employee, (B) the present value of Total Payments
and (C) the amount and present value of any excess parachute payments.
In the event that such opinions determine that there would be an excess
parachute payment, the payment hereunder or any other payment determined
by such counsel to be includable in Total Payments shall be modified,
reduced or eliminated as specified by the Employee in writing delivered
to the Employer within thirty (30) days of his receipt of such opinions
or, if the Employee fails to so notify the Employer, then as the Employer
shall reasonably determine, so that under the bases of calculation set
forth in such opinions there will be no excess parachute payment. The
provisions of this subparagraph, including the calculations, notices and
opinions provided for herein shall be based upon the conclusive
presumption that (A) the compensation and benefits provided for in
Section 2 hereof and (B) any other compensation earned by the Employee
pursuant to the Employer's compensation programs which would have been
paid in any event, are reasonable compensation for services rendered,
even though the timing of such payment is triggered by the Change of
Control; provided, however, that in the event such legal counsel so
requests in connection with the opinion required by this subparagraph,
the Employee and the Employer shall obtain, at the Employer's expense,
and the legal counsel may rely on in providing the opinion, the advice of
a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Employee. In the event that the provisions of Sections 280G and 4999 of
the Code are repealed without succession, this subparagraph shall be of
no further force or effect.
(d) If at any time during the term of this Agreement, the Employee
is Constructively Discharged (as hereinafter defined) then the Employee
shall have the right, by written notice to the Employer within sixty (60)
days of such Constructive Discharge, to terminate his services hereunder,
effective as of thirty (30) days after such notice, and the Employee
shall have no further obligations under this Agreement. The Employee
shall in such event be entitled to a lump sum payment of compensation and
benefits and continuation of the health, life and disability insurance as
if such termination of his employment was pursuant to subparagraph (ii)
of this paragraph 5.5.
For purposes of this Agreement, the Employee shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(i) The Employee is not re-elected or is removed from the
positions with the Employer set forth in Section 1 hereof, other
than as a result of the Employee's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Employee shall fail to be vested by the Employer with
the powers, authority and support services of any of said offices;
or
(iii) The Employer shall notify the Employee that the
employment term of the Employee will not be extended or further
extended, as set forth in paragraph 1.3; or
(iv) The Employer changes the primary employment location of
the Employee to a place that is more than fifty (50) miles from the
primary employment
6
<PAGE> 7
location as of the date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(iii) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Employee's employment under (a) or (b)
below, the Employee shall be entitled to (i) a lump sum payment equal to three
(3) times his most recent base salary and the value of the other amounts and
benefits payable or accrued under Section 2, and (ii) continued coverage under
the health, life and disability insurance programs for three years following
such termination. The following shall constitute termination for purposes of
this subparagraph:
(a) The Employee terminates his employment under this Agreement by a
written notice to that effect delivered to the Employer's boards of
directors within one (1) year after the Change in Control.
(b) This Agreement is terminated by the Employer or its successor
either in contemplation of or after the Change in Control.
(iv) For purposes of this paragraph, the term "Change in Control" shall
mean the following:
(a) The consummation of the acquisition by any person (as such term
is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three
percent (33%) or more of the combined voting power of the then
outstanding voting securities; or
(b) The individuals who, as of the date hereof, are members of the
Employer's boards of directors cease for any reason to constitute a
majority of their respective board, unless the election, or nomination
for election by the stockholders, of any new director was approved by a
vote of a majority of their respective board, and such new director
shall, for purposes of this Agreement, be considered as a member of their
respective board; or
(c) Approval by stockholders of: (1) a merger or consolidation if
the stockholders immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of the entity.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because thirty-three percent (33%) or more of the combined voting
power of the then outstanding securities is acquired by (1) a trustee or other
fiduciary holding securities under one or more employee benefit plans
maintained for employees of the entity or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock
7
<PAGE> 8
immediately prior to such acquisition."
Section 6. Miscellaneous Provisions.
6.1 Relocation of Employee. This Agreement contemplates that the Employee
will discharge his duties hereunder primarily at the Employer's principal
offices in Streator or in Ottawa, Illinois. The Employer may not relocate the
Employee to another office or location without the Employee's consent.
6.2 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered in
person or when mailed, by certified mail, postage prepaid, return receipt
requested, to the Employer at 122 West Madison Street, Ottawa, Illinois, 61350
or to the Employee at Box 91 Grand Ridge, Illinois, 61325.
6.3 Captions. The Section and paragraph captions contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.4 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
6.5 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provisions of this Agreement
which can be given effect without the invalid or unenforceable provision and,
to this end, the provisions of this Agreement are severable.
6.6 Disputes. In case of any dispute or disagreement arising out of, or
in connection with, this Agreement, until the final determination of such
dispute or disagreement, the Employer shall continue to pay to the Employee all
of the compensation provided in this Agreement, and the Employee shall be
entitled to continue to receive all of the other benefits provided herein. If
any party commences an action to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to recover in such action its
costs and expenses incurred in prosecuting or defending such action, including
reasonable attorneys' fees, as may be awarded by the court which hears and
determines the controversy.
6.7 Employer's Obligations are Joint and Several. The obligations of
UnionBank and UnionBancorp, Inc. under this Agreement are joint and several.
6.8 Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely in Illinois.
6.9 Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, supersedes all
prior negotiations, agreements and understandings, both written and oral,
between the parties, and cannot be amended, supplemented or modified, nor can
any of its provisions be waived, except by an instrument in writing signed by
all parties.
8
<PAGE> 9
6.9 Indemnification.
(a) The Employer shall provide the Employee (including his heirs,
personal representatives, executors and administrators) for the term of this
Agreement with coverage under a standard directors' and officers' liability
insurance policy at its expense.
(b) In addition to the insurance coverage provided for in subparagraph
(a) of this paragraph 6.11, the Employer shall hold harmless and indemnify the
Employee (and his heirs, executors and administrators) to the fullest extent
permitted under applicable law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Employer (whether or not he continues to be an officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(c) In the event the Employee becomes a party, or is threatened to be
made a party, to any action, suit or proceeding for which the Employer has
agreed to provide insurance coverage or indemnification under this paragraph
6.11, the Employer shall, to the full extent permitted under applicable law,
advance all expenses (including reasonable attorneys' fees), judgments, fines
and amounts paid in settlement (collectively "Expenses") incurred by the
Employee in connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Employee (i) to
reimburse the Employer for all Expenses actually paid by the Employer to or on
behalf of the Employee in the event it shall be ultimately determined that the
Employee is not entitled to indemnification by the Employer for such Expenses
and (ii) to assign to the Employer all rights of the Employee to
indemnification, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid
by the Employer to or on behalf of the Employee."
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
UNIONBANK
By:/s/ R. Scott Grigsby
----------------------------
President and CEO
Attest:
/s/ Charles J. Grako
- -------------------------------
Secretary
UNIONBANCORP, INC.
By:/s/ R. Scott Grigsby
----------------------------
Chairman, President and CEO
Attest:
/s/ Charles J. Grako
- -------------------------------
Secretary
/s/ Wayne L. Bismark
-------------------------------
Wayne L. Bismark
9
<PAGE> 10
ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of March 1, 1994 by and among UnionBancorp, Inc., a
Delaware corporation (hereinafter referred to as the "Employer"), and Wayne L.
Bismark (hereinafter referred to as the "Employee").
Paragraph 5.5 (i) of the agreement is hereby modified and amended to read
as follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions of
paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on
the Employee's accrued vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP)
account."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 4th day of April, 1996.
UnionBancorp, Inc.
By:/s/ R. Scott Grigsby
-------------------------------
Chairman, President & CEO
ATTEST:
/s/ Charles J. Grako
- -------------------------------
Secretary
/s/ Wayne L. Bismark
----------------------------------
Wayne L. Bismark
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Agreement, made this first day of January, 1992, by and between
UNIONBANCORP,, INC., a Delaware corporation (hereinafter referred to as the
"Employer"), and CHARLES J. GRAKO (hereinafter referred to as the "Employee").
WHEREAS, the Employee and the Employer desire to enter into an employment
agreement to fully recognize the contributions of the Employee to the Employer
and to assure continuous harmonious management of the affairs of the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, it is mutually agreed by and among the parties
hereto as follows:
Section 1. Employment; Term.
1.1 Employment. The Employer hereby hires the Employee as Executive Vice
President and Chief Financial officer of UnionBancorp, Inc. and the Employee
does hereby accept such employment, upon the terms and conditions hereinafter
set forth and agrees to perform the duties required of him to the best of his
ability.
1.2 Term of Employment. The term of this Agreement shall commence as of
January 1, 1992 and shall continue through December 31, 1994, unless extended
as provided in paragraph 1.3 or sooner terminated as provided in Section 5.
1.3 Extension of Term of Employment. On January 1, 1993 and on each
January 1 thereafter, the term of this Agreement shall be automatically
extended for one additional year, unless prior to January 1, 1993 or January 1
of any subsequent year, as the case may be, either party shall have notified
the other in writing that the term of this Agreement shall not be so extended.
Once such notification is given by either party, the term of this Agreement
shall not thereafter be extended.
Section 2. Compensation.
2.1 Base Salary. For the calendar year beginning January 1, 1992, the
Employer shall pay to the Employee as compensation for his services a base
salary of $53,500.00, payable in bi-weekly installments, subject to withholding
for state and federal income taxes and FICA.
2.2 Salary Adjustments. On January 1, 1993 and on each January 1
thereafter, the Employee's base salary for the ensuing year shall be
automatically increased not less than five percent (5.0%) above the prior
year's base salary, as of December 31 of the prior year.
2.3 Bonus. The Employee shall be entitled to participate in such
executive bonus plans and/or incentive compensation plans as may be established
from time to time by the respective boards of directors of UnionBank and/or
UnionBancorp, Inc.
2.4 Other Benefits. The Employee shall also receive the following
benefits:
(a) Employee shall be entitled to participate in the Employer's
Employee Stock Ownership Plan.
(b) The Employee shall be entitled to participate in the Employer's
Benefit Package according to the terms and conditions thereof as amended from
time to time.
<PAGE> 2
(c) The Employee shall have twelve (12) paid sick days per year.
(d) The Employee shall have two (2) paid personal days per year.
(e) The Employee shall be entitled to a minimum paid vacation of four
(4) weeks during each calendar year.
(f) The Employee be entitled to participate in the Employer's group
major medical insurance program according to the terms and conditions thereof
as amended from time to time.
(g) The Employee shall be entitled to receive such other fringe
benefits as he was receiving prior to the date of this Agreement.
2.5 Expenses. The Employee is authorized to incur reasonable expenses on
behalf of the Employer in performing his duties including, but not limited to,
expenses for travel, entertainment, meals, lodging and attendance at seminars.
The Employer shall reimburse the Employee for all such expenses incurred by the
Employee upon presentation of an itemized account thereof.
SECTION 3. Duties.
3.1 Employee's Duties. The Employee's duties shall include:
(a) All operational activities; this is including but not limited to
tax strategy, ALCO management, preparation of financial positions of all units
and monitoring financial performance as to plan.
(b) Planning process including annual budgeting and long range
strategic process.
(c) Overseeing the financial reporting to state and federal regulatory
agencies.
(d) Such other duties as may be assigned from time to time by the board
of directors of UnionBancorp, Inc.
3.2 Extent of Employee's Services. The Employee shall devote his entire
time, attention and energies to the business of UnionBank and UnionBancorp,
Inc. and shall not during the term of this Agreement be engaged in any other
business activity whether or not such business activity is pursued for gain,
profit or other pecuniary advantage without the prior knowledge and consent of
the board of directors of UnionBancorp, Inc.; provided, however, that the
foregoing restriction shall not be construed as preventing the Employee from
investing, when such investment will not interfere with the Employee's full
time employment by the Employer.
Section 4. Protection of Confidential Information.
4.1 Nondisclosure. The Employee recognizes and acknowledges that he will
have access to certain confidential information of the Employer and of entities
affiliated with the Employer and that such information constitutes valuable,
special and unique property of the Employer and such other entities. The
Employee shall not, during or after the term of this Agreement, directly or
indirectly, divulge, disclose or communicate in any manner whatsoever any of
such confidential information to any person, firm, corporation or other entity
for any reason or purpose whatsoever, except to authorized representatives of
the Employer and its affiliated entities. For purpose of this Agreement, the
parties expressly acknowledge and agree that all information, whether written
or otherwise, regarding the Employer's business, including, but not limited to,
information regarding customers, employees,
2
<PAGE> 3
employees' salaries, costs, prices, earnings, any financial or accounting
reports or data, regulatory matters, pending or threatened litigation or
claims, products, services, data processing and other systems, operations,
potential acquisitions, new location plans, prospective and executed contracts
and other business arrangements, shall be conclusively presumed to be
confidential, material and important information of the Employer, except to the
extent that such information is otherwise lawfully and readily available to the
general public.
4.2 Use of Confidential Information. During the term of this Agreement,
the Employee may only use confidential information for purposes reasonably
necessary to the carrying out of the Employee's duties as Executive Vice
President and Chief Financial officer, and the Employee may not make use of any
confidential information after the severance of this employment. Upon the
severance of his employment with the Employer, the Employee shall return to the
Employer all books, records, lists and other written, typed or printed
materials, whether furnished by the Employer or prepared by the Employee, which
contain any information relating to the Employer's business. The Employee
further agrees that he will neither make nor retain any copies of such
materials after severance of his employment.
4.3 Remedies. In event of a breach or threatened breach by the Employee
of the provisions contained in paragraphs 4.1 or 4.2, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, using or retaining such confidential information. Nothing herein
contained shall be construed as prohibiting the Employer from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Employee. The Employee's covenants with
respect to confidential information, as contained in paragraphs 4.1 and 4.2,
shall continue in effect notwithstanding the severance of the Employee's
employment, whether by the Employer or by the Employee, upon the expiration of
the term of this Agreement or otherwise.
Section 5. Termination.
5.1 Termination by Employee. The Employee may terminate this Agreement,
and sever his employment with the Employer, by giving the Employer at least
thirty (30) days' prior written notice thereof specifying the effective date of
termination.
5.2 Termination Upon Death or Disability. This Agreement shall be
terminated, and the Employee's employment severed, upon the death or disability
of the Employee. For purposes of this Agreement, "disability" means the
Employee's inability, for any reason, to perform his duties as President and
Chief Executive Officer of the Employer for any period of ninety (90)
consecutive days or for more than one hundred eighty (180) days in any
twenty-four (24) month period.
5.3 Termination by Employer for Cause. The Employer may terminate this
Agreement, and sever the Employee's employment, only "for cause". Cause for
termination shall exist if:
(a) The board of directors of UnionBancorp, Inc. or any bank regulatory
agency determines that the Employee has committed an act or acts of dishonesty.
(b) The Employee is convicted in a judicial proceeding of an offense
involving moral turpitude.
(c) The Employee improperly discloses or uses any confidential
information of the Employer.
(d) The Employee repeatedly and willfully fails or refuses to perform
his duties.
3
<PAGE> 4
(e) The Employee grossly neglects his duties.
(f) The Employee fails or refuses to comply with the policies,
standards and regulations of the Employer which from time to time may be
established.
(g) The Employee engages in any activities detrimental to the
reputation of the Employer, including but not limited to activities involving a
conflict of interest.
(h) The Employee conducts himself in an unethical, immoral or
fraudulent manner or in a manner which causes him to be held in public ridicule
or scorn or causes a public scandal.
5.4 Notice of Termination for Cause; Employee's Opportunity to Correct.
In the event the Employer intends to terminate this Agreement, and sever the
Employee's employment, for cause, the Employer shall first give the Employee
written notice thereof specifying with particularity the acts, omissions or
conduct constituting causes and stating the effective date of termination,
which date shall not be less than thirty (30) days from the date the notice is
given. If the grounds for termination for cause are those specified in
subparagraphs (a), (b) or (c) of paragraph 5.3, this Agreement shall be
terminated and the Employee's employment shall be severed on the date set forth
in the notice of termination. However, if the grounds alleged in the notice of
termination are other than those specified in subparagraphs (a), (b) or (c) of
paragraph 5.3, the Employee, if he so elects by giving written notice to the
Employer's boards of directors prior to the effective date of termination
stated in the notice, shall be afforded an opportunity to discuss the alleged
grounds with the Employer's boards of directors and the Employee shall then be
given a reasonable period of time, not less than ninety (90) days, within which
to correct the acts, omissions or conduct complained of.
5.5 Compensation Upon Termination. If for any reason this Agreement is
terminated and the Employee's employment is severed:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued sick days, personal days and vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable' distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP) account.
Section 6. Miscellaneous Provisions.
6.1 Mandatory Purchase by Employer of Employee's Stock.
Upon the
4
<PAGE> 5
(i) death of the Employee
(ii) disability of the Employee or
(iii) termination of this Agreement and severance
of the Employee's employment
the Employee or his personal representative may require UnionBancorp, Inc. to
purchase the shares of UnionBancorp, Inc. stock owned by the Employee and his
immediate family. To exercise this privilege, the Employee or his personal
representative shall give UnionBancorp, Inc. written notice thereof, indicating
the number of shares to be purchased, within six (6) months after the
Employee's death, disability or severance of employment. The purchase price
for such shares shall be determined annually based upon the appraised value of
UnionBancorp, Inc. shares as determined in the most recent appraisal obtained
for purchases of UnionBank's Employee Stock ownership Plan (ESOP). Each year,
for five (5) consecutive years, UnionBancorp, Inc. shall purchase from the
Employee or his personal representative one-fifth (1/5) of the shares with
respect to which notice exercising the privilege afforded by this paragraph 6.1
was given.
6.2 Relocation of Employee. This Agreement contemplates that the Employee
will discharge his duties hereunder primarily at the Employer's principal
offices in Streator, Illinois. The Employer may not relocate the Employee to
another office or location without the Employee's consent.
6.3 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered in
person or when mailed, by certified mail, postage prepaid, return receipt
requested, to the Employer at 201 East Main Street, Streator, Illinois, 61364
or to the Employee at 1804 Golfview Drive, Unit 8, Streator, Illinois, 61364.
6.4 Captions. The Section and paragraph captions contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
6.6 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provisions of this Agreement
which can be given effect without the invalid or unenforceable provision and,
to this end, the provisions of this Agreement are severable.
6.7 Disputes. In case of any dispute or disagreement arising out of, or
in connection with, this Agreement, until the final determination of such
dispute or disagreement, the Employer shall continue to pay to the Employee all
of the compensation provided in this Agreement, and the Employee shall be
entitled to continue to receive all of the other benefits provided herein. If
any party commences an action to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to recover in such action its
costs and expenses incurred in prosecuting or defending such action, including
reasonable attorneys' fees, as may be awarded by the court which hears and
determines the controversy.
6.8 Employer's Obligations are Joint and Several. The obligations of
UnionBank and UnionBancorp, Inc. under this Agreement are joint and several.
5
<PAGE> 6
6.9 Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely in Illinois.
6.10 Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, supersedes all
prior negotiations, agreements and understandings, both written and oral,
between the parties, and cannot be amended, supplemented or modified, nor can
any of its provisions be waived, except by an instrument in writing signed by
all parties.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
UnionBancorp, Inc.
By:/s/ R. Scott Grigsby
-----------------------------
Chairman, President and CEO
ATTEST:
/s/ K. Wayne Fry
- -----------------------------
Assistant Secretary
/s/ Charles J. Grako
--------------------------------
Charles J. Grako
6
<PAGE> 7
EMPLOYMENT AGREEMENT
AMENDMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UNIONBANCORP, INC., a
Delaware corporation (hereinafter referred to as the "Employer"), and CHARLES
J. GRAKO (hereinafter referred to as the "Employee").
Paragraph 5.5 of the Agreement is hereby modified and amended to read as
follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions
of paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued sick days, personal days and vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of this Employee Stock Ownership Plan (ESOP)
account.
(ii) If this Agreement is terminated by the Employer other than in
accordance with the provisions of paragraph 5.2 or 5.3 prior to the last day of
the then current term, and for any reason other than a termination in
accordance with the provisions of subparagraph (iii) of this paragraph 5.5,
then notwithstanding any mitigation of damages by the Employee, the Employee
shall receive all amounts under subparagraph (i) of this paragraph 5.5 and the
Employer shall pay the Employee the base salary then payable to the Employee,
the value of any bonus or incentive payments the Employee would have received
had he remained employed, the value of the contributions that would have been
made or credited by the Employer under all employee retirement plans for the
benefit of the Employee and shall continue to provide coverage for the Employee
under the health, life and disability insurance programs maintained by the
Employer for the remainder of the term of this Agreement.
(a) Payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement. At the election of the Employer,
payments may be made in a lump sum. Such payments shall not be reduced
in the event the Employee obtains other employment following the
termination of employment by the Employer.
(b) If the Employer is not in compliance with its minimum capital
requirements or if the payments required under this subparagraph would
cause the Employer's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.
1
<PAGE> 8
(c) It is the intention of the Employer and the Employee that no
portion of any payment under this Agreement, or payments to or for the
benefit of the Employee under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Employee in the nature of compensation, receipt of
which is contingent on the Change of Control (as defined below) of the
Employer, and to which Section 280G of the Code applies (in the aggregate
"Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount which the Employer may pay without loss of
deduction under Section 280G(a) of the Code. Present value for purposes
of this Agreement shall be calculated in accordance with Section
280G(d)(4) of the Code. Within sixty (60) days following the earlier of
(A) the giving of the notice of termination or (B) the giving of notice
by the Employer to the Employee of its belief that there is a payment or
benefit due the Employee which will result in an excess parachute payment
as defined in Section 280G of the Code, the Employee and the Employer, at
the Employer's expense, shall obtain the opinion of such legal counsel
and certified public accountants as the Employee may choose
(notwithstanding the fact that such persons have acted or may also be
acting as the legal counsel or certified public accountants for the
Employer), which opinions need not be unqualified, which sets forth (A)
the amount of the Base Period Income of the Employee, (B) the present
value of Total Payments and (C) the amount and present value of any
excess parachute payments. In the event that such opinions determine
that there would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in Total
Payments shall be modified, reduced or eliminated as specified by the
Employee in writing delivered to the Employer within thirty (30) days of
his receipt of such opinions or, if the Employee fails to so notify the
Employer, then as the Employer shall reasonably determine, so that under
the bases of calculation set forth in such opinions there will be no
excess parachute payment. The provisions of this subparagraph, including
the calculations, notices and opinions provided for herein shall be based
upon the conclusive presumption that (A) the compensation and benefits
provided for in Section 2 hereof and (B) any other compensation earned by
the Employee pursuant to the Employer's compensation programs which would
have been paid in any event, are reasonable compensation for services
rendered, even though the timing of such payment is triggered by the
Change of Control; provided, however, that in the event such legal
counsel so requests in connection with the opinion required by this
subparagraph, the Employee and the Employer shall obtain, at the
Employer's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to be
received by the Employee. In the event that the provisions of Sections
280G and 4999 of the Code are repealed without succession, this
subparagraph shall be of no further force or effect.
(d) If at any time during the term of this Agreement, the Employee
is Constructively Discharged (as hereinafter defined) then the Employee
shall have the right, by written notice to the Employer within sixty (60)
days of such Constructive Discharge, to terminate his services hereunder,
effective as of thirty (30) days after such notice, and the Employee
shall have no further obligations under this Agreement. The Employee
shall in such event be entitled to a lump sum payment of compensation and
benefits and continuation of the health, life and disability insurance as
if such termination of his employment was pursuant to subparagraph (ii)
of this paragraph 5.5.
For purposes of this Agreement, the Employee shall be "Constructively
Discharged" upon the
2
<PAGE> 9
occurrence of any one of the following events:
(i) The Employee is not re-elected or is removed from the
positions with the Employer set forth in Section 1 hereof, other
than as a result of the Employee's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Employee shall fail to be vested by the Employer with
the powers, authority and support services of any of said offices;
or
(iii) The Employer shall notify the Employee that the
employment term of the Employee will not be extended or further
extended, as set forth in paragraph 1.3; or
(iv) The Employer changes the primary employment location of
the Employee to a place that is more than fifty (50) miles from the
primary employment location as of the date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(iii) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Employee's employment under (a) or (b)
below, the Employee shall be entitled to (i) a lump sum payment equal to three
(3) times his most recent base salary and the value of the other amounts and
benefits payable or accrued under Section 2, and (ii) continued coverage under
the health, life and disability insurance programs for three years following
such termination. The following shall constitute termination for purposes of
this subparagraph:
(a) The Employee terminates his employment under this Agreement by a
written notice to that effect delivered to the Employer's boards of
directors within one (1) year after the Change in Control.
(b) This Agreement is terminated by the Employer or its successor
either in contemplation of or after the Change in Control.
(iv) For purposes of this paragraph, the term "Change in Control" shall
mean the following:
(a) The consummation of the acquisition by any person (as such term
is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three
percent (33%) or more of the combined voting power of the then
outstanding voting securities; or
(b) The individuals who, as of the date hereof, are members of the
Employer's boards of directors cease for any reason to constitute a
majority of their respective board, unless the election, or nomination
for election by the stockholders, of any new director was approved by a
vote of a majority of their respective board, and such new director
shall, for purposes of this Agreement, be considered as a member of their
respective board; or
3
<PAGE> 10
(c) Approval by stockholders of: (1) a merger or consolidation if
the stockholders immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of the entity.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because thirty-three percent (33%) or more of the combined voting
power of the then outstanding securities is acquired by (1) a trustee or other
fiduciary holding securities under one or more employee benefit plans
maintained for employees of the entity or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock immediately
prior to such acquisition."
Paragraph 6.11 is hereby added to the Agreement and shall read as follows:
"6.11 INDEMNIFICATION.
(a) The Employer shall provide the Employee (including his heirs, personal
representatives, executors and administrators) for the term of this Agreement
with coverage under a standard directors' and officers' liability insurance
policy at its expense.
(b) In addition to the insurance coverage provided for in subparagraph (a)
of this paragraph 6.11, the Employer shall hold harmless and indemnify the
Employee (and his heirs, executors and administrators) to the fullest extent
permitted under applicable law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Employer (whether or not he continues to be an officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(c) In the event the Employee becomes a party, or is threatened to be made
a party, to any action, suit or proceeding for which the Employer has agreed to
provide insurance coverage or indemnification under this paragraph 6.11, the
Employer shall, to the full extent permitted under applicable law, advance all
expenses (including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement (collectively "Expenses") incurred by the Employee in
connection with the investigation, defense, settlement, or appeal of any
threatened, pending or completed action, suit or proceeding, subject to receipt
by the Employer of a written undertaking from the Employee (i) to reimburse the
Employer for all Expenses actually paid by the Employer to or on behalf of the
Employee in the event it shall be ultimately determined that the Employee is
not entitled to indemnification by the Employer for such Expenses and (ii) to
assign to the Employer all rights of the Employee to indemnification, under any
policy of directors' and officers' liability insurance or otherwise, to the
extent of the amount of Expenses actually paid by the Employer to or on behalf
of the Employee."
The remaining provisions of the Agreement shall continue in effect.
4
<PAGE> 11
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 1st day of October, 1993.
UNIONBANCORP, INC.
By:/s/ R. Scott Grigsby
---------------------------------
Title: Chairman of the Board and
President
Attest:
Charles L. Cassidy
- ---------------------------------
Assistant Secretary
/s/ Charles J. Grako
-------------------------------------
Charles J. Grako
5
<PAGE> 12
ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UnionBancorp, Inc., a
Delaware corporation (hereinafter referred to as the "Employer"), and Charles
J.Grako (hereinafter referred to as the "Employee").
Paragraph 5.5 (i) of the agreement is hereby modified and amended to read
as follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions of
paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on
the Employee's accrued vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP)
account."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 4th day of April, 1996.
UnionBancorp, Inc.
By: /s/ R. Scott Grigsby
-------------------------
Chairman, President & CEO
ATTEST:
/s/ Suzanne Fechter
- -------------------
Assistant Secretary
/s/ Charles J. Grako
-------------------------
Charles J. Grako
<PAGE> 13
SECOND ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement (the "Agreement") entered into as of January 1, 1992 by and between
UNIONBANCORP, INC., a Delaware corporation (hereinafter referred to as the
"Employer"), and CHARLES J. GRAKO (hereinafter referred to as the "Employee"),
as amended.
Paragraph 6.1 of the Agreement is hereby deleted in its entirety and shall
be reserved for future use by inserting "[Reserved]" in its place.
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 5th day of August, 1996.
UNIONBANCORP, INC.
By: /s/ R. Scott Grigsby
-------------------------
Chairman, President & CEO
ATTEST:
/s/ Suzanne Fechter
- -------------------
Assistant Secretary
/s/ Charles J. Grako
-------------------------
Charles J. Grako
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Agreement, made this first day of January, 1992, by and among
UNIONBANK, a state banking corporation, UNIONBANCORP, INC., a Delaware
corporation (UnionBank and UnionBancorp, Inc. being hereinafter collectively
referred to as the "Employer"), and EVERETT J. SOLON (hereinafter referred to
as the "Employee").
WHEREAS, the Employee and the Employer desire to enter into an employment
agreement to fully recognize the contributions of the Employee to the Employer
and to assure continuous harmonious management of the affairs of the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, it is mutually agreed by and among the parties
hereto as follows:
Section 1. Employment; Term.
1.1 Employment. The Employer hereby hires the Employee as President of
Streator Banking Center and Vice President of UnionBancorp, Inc. and the
Employee does hereby accept such employment, upon the terms and conditions
hereinafter set forth and agrees to perform the duties required of him to the
best of his ability.
1.2 Term of Employment. The term of this Agreement shall commence as of
January 1, 1992 and shall continue through December 31, 1994, unless extended
as provided in paragraph 1.3 or sooner terminated as provided in Section 5.
1.3 Extension of Term of Employment. On January 1, 1993 and on each
January 1 thereafter, the term of this Agreement shall be automatically
extended for one additional year, unless prior to January 1, 1993 or January 1
of any subsequent year, as the case may be, either party shall have notified
the other in writing that the term of this Agreement shall not be so extended.
Once such notification is given by either party, the term of this Agreement
shall not thereafter be extended.
Section 2. Compensation.
2.1 Base Salary. For the calendar year beginning January 1, 1992, the
Employer shall pay to the Employee as compensation for his services a base
salary of $57,500.00, payable in bi-weekly installments, subject to withholding
for state and federal income taxes and FICA.
2.2 Salary Adjustments. On January 1, 1993 and on each January 1
thereafter, the Employee's base salary for the ensuing year shall be
automatically increased not less than five percent (5.0%) above the prior
year's base salary, as of December 31 of the prior year.
2.3 Bonus. The Employee shall be entitled to participate in such
executive bonus plans and/or incentive compensation plans as may be established
from time to time by the respective boards of directors of UnionBank and/or
UnionBancorp, Inc.
2.4 Other Benefits. The Employee shall also receive the following
benefits:
(a) Employee shall be entitled to participate in the Employer's
Employee Stock
<PAGE> 2
Ownership Plan.
(b) The Employee shall be entitled to participate in the Employer's
Benefit Package according to the terms and conditions thereof as amended from
time to time.
(c) The Employee shall have twelve (12) paid sick days per year.
(d) The Employee shall have two (2) paid personal days per year.
(e) The Employee shall be entitled to a minimum paid vacation of four (4)
weeks during each calendar year.
(f) The Employee be entitled to participate in the Employer's group major
medical insurance program according to the terms and conditions thereof as
amended from time to time.
(g) The Employer shall provide the Employee with an automobile and the
Employer shall pay all maintenance, repairs, insurance and other costs incident
thereto.
(h) The Employee shall be entitled to receive such other fringe benefits
as he was receiving prior to the date of this Agreement.
2.5 Expenses. The Employee is authorized to incur reasonable expenses on
behalf of the Employer in performing his duties including, but not limited to,
expenses for travel, entertainment, meals, lodging and attendance at seminars.
The Employer shall reimburse the Employee for all such expenses incurred by the
Employee upon presentation of an itemized account thereof.
Section 3. Duties.
3.1 Employee's Duties. The Employee's duties shall include:
(a) Overall day-to-day management of Streator Banking Center unit.
(b) All deposit gathering activities as it relates to this particular
banking center.
(c) Responsible to work senior loan administrator in lending activities
centered in this banking unit.
(d) Ensuring compliance with all state and federal laws and regulations
affecting the business of UnionBank and UnionBancorp, Inc.
(e) Timely and thorough reporting of the financial condition,
profitability and any other significant matters affecting UnionBank and/or
UnionBancorp, Inc. to the respective boards of directors thereof.
(f) Such other duties as may be assigned from time to time by the
respective boards of directors or UnionBank and UnionBancorp, Inc.
2
<PAGE> 3
3.2 Extent of Employee's Services. The Employee shall devote his entire
time, attention and energies to the business of UnionBank and UnionBancorp,
Inc. and shall not during the term of this Agreement be engaged in any other
business activity whether or not such business activity is pursued for gain,
profit or other pecuniary advantage without the prior knowledge and consent of
the boards of directors of UnionBank and UnionBancorp, Inc.; provided, however,
that the foregoing restriction shall not be construed as preventing the
Employee from investing, when such investment will not interfere with the
Employee's full time employment by the Employer.
Section 4. Protection of Confidential Information.
4.1 Nondisclosure. The Employee recognizes and acknowledges that he will
have access to certain confidential information of the Employer and of entities
affiliated with the Employer and that such information constitutes valuable,
special and unique property of the Employer and such other entities. The
Employee shall not, during or after the term of this Agreement, directly or
indirectly, divulge, disclose or communicate in any manner whatsoever any of
such confidential information to any person, firm, corporation or other entity
for any reason or purpose whatsoever, except to authorized representatives of
the Employer and its affiliated entities. For purpose of this Agreement, the
parties expressly acknowledge and agree that all information, whether written
or otherwise, regarding the Employer's business, including, but not limited to,
information regarding customers, employees, employees' salaries, costs, prices,
earnings, any financial or accounting reports or data, regulatory matters,
pending or threatened litigation or claims, products, services, data processing
and other systems, operations, potential acquisitions, new location plans,
prospective and executed contracts and other business arrangements, shall be
conclusively presumed to be confidential, material and important information of
the Employer, except to the extent that such information is otherwise lawfully
and readily available to the general public.
4.2 Use of Confidential Information. During the term of this Agreement,
the Employee may only use confidential information for purposes reasonably
necessary to the carrying out of the Employee's duties as President and Vice
President, and the Employee may not make use of any confidential information
after the severance of this employment. Upon the severance of his employment
with the Employer, the Employee shall return to the Employer all books,
records, lists and other written, typed or printed materials, whether furnished
by the Employer or prepared by the Employee, which contain any information
relating to the Employer's business. The Employee further agrees that he will
neither make nor retain any copies of such materials after severance of his
employment.
4.3 Remedies. In event of a breach or threatened breach by the Employee
of the provisions contained in paragraphs 4.1 or 4.2, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, using or retaining such confidential information. Nothing herein
contained shall be construed as prohibiting the Employer from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Employee. The Employee's covenants with
respect to confidential information, as contained in paragraphs 4.1 and 4.2,
shall continue in effect notwithstanding the severance of the Employee's
employment, whether by the Employer or by the Employee, upon the expiration of
the term of this Agreement or otherwise.
Section 5. Termination.
5.1 Termination by Employee. The Employee may terminate this Agreement,
and sever his employment with the Employer, by giving the Employer at least
thirty (30) days' prior written notice
3
<PAGE> 4
thereof specifying the effective date of termination.
5.2 Termination Upon Death or Disability. This Agreement shall be
terminated, and the Employee's employment severed, upon the death or disability
of the Employee. For purposes of this Agreement, "disability" means the
Employee's inability, for any reason, to perform his duties as President and
Vice President of the Employer for any period of ninety (90) consecutive days
or for more than one hundred eighty (180) days in any twenty-four (24) month
period.
5.3 Termination by Employer for Cause. The Employer may terminate this
Agreement, and sever the Employee's employment, only "for cause". Cause for
termination shall exist if:
(a) The board of directors of UnionBancorp, Inc. or any bank regulatory
agency determines that the Employee has committed an act or acts of dishonesty.
(b) The Employee is convicted in a judicial proceeding of an offense
involving moral turpitude.
(c) The Employee improperly discloses or uses any confidential
information of the Employer.
(d) The Employee repeatedly and willfully fails or refuses to perform
his duties.
(e) The Employee grossly neglects his duties.
(f) The Employee fails or refuses to comply with the policies,
standards and regulations of the Employer which from time to time may be
established.
(g) The Employee engages in any activities detrimental to the
reputation of the Employer, including but not limited to activities involving a
conflict of interest.
(h) The Employee conducts himself in an unethical, immoral or
fraudulent manner or in a manner which causes him to be held in public ridicule
or scorn or causes a public scandal.
5.4 Notice of Termination for Cause; Employee's Opportunity to Correct.
In the event the Employer intends to terminate this Agreement, and sever the
Employee's employment, for cause, the Employer shall first give the Employee
written notice thereof specifying with particularity the acts, omissions or
conduct constituting causes and stating the effective date of termination,
which date shall not be less than thirty (30) days from the date the notice is
given. If the grounds for termination for cause are those specified in
subparagraphs (a), (b) or (c) of paragraph 5.3, this Agreement shall be
terminated and the Employee's employment shall be severed on the date set forth
in the notice of termination. However, if the grounds alleged in the notice of
termination are other than those specified in subparagraphs (a), (b) or (c) of
paragraph 5.3, the Employee, if he so elects by giving written notice to the
Employer's boards of directors prior to the effective date of termination
stated in the notice, shall be afforded an opportunity to discuss the alleged
grounds with the Employer's boards of directors and the Employee shall then be
given a reasonable period of time, not less than ninety (90) days, within which
to correct the acts, omissions or conduct complained of.
4
<PAGE> 5
5.5 Compensation Upon Termination. If for any reason this Agreement is
terminated and the Employee's employment is severed:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued sick days, personal days and vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable' distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP) account.
Section 6. Miscellaneous Provisions.
6.1 Mandatory Purchase by Employer of Employee's Stock.
Upon the
(i) death of the Employee
(ii) disability of the Employee or
(iii) termination of this Agreement and severance of the Employee's
employment
the Employee or his personal representative may require UnionBancorp, Inc. to
purchase the shares of UnionBancorp, Inc. stock owned by the Employee and his
immediate family. To exercise this privilege, the Employee or his personal
representative shall give UnionBancorp, Inc. written notice thereof, indicating
the number of shares to be purchased, within six (6) months after the
Employee's death, disability or severance of employment. The purchase price
for such shares shall be determined annually based upon the appraised value of
UnionBancorp, Inc. shares as determined in the most recent appraisal obtained
for purchases of UnionBank's Employee Stock ownership Plan (ESOP). Each year,
for five (5) consecutive years, UnionBancorp, Inc. shall purchase from the
Employee or his personal representative one-fifth (1/5) of the shares with
respect to which notice exercising the privilege afforded by this paragraph 6.1
was given.
6.2 Relocation of Employee. This Agreement contemplates that the Employee
will discharge his duties hereunder primarily at the Employer's principal
offices in Streator, Illinois. The Employer may not relocate the Employee to
another office or location without the Employee's consent.
6.3 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered in
person or when mailed, by certified mail, postage prepaid, return receipt
requested, to the Employer at 201 East Main Street, Streator, Illinois, 61364
or to the Employee at [ ], Streator, Illinois, 61364.
5
<PAGE> 6
6.4 Captions. The Section and paragraph captions contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
6.6 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provisions of this Agreement
which can be given effect without the invalid or unenforceable provision and,
to this end, the provisions of this Agreement are severable.
6.7 Disputes. In case of any dispute or disagreement arising out of, or
in connection with, this Agreement, until the final determination of such
dispute or disagreement, the Employer shall continue to pay to the Employee all
of the compensation provided in this Agreement, and the Employee shall be
entitled to continue to receive all of the other benefits provided herein. If
any party commences an action to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to recover in such action its
costs and expenses incurred in prosecuting or defending such action, including
reasonable attorneys' fees, as may be awarded by the court which hears and
determines the controversy.
6.8 Employer's Obligations are Joint and Several. The obligations of
UnionBank and UnionBancorp, Inc. under this Agreement are joint and several.
6.9 Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely in Illinois.
6.10 Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, supersedes all
prior negotiations, agreements and understandings, both written and oral,
between the parties, and cannot be amended, supplemented or modified, nor can
any of its provisions be waived, except by an instrument in writing signed by
all parties.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
UnionBank
By:/s/ C. Robert Myers
------------------------------
Chairman of the Board
ATTEST:
/s/ Charles J. Grako
- ------------------------------
Secretary
UnionBancorp, Inc.
By:/s/ R. Scott Grigsby
------------------------------
President
ATTEST:
/s/ Margaret A. Swain
- ------------------------------
Assistant Treasurer
/s/ Everett J. Solon
---------------------------------
Everett J. Solon
7
<PAGE> 8
EMPLOYMENT AGREEMENT
AMENDMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UNIONBANK, a state
banking corporation, UNIONBANCORP, INC., a Delaware corporation (UnionBank and
UnionBancorp, Inc. being hereinafter collectively referred to as the
"Employer"), and EVERETT J. SOLON (hereinafter referred to as the "Employee").
Paragraph 5.5 of the Agreement is hereby modified and amended to read as
follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions
of paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued sick days, personal days and vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of this Employee Stock Ownership Plan (ESOP)
account.
(ii) If this Agreement is terminated by the Employer other than in
accordance with the provisions of paragraph 5.2 or 5.3 prior to the last day of
the then current term, and for any reason other than a termination in
accordance with the provisions of subparagraph (iii) of this paragraph 5.5,
then notwithstanding any mitigation of damages by the Employee, the Employee
shall receive all amounts under subparagraph (i) of this paragraph 5.5 and the
Employer shall pay the Employee the base salary then payable to the Employee,
the value of any bonus or incentive payments the Employee would have received
had he remained employed, the value of the contributions that would have been
made or credited by the Employer under all employee retirement plans for the
benefit of the Employee and shall continue to provide coverage for the Employee
under the health, life and disability insurance programs maintained by the
Employer for the remainder of the term of this Agreement.
(a) Payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement. At the election of the Employer,
payments may be made in a lump sum. Such payments shall not be reduced
in the event the Employee obtains other employment following the
termination of employment by the Employer.
(b) If the Employer is not in compliance with its minimum capital
requirements or if the payments required under this subparagraph would
cause the Employer's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.
(c) It is the intention of the Employer and the Employee that no
portion of any payment under this Agreement, or payments to or for the
benefit of the Employee under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Employee in the nature of
1
<PAGE> 9
compensation, receipt of which is contingent on the Change of Control (as
defined below) of the Employer, and to which Section 280G of the Code
applies (in the aggregate "Total Payments") shall not exceed an amount
equal to one dollar less than the maximum amount which the Employer may
pay without loss of deduction under Section 280G(a) of the Code. Present
value for purposes of this Agreement shall be calculated in accordance
with Section 280G(d)(4) of the Code. Within sixty (60) days following
the earlier of (A) the giving of the notice of termination or (B) the
giving of notice by the Employer to the Employee of its belief that there
is a payment or benefit due the Employee which will result in an excess
parachute payment as defined in Section 280G of the Code, the Employee
and the Employer, at the Employer's expense, shall obtain the opinion of
such legal counsel and certified public accountants as the Employee may
choose (notwithstanding the fact that such persons have acted or may also
be acting as the legal counsel or certified public accountants for the
Employer), which opinions need not be unqualified, which sets forth (A)
the amount of the Base Period Income of the Employee, (B) the present
value of Total Payments and (C) the amount and present value of any
excess parachute payments. In the event that such opinions determine
that there would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in Total
Payments shall be modified, reduced or eliminated as specified by the
Employee in writing delivered to the Employer within thirty (30) days of
his receipt of such opinions or, if the Employee fails to so notify the
Employer, then as the Employer shall reasonably determine, so that under
the bases of calculation set forth in such opinions there will be no
excess parachute payment. The provisions of this subparagraph, including
the calculations, notices and opinions provided for herein shall be based
upon the conclusive presumption that (A) the compensation and benefits
provided for in Section 2 hereof and (B) any other compensation earned by
the Employee pursuant to the Employer's compensation programs which would
have been paid in any event, are reasonable compensation for services
rendered, even though the timing of such payment is triggered by the
Change of Control; provided, however, that in the event such legal
counsel so requests in connection with the opinion required by this
subparagraph, the Employee and the Employer shall obtain, at the
Employer's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to be
received by the Employee. In the event that the provisions of Sections
280G and 4999 of the Code are repealed without succession, this
subparagraph shall be of no further force or effect.
(d) If at any time during the term of this Agreement, the Employee
is Constructively Discharged (as hereinafter defined) then the Employee
shall have the right, by written notice to the Employer within sixty (60)
days of such Constructive Discharge, to terminate his services hereunder,
effective as of thirty (30) days after such notice, and the Employee
shall have no further obligations under this Agreement. The Employee
shall in such event be entitled to a lump sum payment of compensation and
benefits and continuation of the health, life and disability insurance as
if such termination of his employment was pursuant to subparagraph (ii)
of this paragraph 5.5.
For purposes of this Agreement, the Employee shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(i) The Employee is not re-elected or is removed from the
positions with the Employer set forth in Section 1 hereof, other
than as a result of the Employee's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Employee shall fail to be vested by the Employer with
the powers, authority and support services of any of said offices;
or
(iii) The Employer shall notify the Employee that the
employment term
2
<PAGE> 10
of the Employee will not be extended or further extended, as set
forth in paragraph 1.3; or
(iv) The Employer changes the primary employment location of
the Employee to a place that is more than fifty (50) miles from the
primary employment location as of the date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(iii) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Employee's employment under (a) or (b)
below, the Employee shall be entitled to (i) a lump sum payment equal to three
(3) times his most recent base salary and the value of the other amounts and
benefits payable or accrued under Section 2, and (ii) continued coverage under
the health, life and disability insurance programs for three years following
such termination. The following shall constitute termination for purposes of
this subparagraph:
(a) The Employee terminates his employment under this Agreement by a
written notice to that effect delivered to the Employer's boards of
directors within one (1) year after the Change in Control.
(b) This Agreement is terminated by the Employer or its successor
either in contemplation of or after the Change in Control.
(iv) For purposes of this paragraph, the term "Change in Control" shall
mean the following:
(a) The consummation of the acquisition by any person (as such term
is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three
percent (33%) or more of the combined voting power of the then
outstanding voting securities; or
(b) The individuals who, as of the date hereof, are members of the
Employer's boards of directors cease for any reason to constitute a
majority of their respective board, unless the election, or nomination
for election by the stockholders, of any new director was approved by a
vote of a majority of their respective board, and such new director
shall, for purposes of this Agreement, be considered as a member of their
respective board; or
(c) Approval by stockholders of: (1) a merger or consolidation if
the stockholders immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of the entity.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because thirty-three percent (33%) or more of the combined voting
power of the then outstanding securities is acquired by (1) a trustee or other
fiduciary holding securities under one or more employee benefit plans
maintained for employees of the entity or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock
3
<PAGE> 11
immediately prior to such acquisition."
Paragraph 6.11 is hereby added to the Agreement and shall read as follows:
"6.11 INDEMNIFICATION.
(a) The Employer shall provide the Employee (including his heirs,
personal representatives, executors and administrators) for the term of this
Agreement with coverage under a standard directors' and officers' liability
insurance policy at its expense.
(b) In addition to the insurance coverage provided for in subparagraph
(a) of this paragraph 6.11, the Employer shall hold harmless and indemnify the
Employee (and his heirs, executors and administrators) to the fullest extent
permitted under applicable law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Employer (whether or not he continues to be an officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(c) In the event the Employee becomes a party, or is threatened to be
made a party, to any action, suit or proceeding for which the Employer has
agreed to provide insurance coverage or indemnification under this paragraph
6.11, the Employer shall, to the full extent permitted under applicable law,
advance all expenses (including reasonable attorneys' fees), judgments, fines
and amounts paid in settlement (collectively "Expenses") incurred by the
Employee in connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Employee (i) to
reimburse the Employer for all Expenses actually paid by the Employer to or on
behalf of the Employee in the event it shall be ultimately determined that the
Employee is not entitled to indemnification by the Employer for such Expenses
and (ii) to assign to the Employer all rights of the Employee to
indemnification, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid
by the Employer to or on behalf of the Employee."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 1st day of October, 1993.
UNIONBANK
By:/s/ R. Scott Grigsby
------------------------------
Title:President and
Chief Executive Officer
Attest:
/s/Charles J. Grako
- ------------------------------
Secretary
UNIONBANCORP, INC.
By:/s/ R. Scott Grigsby
------------------------------
Title:Chairman of the Board and
President
Attest:
/s/Charles J. Grako
- ------------------------------
Secretary
/s/ Everett J. Solon
--------------------------------
Everett J. Solon
4
<PAGE> 12
ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UnionBancorp, Inc., a
Delaware corporation (hereinafter referred to as the "Employer"), and Everett
J. Solon (hereinafter referred to as the "Employee").
Paragraph 5.5 (i) of the agreement is hereby modified and amended to read
as follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions of
paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on
the Employee's accrued vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP)
account."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 11th day of April, 1996.
UnionBancorp, Inc.
By: /s/ R. Scott Grigsby
-------------------------
Chairman, President & CEO
ATTEST:
/s/ Charles J. Grako
- --------------------
Secretary
/s/ Everett J. Solon
-------------------------
Everett J. Solon
<PAGE> 13
SECOND ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement (the "Agreement") entered into as of January 1, 1992 by and between
UNIONBANCORP, INC., a Delaware corporation (hereinafter referred to as the
"Employer"), and EVERETT J. SOLON (hereinafter referred to as the "Employee"),
as amended.
Paragraph 6.1 of the Agreement is hereby deleted in its entirety and shall
be reserved for future use by inserting "[Reserved]" in its place.
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 5th day of August, 1996.
UNIONBANCORP, INC.
By: /s/ R. Scott Grigsby
-------------------------
Chairman, President & CEO
ATTEST:
/s/ Charles J. Grako
- --------------------
Secretary
/s/ Everett J. Solon
-------------------------
Everett J. Solon
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Agreement, made this 3rd day of June, 1996, by and between
UNIONBANCORP, INC., a Delaware corporation (hereinafter referred to as the
"Employer"), and J. MICHAEL DAW (hereinafter referred to as the "Employee").
WHEREAS, the Employee and the Employer desire to enter into an employment
agreement to fully recognize the contributions of the Employee to the Employer
and to assure continuous harmonious management of the affairs of the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, it is mutually agreed by and among the parties
hereto as follows:
Section 1. Employment; Term.
1.1 Employment. The Employer hereby hires the Employee as Senior
Agriculture Representative of UnionBancorp, Inc. and the Employee does hereby
accept such employment, upon the terms and conditions hereinafter set forth and
agrees to perform the duties required of him to the best of his ability.
1.2 Term of Employment. The term of this Agreement shall commence as of
June 3, 1996 and shall continue through May 31, 1998 unless extended as
provided in paragraph 1.3 or sooner terminated as provided in Section 5.
1.3 Extension of Term of Employment. On June 1, 1997 and on each June 1
thereafter, the term of this Agreement shall be automatically extended for one
additional year, unless prior to June 1, 1997 or June 1 of any subsequent year,
as the case may be, either party shall have notified the other in writing that
the term of this Agreement shall not be so extended. Once such notification is
given by either party, the term of this Agreement shall not thereafter be
extended.
Section 2. Compensation.
2.1 Base Salary. For the calendar year beginning June 3, 1996, the
Employer shall pay to the Employee as compensation for his services a base
salary of $48,000.00, payable in bi-weekly installments, subject to withholding
for state and federal income taxes and FICA.
2.2 Salary Adjustments. On June 1, 1997 and on each June 1 thereafter,
the Employee's base salary for the ensuing year shall be automatically
increased not less than four percent (4.0%) above the prior year's base salary,
as of May 31 of the prior year.
2.3 Bonus. The Employee shall be entitled to participate in such
executive bonus plans and/or incentive compensation plans as may be established
from time to time by the board of directors of UnionBancorp, Inc.
2.4 Other Benefits. The Employee shall also receive the following
benefits:
(a) Employee shall be entitled to participate in the Employer's
Employee Stock Ownership Plan.
<PAGE> 2
(b) The Employee shall be entitled to participate in the Employer's
Benefit Package according to the terms and conditions thereof as amended from
time to time.
(c) The Employee shall have twelve (12) paid sick days per year.
(d) The Employee shall have three (3) paid personal days per year.
(e) The Employee shall be entitled to a minimum paid vacation of four
(4) weeks during each calendar year.
(f) The Employee and his dependents shall be entitled to participate in
the Employer's group major medical insurance program according to the terms and
conditions thereof as amended from time to time.
2.5 Expenses. The Employee is authorized to incur reasonable expenses on
behalf of the Employer in performing his duties including, but not limited to,
expenses for travel, entertainment, meals, lodging and attendance at seminars.
The Employer shall reimburse the Employee for all such expenses incurred by the
Employee upon presentation of an itemized account thereof.
Section 3. Duties.
3.1 Employee's Duties. The Employee's duties shall include:
(a) Supervise Agriculture Service Division including, but not limited
to, lending, marketing, farm management and agriculture services;
(b) Search market and seek potential trust and bank customers and refer
them to appropriate trust or bank personnel for follow up;
(c) Make calls on grain elevators, agri chemical and fertilizer
dealers, farm implement dealers and large agricultural products;
(d) Keep inventories and required documents on farm acreage managed,
explore new business development opportunities, make farm inspections and site
visits, establish good communication and reporting mechanisms with all parties;
and
(e) All other duties commensurate with employee's position as may be
assigned from time to time by the Chief Executive Officer or Board of Directors
or designated committee or said Board; and
3.2 Extent of Employee's Services. The Employee shall devote his entire
time, attention and energies to the business of UnionBancorp, Inc. and shall
not during the term of this Agreement be engaged in any other business activity
whether or not such business activity is pursued for gain, profit or other
pecuniary advantage without the prior knowledge and consent of the Chief
Executive Officer or the Board of Directors of UnionBancorp, Inc.; provided,
however, that the foregoing restriction shall not be construed as preventing
the Employee from investing, when such investment will not interfere with the
Employee's full time employment by the Employer.
2
<PAGE> 3
Section 4. Protection of Confidential Information.
4.1 Nondisclosure. The Employee recognizes and acknowledges that he will
have access to certain confidential information of the Employer and of entities
affiliated with the Employer and that such information constitutes valuable,
special and unique property of the Employer and such other entities. The
Employee shall not, during or after the term of this Agreement, directly or
indirectly, divulge, disclose or communicate in any manner whatsoever any of
such confidential information to any person, firm, corporation or other entity
for any reason or purpose whatsoever, except to authorized representatives of
the Employer and its affiliated entities. For purpose of this Agreement, the
parties expressly acknowledge and agree that all information, whether written
or otherwise, regarding the Employer's business, including, but not limited to,
information regarding customers, employees, employees' salaries, costs, prices,
earnings, any financial or accounting reports or data, regulatory matters,
pending or threatened litigation or claims, products, services, data processing
and other systems, operations, potential acquisitions, new location plans,
prospective and executed contracts and other business arrangements, shall be
conclusively presumed to be confidential, material and important information of
the Employer, except to the extent that such information is otherwise lawfully
and readily available to the general public.
4.2 Use of Confidential Information. During the term of this Agreement,
the Employee may only use confidential information for purposes reasonably
necessary to the carrying out of the Employee's duties as Senior Agriculture
Representative and the Employee may not make use of any confidential
information after the severance of this employment. Upon the severance of his
employment with the Employer, the Employee shall return to the Employer all
books, records, lists and other written, typed or printed materials, whether
furnished by the Employer or prepared by the Employee, which contain any
information relating to the Employer's business. The Employee further agrees
that he will neither make nor retain any copies of such materials after
severance of his employment.
4.3 Remedies. In event of a breach or threatened breach by the Employee
of the provisions contained in paragraphs 4.1 or 4.2, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, using or retaining such confidential information. Nothing herein
contained shall be construed as prohibiting the Employer from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Employee. The Employee's covenants with
respect to confidential information, as contained in paragraphs 4.1 and 4.2,
shall continue in effect notwithstanding the severance of the Employee's
employment, whether by the Employer or by the Employee, upon the expiration of
the term of this Agreement or otherwise.
Section 5. Termination.
5.1 Termination by Employee. The Employee may terminate this Agreement,
and sever his employment with the Employer, by giving the Employer at least
thirty (30) days' prior written notice thereof specifying the effective date of
termination.
5.2 Termination Upon Death or Disability. This Agreement shall be
terminated, and the Employee's employment severed, upon the death or disability
of the Employee. For purposes of this Agreement, "disability" means the
Employee's inability, for any reason, to perform his duties as Senior
Agriculture Representative of the Employer for any period of ninety (90)
consecutive days or for more than one hundred eighty (180) days in any
twenty-four (24) month period.
3
<PAGE> 4
5.3 Termination by Employer for Cause. The Employer may terminate this
Agreement, and sever the Employee's employment, only "for cause". Cause for
termination shall exist if:
(a) The board of directors of UnionBancorp, Inc. or any bank regulatory
agency determines that the Employee has committed an act or acts of dishonesty.
(b) The Employee is convicted in a judicial proceeding of an offense
involving moral turpitude.
(c) The Employee improperly discloses or uses any confidential
information of the Employer.
(d) The Employee repeatedly and willfully fails or refuses to perform
his duties.
(e) The Employee grossly neglects his duties.
(f) The Employee fails or refuses to comply with the policies,
standards and regulations of the Employer which from time to time may be
established.
(g) The Employee engages in any activities detrimental to the
reputation of the Employer, including but not limited to activities involving a
conflict of interest.
(h) The Employee conducts himself in an unethical, immoral or
fraudulent manner or in a manner which causes him to be held in public ridicule
or scorn or causes a public scandal.
5.4 Notice of Termination for Cause; Employee's Opportunity to Correct.
In the event the Employer intends to terminate this Agreement, and sever the
Employee's employment, for cause, the Employer shall first give the Employee
written notice thereof specifying with particularity the acts, omissions or
conduct constituting causes and stating the effective date of termination,
which date shall not be less than thirty (30) days from the date the notice is
given. If the grounds for termination for cause are those specified in
subparagraphs (a), (b) or (c) of paragraph 5.3, this Agreement shall be
terminated and the Employee's employment shall be severed on the date set forth
in the notice of termination. However, if the grounds alleged in the notice of
termination are other than those specified in subparagraphs (a), (b) or (c) of
paragraph 5.3, the Employee, if he so elects by giving written notice to the
Employer's boards of directors prior to the effective date of termination
stated in the notice, shall be afforded an opportunity to discuss the alleged
grounds with the Employer's boards of directors and the Employee shall then be
given a reasonable period of time, not less than ninety (90) days, within which
to correct the acts, omissions or conduct complained of.
5.5 Compensation Upon Termination.
(i) If this Agreement is terminated in accordance with the provisions
of paragraph 5.1, 5.2 and 5.3.
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
4
<PAGE> 5
(b) The Employer shall pay to the Employee compensation based on the
Employee's accrued sick days, personal days and vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable' distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP) account.
Section 6. Miscellaneous Provisions.
(ii) If this Agreement is terminated by the Employer other than in
accordance with the provisions of paragraph 5.2 or 5.3 prior to the last day of
the then current term, and for any reason other than a termination in
accordance with the provisions of subparagraph (iii) of this paragraph 5.5,
then notwithstanding any mitigation of damages by the Employee, the Employee
shall receive all amounts under subparagraph (i) of this paragraph 5.5 and the
Employer shall pay the Employee the base salary then payable to the Employee,
the value of any bonus or incentive payments the Employee would have received
had he remained employed, the value of the contributions that would have been
made or credited by the Employer under all employee retirement plans for the
benefit of the Employee and shall continue to provide coverage for the Employee
under the health, life and disability insurance programs maintained by the
Employer for the remainder of the term of this Agreement.
(a) Payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement. At the election of the Employer,
payments may be made in a lump sum. Such payments shall not be reduced
in the event the Employee obtains other employment following the
termination of employment by the Employer.
(b) If the Employer is not in compliance with its minimum capital
requirements or if the payments required under this subparagraph would
cause the Employer's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.
(c) It is the intention of the Employer and the Employee that no
portion of any payment under this Agreement, or payments to or for the
benefit of the Employee under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Employee in the nature of compensation, receipt of
which is contingent on the Change of Control (as defined below) of the
Employer, and to which Section 280G of the Code applies (in the aggregate
"Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount which the Employer may pay without loss of
deduction under Section 280G(a) of the Code. Present value for purposes
of this Agreement shall be calculated in accordance with Section
280G(d)(4) of the Code. Within sixty (60) days following the earlier of
(A) the giving of the notice of termination or (B) the giving of notice
by the Employer to the Employee of its belief that there is a payment or
benefit due the Employee which will result in an excess parachute payment
as defined in Section 280G of the Code, the Employee and the Employer, at
the Employer's expense, shall obtain the opinion of such legal counsel
and certified public accountants as the Employee may choose
(notwithstanding the
5
<PAGE> 6
fact that such persons have acted or may also be acting as the legal
counsel or certified public accountants for the Employer), which opinions
need not be unqualified, which sets forth (A) the amount of the Base
Period Income of the Employee, (B) the present value of Total Payments
and (C) the amount and present value of any excess parachute payments.
In the event that such opinions determine that there would be an excess
parachute payment, the payment hereunder or any other payment determined
by such counsel to be includable in Total Payments shall be modified,
reduced or eliminated as specified by the Employee in writing delivered
to the Employer within thirty (30) days of his receipt of such opinions
or, if the Employee fails to so notify the Employer, then as the Employer
shall reasonably determine, so that under the bases of calculation set
forth in such opinions there will be no excess parachute payment. The
provisions of this subparagraph, including the calculations, notices and
opinions provided for herein shall be based upon the conclusive
presumption that (A) the compensation and benefits provided for in
Section 2 hereof and (B) any other compensation earned by the Employee
pursuant to the Employer's compensation programs which would have been
paid in any event, are reasonable compensation for services rendered,
even though the timing of such payment is triggered by the Change of
Control; provided, however, that in the event such legal counsel so
requests in connection with the opinion required by this subparagraph,
the Employee and the Employer shall obtain, at the Employer's expense,
and the legal counsel may rely on in providing the opinion, the advice of
a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Employee. In the event that the provisions of Sections 280G and 4999 of
the Code are repealed without succession, this subparagraph shall be of
no further force or effect.
(d) If at any time during the term of this Agreement, the Employee
is Constructively Discharged (as hereinafter defined) then the Employee
shall have the right, by written notice to the Employer within sixty (60)
days of such Constructive Discharge, to terminate his services hereunder,
effective as of thirty (30) days after such notice, and the Employee
shall have no further obligations under this Agreement. The Employee
shall in such event be entitled to a lump sum payment of compensation and
benefits and continuation of the health, life and disability insurance as
if such termination of his employment was pursuant to subparagraph (ii)
of this paragraph 5.5.
For purposes of this Agreement, the Employee shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(i) The Employee is not re-elected or is removed from the
positions with the Employer set forth in Section 1 hereof, other
than as a result of the Employee's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Employee shall fail to be vested by the Employer with
the powers, authority and support services of any of said offices;
or
(iii) The Employer shall notify the Employee that the
employment term of the Employee will not be extended or further
extended, as set forth in paragraph 1.3; or
(iv) The Employer changes the primary employment location of
the
6
<PAGE> 7
Employee to a place that is more than fifty (50) miles from the
primary employment location as of the date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(iii) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Employee's employment under (a) or (b)
below, the Employee shall be entitled to (i) a lump sum payment equal to three
(3) times his most recent base salary and the value of the other amounts and
benefits payable or accrued under Section 2, and (ii) continued coverage under
the health, life and disability insurance programs for three years following
such termination. The following shall constitute termination for purposes of
this subparagraph:
(a) The Employee terminates his employment under this Agreement by a
written notice to that effect delivered to the Employer's boards of
directors within one (1) year after the Change in Control.
(b) This Agreement is terminated by the Employer or its successor
either in contemplation of or after the Change in Control.
(iv) For purposes of this paragraph, the term "Change in Control" shall
mean the following:
(a) The consummation of the acquisition by any person (as such term
is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three
percent (33%) or more of the combined voting power of the then
outstanding voting securities; or
(b) The individuals who, as of the date hereof, are members of the
Employer's boards of directors cease for any reason to constitute a
majority of their respective board, unless the election, or nomination
for election by the stockholders, of any new director was approved by a
vote of a majority of their respective board, and such new director
shall, for purposes of this Agreement, be considered as a member of their
respective board; or
(c) Approval by stockholders of: (1) a merger or consolidation if
the stockholders immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of the entity.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because thirty-three percent (33%) or more of the combined voting
power of the then outstanding securities is acquired by (1) a trustee or other
fiduciary holding securities under one or more employee benefit plans
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maintained for employees of the entity or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock immediately
prior to such acquisition."
6.1 Relocation of Employee. This Agreement contemplates that the Employee
will discharge his duties hereunder primarily at the Employer's principal
offices in Ottawa , Illinois. The Employer may not relocate the Employee to
another office or location without the Employee's consent.
6.2 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given when delivered in
person or when mailed, by certified mail, postage prepaid, return receipt
requested, to the Employer at 122 West Madison Street, Ottawa, Illinois, 61350
or to the Employee at Box 91, Grand Ridge, Illinois, 61325.
6.3 Captions. The Section and paragraph captions contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.4 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
6.5 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provisions of this Agreement
which can be given effect without the invalid or unenforceable provision and,
to this end, the provisions of this Agreement are severable.
6.6 Disputes. In case of any dispute or disagreement arising out of, or
in connection with, this Agreement, until the final determination of such
dispute or disagreement, the Employer shall continue to pay to the Employee all
of the compensation provided in this Agreement, and the Employee shall be
entitled to continue to receive all of the other benefits provided herein. If
any party commences an action to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to recover in such action its
costs and expenses incurred in prosecuting or defending such action, including
reasonable attorneys' fees, as may be awarded by the court which hears and
determines the controversy.
6.7 Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely in Illinois.
6.8 Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, supersedes all
prior negotiations, agreements and understandings, both written and oral,
between the parties, and cannot be amended, supplemented or modified, nor can
any of its provisions be waived, except by an instrument in writing signed by
all parties.
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6.9 Indemnification. (a) The Employer shall provide the Employee
(including his heirs, personal representatives, executors and administrators)
for the term of this Agreement with coverage under a standard directors' and
officers' liability insurance policy at its expense.
(b) In addition to the insurance coverage provided for in subparagraph
(a) of this paragraph 6.11, the Employer shall hold harmless and indemnify the
Employee (and his heirs, executors and administrators) to the fullest extent
permitted under applicable law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Employer (whether or not he continues to be an officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(c) In the event the Employee becomes a party, or is threatened to be
made a party, to any action, suit or proceeding for which the Employer has
agreed to provide insurance coverage or indemnification under this paragraph
6.11, the Employer shall, to the full extent permitted under applicable law,
advance all expenses (including reasonable attorneys' fees), judgments, fines
and amounts paid in settlement (collectively "Expenses") incurred by the
Employee in connection with the investigation, defense, settlement, or appeal
of any threatened, pending or completed action, suit or proceeding, subject to
receipt by the Employer of a written undertaking from the Employee (i) to
reimburse the Employer for all Expenses actually paid by the Employer to or on
behalf of the Employee in the event it shall be ultimately determined that the
Employee is not entitled to indemnification by the Employer for such Expenses
and (ii) to assign to the Employer all rights of the Employee to
indemnification, under any policy of directors' and officers' liability
insurance or otherwise, to the extent of the amount of Expenses actually paid
by the Employer to or on behalf of the Employee."
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
UNIONBANCORP, INC.
By:/s/ R. Scott Grigsby
-------------------------------
Chairman, President & CEO
ATTEST:
/s/ Charles J. Grako
- -------------------------------
Secretary
/s/ J. Michael Daw
----------------------------------
J. Michael Daw
9
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Agreement, made this fourth day of March, 1996, by and among
UNIONBANK, a state banking corporation, UNIONBANCORP, INC., a Delaware
corporation (hereinafter referred to as the "Employer"), and JIMMIE D. LANSFORD
(hereinafter referred to as the "Employee").
WHEREAS, the Employee and the Employer desire to enter into an employment
agreement to fully recognize the contributions of the Employee to the Employer
and to assure continuous harmonious management of the affairs of the Employer;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, it is mutually agreed by and among the parties
hereto as follows:
Section 1. Employment; Term.
1.1 Employment. The Employer hereby hires the Employee as Senior Vice
President of UnionBancorp, Inc. and the Employee does hereby accept such
employment, upon the terms and conditions hereinafter set forth and agrees to
perform the duties required of him to the best of his ability.
1.2 Term of Employment. The term of this Agreement shall commence as of
March 4, 1996 and shall continue through February 28, 1998 unless extended as
provided in paragraph 1.3 or sooner terminated as provided in Section 5.
1.3 Extension of Term of Employment. On March 1, 1997 and on each March 1
thereafter, the term of this Agreement shall be automatically extended for one
additional year, unless prior to March 1, 1997 or March 1 of any subsequent
year, as the case may be, either party shall have notified the other in writing
that the term of this Agreement shall not be so extended. Once such
notification is given by either party, the term of this Agreement shall not
thereafter be extended.
Section 2. Compensation.
2.1 Base Salary. For the calendar year beginning March 1, 1996, the
Employer shall pay to the Employee as compensation for his services a base
salary of $80,000.00, payable in bi-weekly installments, subject to withholding
for state and federal income taxes and FICA.
2.2 Salary Adjustments. On March 1, 1997 and on each March 1 thereafter,
the Employee's base salary for the ensuing year shall be automatically
increased not less than four percent (4.0%) above the prior year's base salary,
as of February 28 of the prior year.
2.3 Bonus. The Employee shall be entitled to participate in such
executive bonus plans and/or incentive compensation plans as may be established
from time to time by the board of directors of UnionBancorp, Inc.
2.4 Other Benefits. The Employee shall also receive the following
benefits:
(a) Employee shall be entitled to participate in the Employer's
Employee Stock Ownership Plan.
<PAGE> 2
(b) The Employee shall be entitled to participate in the Employer's
Benefit Package according to the terms and conditions thereof as amended from
time to time.
(c) The Employee shall have twelve (12) paid sick days per year.
(d) The Employee shall have three (3) paid personal days per year.
(e) The Employee shall be entitled to a minimum paid vacation of four
(4) weeks during each calendar year.
(f) The Employee and his dependents shall be entitled to participate in
the Employer's group major medical insurance program according to the terms and
conditions thereof as amended from time to time.
2.5 Expenses. The Employee is authorized to incur reasonable expenses on
behalf of the Employer in performing his duties including, but not limited to,
expenses for travel, entertainment, meals, lodging and attendance at seminars.
The Employer shall reimburse the Employee for all such expenses incurred by the
Employee upon presentation of an itemized account thereof.
Section 3. Duties.
3.1 Employee's Duties. The Employee's duties shall include:
(a) Overall management responsibility of the Human Resource Department
of UnionBancorp, Inc. and subsidiaries. Duties including, but not limited to,
budgeting, organizational development, training and benefit planning.
(b) Direct supervision of all personnel related to the Human Resource
Department.
(c) Ensuring compliance with all state and federal laws and regulations
affecting the Human Resource Department of UnionBancorp, Inc. and subsidiaries.
(d) Officer in charge of the long term strategic development for
UnionBancorp, Inc. and subsidiaries.
(e) All other duties commensurate with employee's position as may be
assigned from time to time Chief Executive Officer or Board of Directors or
designated committee of said Board.
3.2 Extent of Employee's Services. The Employee shall devote his entire
time, attention and energies to the business of UnionBancorp, Inc. and shall
not during the term of this Agreement be engaged in any other business activity
whether or not such business activity is pursued for gain,
2
<PAGE> 3
profit or other pecuniary advantage without the prior knowledge and consent of
the Chief Executive Officer or the Board of Directors of UnionBancorp, Inc.;
provided, however, that the foregoing restriction shall not be construed as
preventing the Employee from investing, when such investment will not interfere
with the Employee's full time employment by the Employer.
Section 4. Protection of Confidential Information.
4.1 Nondisclosure. The Employee recognizes and acknowledges that he will
have access to certain confidential information of the Employer and of entities
affiliated with the Employer and that such information constitutes valuable,
special and unique property of the Employer and such other entities. The
Employee shall not, during or after the term of this Agreement, directly or
indirectly, divulge, disclose or communicate in any manner whatsoever any of
such confidential information to any person, firm, corporation or other entity
for any reason or purpose whatsoever, except to authorized representatives of
the Employer and its affiliated entities. For purpose of this Agreement, the
parties expressly acknowledge and agree that all information, whether written
or otherwise, regarding the Employer's business, including, but not limited to,
information regarding customers, employees, employees' salaries, costs, prices,
earnings, any financial or accounting reports or data, regulatory matters,
pending or threatened litigation or claims, products, services, data processing
and other systems, operations, potential acquisitions, new location plans,
prospective and executed contracts and other business arrangements, shall be
conclusively presumed to be confidential, material and important information of
the Employer, except to the extent that such information is otherwise lawfully
and readily available to the general public.
4.2 Use of Confidential Information. During the term of this Agreement,
the Employee may only use confidential information for purposes reasonably
necessary to the carrying out of the Employee's duties as Senior Vice
President, and the Employee may not make use of any confidential information
after the severance of this employment. Upon the severance of his employment
with the Employer, the Employee shall return to the Employer all books,
records, lists and other written, typed or printed materials, whether furnished
by the Employer or prepared by the Employee, which contain any information
relating to the Employer's business. The Employee further agrees that he will
neither make nor retain any copies of such materials after severance of his
employment.
4.3 Remedies. In event of a breach or threatened breach by the Employee
of the provisions contained in paragraphs 4.1 or 4.2, the Employer shall be
entitled to an injunction restraining the Employee from disclosing, in whole or
in part, using or retaining such confidential information. Nothing herein
contained shall be construed as prohibiting the Employer from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of damages from the Employee. The Employee's covenants with
respect to confidential information, as contained in paragraphs 4.1 and 4.2,
shall continue in effect notwithstanding the severance of the Employee's
employment, whether by the Employer or by the Employee, upon the expiration of
the term of this Agreement or otherwise provided, however, that nothing herein
shall limit the right of employee upon termination of this Agreement to use his
skills and knowledge in any other employment or work of his choice.
3
<PAGE> 4
Section 5. Termination.
5.1 Termination by Employee. The Employee may terminate this Agreement,
and sever his employment with the Employer, by giving the Employer at least
thirty (30) days' prior written notice thereof specifying the effective date of
termination.
5.2 Termination Upon Death or Disability. This Agreement shall be
terminated, and the Employee's employment severed, upon the death or disability
of the Employee. For purposes of this Agreement, "disability" means the
Employee's inability, for any reason, to perform his duties as Senior Vice
President of the Employer for any period of ninety (90) consecutive days or for
more than one hundred eighty (180) days in any twenty-four (24) month period.
5.3 Termination by Employer for Cause. The Employer may terminate this
Agreement, and sever the Employee's employment, only "for cause". Cause for
termination shall exist if:
(a) The Chief Executive Officer or the Board of Directors of UnionBank
or UnionBancorp, Inc. or any bank regulatory agency determines that the
Employee has committed an act or acts of dishonesty.
(b) The Employee is convicted in a judicial proceeding of an offense
involving moral turpitude.
(c) The Employee improperly discloses or uses any confidential
information of the Employer.
(d) The Employee repeatedly and willfully fails or refuses to perform
his duties.
(e) The Employee grossly neglects his duties.
(f) The Employee fails or refuses to comply with the policies,
standards and regulations of the Employer which from time to time may be
established.
(g) The Employee engages in any activities detrimental to the
reputation of the Employer, including but not limited to activities involving a
conflict of interest.
(h) The Employee conducts himself in an unethical, immoral or
fraudulent manner or in a manner which causes him to be held in public ridicule
or scorn or causes a public scandal.
5.4 Notice of Termination for Cause; Employee's Opportunity to Correct.
In the event the Employer intends to terminate this Agreement, and sever the
Employee's employment, for cause, the Employer shall first give the Employee
written notice thereof specifying with particularity the acts, omissions or
conduct constituting causes and stating the effective date of termination,
which date shall not be less than thirty (30) days from the date the notice is
given.
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<PAGE> 5
If the grounds for termination for cause are those specified in subparagraphs
(a), (b) or (c) of paragraph 5.3, this Agreement shall be terminated and the
Employee's employment shall be severed on the date set forth in the notice of
termination. However, if the grounds alleged in the notice of termination are
other than those specified in subparagraphs (a), (b) or (c) of paragraph 5.3,
the Employee, if he so elects by giving written notice to the Employer's boards
of directors prior to the effective date of termination stated in the notice,
shall be afforded an opportunity to discuss the alleged grounds with the
Employer's boards of directors and the Employee shall then be given a
reasonable period of time, not less than ninety (90) days, within which to
correct the acts, omissions or conduct complained of.
5.5 Compensation Upon Termination.
(i) If this Agreement is terminated in accordance with the provisions
of paragraph 5.1, 5.2 and 5.3.
(a) The Employer shall continue to pay the Employee his base
salary through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based
on the Employee's accrued sick days, personal days and vacation
days.
(c) The Employer shall pay to the Employee any accrued bonus
or incentive compensation.
(d) The Employer shall as soon as practicable' distribute to
the Employee in cash the value of his Employee Stock Ownership Plan
(ESOP) account.
(ii) If this Agreement is terminated by the Employer other than in
accordance with the provisions of paragraph 5.2 or 5.3 prior to the last day of
the then current term, and for any reason other than a termination in
accordance with the provisions of subparagraph (iii) of this paragraph 5.5,
then notwithstanding any mitigation of damages by the Employee, the Employee
shall receive all amounts under subparagraph (i) of this paragraph 5.5 and the
Employer shall pay the Employee the base salary then payable to the Employee,
the value of any bonus or incentive payments the Employee would have received
had he remained employed, the value of the contributions that would have been
made or credited by the Employer under all employee retirement plans for the
benefit of the Employee and shall continue to provide coverage for the Employee
under the health, life and disability insurance programs maintained by the
Employer for the remainder of the term of this Agreement.
(a) Payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement. At the election of the Employer,
payments may be made in a lump sum. Such payments shall not be reduced
in the event the Employee obtains other employment following the
termination of employment by the Employer.
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<PAGE> 6
(b) If the Employer is not in compliance with its minimum capital
requirements or if the payments required under this subparagraph would
cause the Employer's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.
(c) It is the intention of the Employer and the Employee that no
portion of any payment under this Agreement, or payments to or for the
benefit of the Employee under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or
for the benefit of the Employee in the nature of compensation, receipt of
which is contingent on the Change of Control (as defined below) of the
Employer, and to which Section 280G of the Code applies (in the aggregate
"Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount which the Employer may pay without loss of
deduction under Section 280G(a) of the Code. Present value for purposes
of this Agreement shall be calculated in accordance with Section
280G(d)(4) of the Code. Within sixty (60) days following the earlier of
(A) the giving of the notice of termination or (B) the giving of notice
by the Employer to the Employee of its belief that there is a payment or
benefit due the Employee which will result in an excess parachute payment
as defined in Section 280G of the Code, the Employee and the Employer, at
the Employer's expense, shall obtain the opinion of such legal counsel
and certified public accountants as the Employee may choose
(notwithstanding the fact that such persons have acted or may also be
acting as the legal counsel or certified public accountants for the
Employer), which opinions need not be unqualified, which sets forth (A)
the amount of the Base Period Income of the Employee, (B) the present
value of Total Payments and (C) the amount and present value of any
excess parachute payments. In the event that such opinions determine
that there would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in Total
Payments shall be modified, reduced or eliminated as specified by the
Employee in writing delivered to the Employer within thirty (30) days of
his receipt of such opinions or, if the Employee fails to so notify the
Employer, then as the Employer shall reasonably determine, so that under
the bases of calculation set forth in such opinions there will be no
excess parachute payment. The provisions of this subparagraph, including
the calculations, notices and opinions provided for herein shall be based
upon the conclusive presumption that (A) the compensation and benefits
provided for in Section 2 hereof and (B) any other compensation earned by
the Employee pursuant to the Employer's compensation programs which would
have been paid in any event, are reasonable compensation for services
rendered, even though the timing of such payment is triggered by the
Change of Control; provided, however, that in the event such legal
counsel so requests in connection with the opinion required by this
subparagraph, the Employee and the Employer shall obtain, at the
Employer's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation
consultants as to the reasonableness of any item of compensation to be
received by the Employee. In the event that the provisions of Sections
280G and 4999 of the Code are repealed without succession, this
subparagraph shall be of no further force or
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effect.
(d) If at any time during the term of this Agreement, the Employee
is Constructively Discharged (as hereinafter defined) then the Employee
shall have the right, by written notice to the Employer within sixty (60)
days of such Constructive Discharge, to terminate his services hereunder,
effective as of thirty (30) days after such notice, and the Employee
shall have no further obligations under this Agreement. The Employee
shall in such event be entitled to a lump sum payment of compensation and
benefits and continuation of the health, life and disability insurance as
if such termination of his employment was pursuant to subparagraph (ii)
of this paragraph 5.5.
For purposes of this Agreement, the Employee shall be "Constructively
Discharged" upon the occurrence of any one of the following events:
(i) The Employee is not re-elected or is removed from the
positions with the Employer set forth in Section 1 hereof, other
than as a result of the Employee's election or appointment to
positions of equal or superior scope and responsibility; or
(ii) The Employee shall fail to be vested by the Employer with
the powers, authority and support services of any of said offices;
or
(iii) The Employer shall notify the Employee that the
employment term of the Employee will not be extended or further
extended, as set forth in paragraph 1.3; or
(iv) The Employer changes the primary employment location of
the Employee to a place that is more than fifty (50) miles from the
primary employment location as of the date of this Agreement; or
(v) The Employer otherwise commits a material breach of its
obligations under this Agreement.
(iii) In the event of a Change in Control (as defined below) of the
Employer and the termination of the Employee's employment under (a) or (b)
below, the Employee shall be entitled to (i) a lump sum payment equal to three
(3) times his most recent base salary and the value of the other amounts and
benefits payable or accrued under Section 2, and (ii) continued coverage under
the health, life and disability insurance programs for three years following
such termination. The following shall constitute termination for purposes of
this subparagraph:
(a) The Employee terminates his employment under this Agreement by a
written notice to that effect delivered to the Employer's boards of
directors within one (1) year after the Change in Control.
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<PAGE> 8
(b) This Agreement is terminated by the Employer or its successor
either in contemplation of or after the Change in Control.
(iv) For purposes of this paragraph, the term "Change in Control" shall
mean the following:
(a) The consummation of the acquisition by any person (as such term
is defined in Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three
percent (33%) or more of the combined voting power of the then
outstanding voting securities; or
(b) The individuals who, as of the date hereof, are members of the
Employer's boards of directors cease for any reason to constitute a
majority of their respective board, unless the election, or nomination
for election by the stockholders, of any new director was approved by a
vote of a majority of their respective board, and such new director
shall, for purposes of this Agreement, be considered as a member of their
respective board; or
(c) Approval by stockholders of: (1) a merger or consolidation if
the stockholders immediately before such merger or consolidation do not,
as a result of such merger or consolidation, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined voting power of the
then outstanding voting securities of the entity resulting from such
merger or consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting securities
outstanding immediately before such merger or consolidation; or (2) a
complete liquidation or dissolution or an agreement for the sale or other
disposition of all or substantially all of the assets of the entity.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because thirty-three percent (33%) or more of the combined
voting power of the then outstanding securities is acquired by (1) a trustee or
other fiduciary holding securities under one or more employee benefit plans
maintained for employees of the entity or (2) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by the
stockholders in the same proportion as their ownership of stock immediately
prior to such acquisition.
Section 6. Miscellaneous Provisions.
6.1 Relocation of Employee. This Agreement contemplates that the Employee
will discharge his duties hereunder primarily at the Employer's principal
offices in Ottawa, Illinois. The Employer may not relocate the Employee to
another office or location without the Employee's consent.
6.2 Notices. Any notice required or permitted to be given under this
Agreement
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shall be in writing and shall be deemed given when delivered in person or when
mailed, by certified mail, postage prepaid, return receipt requested, to the
Employer at 122 West Madison Street, Ottawa, Illinois, 61350 or to the Employee
at 405 Wisconsin Avenue, Streator, Illinois, 61364.
6.3 Captions. The Section and paragraph captions contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
6.4 Assignment. This Agreement shall be binding upon and inure to the
benefit of the Employer and the Employee and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
6.5 Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, such invalidity
or unenforceability shall not affect any other provisions of this Agreement
which can be given effect without the invalid or unenforceable provision and,
to this end, the provisions of this Agreement are severable.
6.6 Disputes. In case of any dispute or disagreement arising out of, or
in connection with, this Agreement, until the final determination of such
dispute or disagreement, the Employer shall continue to pay to the Employee all
of the compensation provided in this Agreement, and the Employee shall be
entitled to continue to receive all of the other benefits provided herein.
If any party commences an action to enforce any of the provisions of this
Agreement, the prevailing party shall be entitled to recover in such action its
costs and expenses incurred in prosecuting or defending such action, including
reasonable attorneys' fees, as may be awarded by the court which hears and
determines the controversy.
6.7 Applicable Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Illinois applicable to
agreements made and to be performed entirely in Illinois.
6.8 Entire Agreement. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof, supersedes all
prior negotiations, agreements and understandings, both written and oral,
between the parties, and cannot be amended, supplemented or modified, nor can
any of its provisions be waived, except by an instrument in writing signed by
all parties.
6.9 Indemnification.
(a) The Employer shall provide the Employee (including his heirs,
personal representatives, executors and administrators) for the term of this
Agreement with coverage under a standard directors' and officers' liability
insurance policy at its expense.
(b) In addition to the insurance coverage provided for in subparagraph
(a) of this
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paragraph 6.11, the Employer shall hold harmless and indemnify the Employee
(and his heirs, executors and administrators) to the fullest extent permitted
under applicable law against all expenses and liabilities reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been an officer of the
Employer (whether or not he continues to be an officer at the time of incurring
such expenses or liabilities), such expenses and liabilities to include, but
not be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(c) In the event the Employee becomes a party, or is threatened to be made
a party, to any action, suit or proceeding for which the Employer has agreed to
provide insurance coverage or indemnification under this paragraph 6.11, the
Employer shall, to the full extent permitted under applicable law, advance all
expenses (including reasonable attorneys' fees), judgments, fines and amounts
paid in settlement (collectively "Expenses") incurred by the Employee in
connection with the investigation, defense, settlement, or appeal of any
threatened, pending or completed action, suit or proceeding, subject to receipt
by the Employer of a written undertaking from the Employee (i) to reimburse the
Employer for all Expenses actually paid by the Employer to or on behalf of the
Employee in the event it shall be ultimately determined that the Employee is
not entitled to indemnification by the Employer for such Expenses and (ii) to
assign to the Employer all rights of the Employee to indemnification, under any
policy of directors' and officers' liability insurance or otherwise, to the
extent of the amount of Expenses actually paid by the Employer to or on behalf
of the Employee."
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
UnionBancorp, Inc.
By:/S/ R. Scott Grigsby
-----------------------------
Chairman, President & CEO
Attest:
/s/ Charles J. Grako
- -----------------------------
Secretary
/s/ Jimmie D. Lansford
--------------------------------
Jimmie D. Lansford
10
<PAGE> 11
ADDENDUM TO
EMPLOYMENT AGREEMENT
The following constitutes a modification and amendment of the Employment
Agreement entered into as of January 1, 1992 by and among UnionBancorp, Inc., a
Delaware corporation (hereinafter referred to as the "Employer"), and Jimmie D.
Lansford (hereinafter referred to as the "Employee").
Paragraph 5.5 (i) of the agreement is hereby modified and amended to read
as follows:
"5.5 COMPENSATION UPON TERMINATION.
(i) If this Agreement is terminated in accordance with the provisions of
paragraph 5.1, 5.2 or 5.3:
(a) The Employer shall continue to pay the Employee his base salary
through the effective date of termination.
(b) The Employer shall pay to the Employee compensation based on
the Employee's accrued vacation days.
(c) The Employer shall pay to the Employee any accrued bonus or
incentive compensation.
(d) The Employer shall as soon as practicable distribute to the
Employee in cash the value of his Employee Stock Ownership Plan (ESOP)
account."
The remaining provisions of the Agreement shall continue in effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 4th day of April, 1996.
UnionBancorp, Inc.
By: /s/ R. Scott Grigsby
-------------------------
Chairman, President & CEO
ATTEST:
/s/ Charles J. Grako
- --------------------
Secretary
/s/ Jimmie D. Lansford
-------------------------
Jimmie D. Lansford
<PAGE> 1
EXHIBIT 10.7
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
UNIONBANCORP, INC.,
PRAIRIE ACQUISITION CORPORATION
AND
PRAIRIE BANCORP, INC.
JANUARY 22, 1996
<PAGE> 2
LIST OF EXHIBITS
Exhibit 1 Form of Opinion of Counsel to Union
Exhibit 2 Form of Registration Agreement
Exhibit 3 Form of Opinion of Counsel to Prairie
Exhibit 4 Form of Standstill Agreement
Exhibit 5 Form of Voting Agreement
<PAGE> 3
LIST OF SCHEDULES
Schedule 3.2 Terms of Union Preferred Stock
Schedule 4.1 Prairie Organization
Schedule 4.2 Prairie Capitalization
Schedule 4.3 Prairie Subsidiaries' Organization
Schedule 4.6 Prairie Litigation and Regulatory Matters
Schedule 4.7 Prairie Insurance
Schedule 4.9 Prairie Financial Statements and Reports
Schedule 4.10 Prairie Properties, Contracts, Employee Benefit Plans
and Other Agreements
Schedule 4.11 Prairie Articles, Charter and Bylaws
Schedule 4.16 Prairie Interim Events
Schedule 4.17 Prairie Taxes
Schedule 4.18 Prairie Employee Benefit Plans
Schedule 4.19 Compliance With ERISA by Prairie
Schedule 4.20 Compliance With Environmental Laws by Prairie
Schedule 4.22 Prairie Loan Loss Reserves
Schedule 5.1 Union Organization
Schedule 5.2 Union Capitalization
Schedule 5.3 Union Subsidiaries' Organization
Schedule 5.6 Union Litigation and Regulatory Matters
Schedule 5.7 Union Insurance
Schedule 5.9 Union Financial Statements and Reports
Schedule 5.10 Union Properties, Contracts, Employee Benefit Plans and
Other Agreements
Schedule 5.11 Union Certificate, Articles and Bylaws
Schedule 5.16 Union Interim Events
Schedule 5.17 Union Taxes
Schedule 5.18 Union Employee Benefit Plans
Schedule 5.19 Compliance With ERISA by Union
Schedule 5.20 Compliance With Environmental Laws by Union
Schedule 5.22 Union Loan Loss Reserves
Schedule 6.2 Prairie Investment Guidelines
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into this
22nd day of January, 1996, by and among PRAIRIE BANCORP, INC., an Illinois
corporation ("Prairie"), UNIONBANCORP, INC., a Delaware corporation ("Union"),
and PRAIRIE ACQUISITION CORPORATION, an Illinois corporation and a wholly-owned
subsidiary of Union ("Acquisition Corp").
RECITALS
A. The parties hereto desire to effect a reorganization whereby Union
desires to acquire control of Prairie through the merger (the "Merger") of
Prairie with and into Acquisition Corp with Acquisition Corp being the
Surviving Corporation, as defined below.
B. Pursuant to the terms of this Agreement, all of the shares of the
common stock of Prairie, no par value per share ("Prairie Common Stock"), and
all of the shares of the preferred stock of Prairie ("Prairie Preferred Stock")
that are, in each case, outstanding immediately prior to the consummation of
the Merger (the "Closing") shall be converted into the right to receive the
consideration as set forth herein, and each outstanding share of common stock
of Acquisition Corp shall be converted into and thereafter represent one share
of common stock of the Surviving Corporation, no par value per share.
AGREEMENTS
In consideration of the mutual covenants, representations and warranties
contained herein, the parties agree as follows:
ARTICLE 6
DEFINITIONS
SECTION 6.1 DEFINITIONS. The following terms, when used herein and unless
the context clearly requires otherwise, shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Acquisition Corp" shall mean Prairie Acquisition Corporation, an Illinois
corporation.
"Affiliate" shall have the meaning provided in Rule 144 promulgated under
the Securities Act of 1933, as amended.
"Agreement" shall mean this Agreement and Plan of Merger.
"BIF" shall mean the Bank Insurance Fund.
"BHCA" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"Business Day" shall mean any day except Saturday when Union Bank, an
Illinois state bank with its main office located in Streator, Illinois, is open
for the transaction of banking business.
"Call Reports" shall mean a bank's Consolidated Report of Condition and
Income.
"Certificate" shall mean a stock certificate representing an outstanding
share or outstanding shares of Prairie Common Stock.
"Closing" shall mean the closing of the Merger of Prairie with and into
Acquisition Corp.
"Closing Date" shall mean the day the Closing occurs.
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"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder.
"Commissioner" shall mean the Commissioner of Banks and Trust Companies
for the State of Illinois.
"Constituent Corporations" shall collectively mean Prairie and Acquisition
Corp.
"Effective Time" shall have the meaning provided in Section 2.8.
"Environmental Laws" shall mean those statutes, regulations, rules,
ordinances, orders, restrictions and requirements relating to the protection of
the environment described in Section 4.20.
"Environmental Report" shall have the meaning set forth in Section 6.8.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement, and to any subsequent provisions of
ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean any person (as defined in Section 3(9) of
ERISA) which together with Prairie or any of the Prairie Subsidiaries would be
a member of the same "controlled group" within the meaning of Section 414(b),
(m), (c) and (o) of the Code.
"Ferris Bank" shall mean the Farmers State Bank of Ferris, an Illinois
state bank with its main office located in Carthage, Illinois.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve" shall mean the Board of Governors of the Federal Reserve
System.
"Hanover Bank" shall mean the Hanover State Bank, an Illinois state bank
with its main office located in Hanover, Illinois.
"Illinois Banking Act" shall mean the Illinois Banking Act, as amended.
"Illinois BCA" shall mean the Illinois Business Corporation Act of 1983,
as amended.
"IRS" shall mean the United States Internal Revenue Service.
"Ladd Bank" shall mean the Bank of Ladd, an Illinois state bank with its
main office located in Ladd, Illinois.
"Manlius Bank" shall mean the First National Bank of Manlius, a national
bank with its main office located in Manlius, Illinois.
"Merger" shall mean the merger of Prairie with and into Acquisition Corp.
"Merger Consideration" shall have the meaning provided in Section 3.2.
"OCC" shall mean the Office of the Comptroller of the Currency.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Prairie" shall mean Prairie Bancorp, Inc., an Illinois corporation.
"Prairie Common Stock" shall mean the issued and outstanding common stock
of Prairie, no par value per share.
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"Prairie Employee Benefit Plans" shall have the meaning provided in
Section 4.10(d).
"Prairie Financial Statements" shall mean the financial statements and
reports of Prairie and the Prairie Subsidiaries described in Section 4.9.
"Prairie Preferred Stock" shall mean all of the issued and outstanding
preferred stock of Prairie of whatever class or series.
"Prairie Subsidiaries" shall collectively mean the Ferris Bank, the
Hanover Bank, the Ladd Bank, the Manlius Bank, the Tampico Bank and the
Tiskilwa Bank.
"Prairie Subsidiaries' Minority Stock" shall mean all of the shares of the
capital stock of any of the Prairie Subsidiaries not currently owned by
Prairie.
"Subsequent Prairie Financial Statements" shall have the meaning provided
in Section 6.3.
"Subsequent Union Financial Statements" shall have the meaning provided in
Section 7.3.
"Subsidiary" shall mean, as to any Person: (i) any corporation more than
fifty percent (50%) of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person and/or
one or more Subsidiaries of such Person; and (ii) any partnership, association,
joint venture or other entity in which such Person and/or one or more
Subsidiaries of such Person has more than a fifty percent (50%) equity interest
at the time.
"Surviving Corporation" shall mean the corporation resulting from the
merger of Prairie with and into Acquisition Corp.
"Tampico Bank" shall mean the Tampico National Bank, a national bank with
its main office located in Tampico, illinois.
"Termination Date" shall mean ten months after the date of this Agreement,
or such later date as shall have been agreed to in writing by the parties.
"Tiskilwa Bank" shall mean the Tiskilwa State Bank, an Illinois state bank
with its main office located in Tiskilwa, Illinois.
"Union" shall mean UnionBancorp, Inc., a Delaware corporation.
"UnionBank" shall mean the UnionBank, an Illinois state bank with its main
office located in Streator, Illinois.
"UnionBank/Sandwich" shall mean the UnionBank/Sandwich, an Illinois state
bank with its main office located in Sandwich, Illinois.
"Union Common Stock" shall mean the common stock of Union, $1.00 par value
per share.
"Union Corporation" shall mean Union Corporation, an Illinois corporation.
"UnionData" shall mean UnionData Corp., Inc., a Delaware corporation.
"Union Employee Benefit Plans" shall have the meaning proved in Section
5.10(d).
"Union Financial Statements" shall have the meaning provided in Section
5.9.
"Union Preferred Stock" shall have the meaning set forth in Section 3.2.
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"Union Subsidiaries" shall mean UnionBank, UnionBank/Sandwich, UnionData
and Union Corporation.
SECTION 6.2 PRINCIPLES OF CONSTRUCTION. (a) All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The Book of Schedules of each of Prairie
and Union referred to in this Agreement shall consist of the agreements and
other documentation described and referred to in this Agreement with respect to
such party, respectively. Each of Union and Prairie shall deliver to the other
by 5:00 p.m., Ottawa, Illinois time, on the twentieth day after the date of
this Agreement its respective Book of Schedules. Each of Union and Prairie
shall have until 5:00 p.m., Ottawa, Illinois time, on the thirtieth day after
the date of this Agreement to review the other's Book of Schedules. If after
such review Union or Prairie finds any of the matters disclosed in the other's
Book of Schedules to be, in its sole determination, unacceptable to it, it
shall have the right to terminate the Agreement by written notice sent to the
other by 5:00 p.m., Ottawa, Illinois time, on the thirtieth day after the date
of this Agreement. Such termination by either of Union or Prairie shall have
the effect as set forth in Section 13.2.
(b) All accounting terms not specifically defined herein, and except as
otherwise provided, shall be construed in accordance with generally accepted
accounting principles in the United States consistent with those used in the
preparation of the most recent audited financial statements of Prairie or
Union, as the case may be.
(c) Each term stated in either the singular or the plural shall include
the singular and the plural and pronouns stated in either the masculine,
feminine or neuter gender shall include the masculine, feminine and neuter.
ARTICLE 7
THE MERGER
SECTION 7.1 MANNER OF MERGER. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined below), Prairie
shall be merged with and into Acquisition Corp pursuant to the provisions of,
and with the effect provided in, the Business Corporation Act of 1983, of the
State of Illinois, as amended (the "Illinois BCA"), and Acquisition Corp shall
be the corporation resulting from such merger (the "Surviving Corporation").
As a result of the Merger, each share of Prairie Common Stock and Prairie
Preferred Stock issued and outstanding immediately prior to the Effective Time,
will be converted into the right to receive the consideration as set forth in
Section 3.2.
SECTION 7.2 EFFECT OF MERGER. (a) At the Effective Time, Prairie shall be
merged with and into Acquisition Corp and Acquisition Corp shall be the
Surviving Corporation. Prairie and Acquisition Corp are sometimes referred to
collectively herein as the "Constituent Corporations."
(b) Without limiting the generality of the foregoing, at the Effective
Time, the Surviving Corporation shall thereupon and thereafter possess all the
rights, privileges, immunities and franchises, as of a public or a private
nature, of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every
other interest, of or belonging to or due to each of the Constituent
Corporations, shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed; and the title to any real
estate, or any interest therein, vested in any of such corporations shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall assume and thenceforth be responsible and liable for all the
liabilities and obligations of each of the Constituent Corporations and any
claim existing or action or proceeding pending by or against any of the
Constituent Corporations may be prosecuted to judgment as if the Merger had not
taken place, or the Surviving Corporation may be substituted in its place.
Neither rights of creditors nor any liens upon the property of any of the
Constituent Corporations shall be impaired by the Merger.
SECTION 7.3 ARTICLES OF INCORPORATION. From and after the Effective Time
and until amended as provided by law, the articles of incorporation of the
Surviving Corporation shall be the articles of incorporation of Acquisition
Corp as in effect immediately prior to the Effective Time.
SECTION 7.4 BYLAWS. From and after the Effective Time and until amended
as provided by law, the bylaws of the Surviving Corporation shall be the bylaws
of Acquisition Corp as in effect immediately prior to the Effective Time.
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SECTION 7.5 DIRECTORS AND OFFICERS. The directors and officers of
Acquisition Corp immediately prior to the Effective Time shall be the directors
and officers of the Surviving Corporation until their successors shall have
been elected or appointed and shall have qualified in accordance with the
Illinois BCA and the articles of incorporation and bylaws of the Surviving
Corporation.
SECTION 7.6 UNION'S DELIVERIES AT CLOSING. At the Closing, Union shall
deliver, or cause to be delivered to Prairie, for further delivery to Prairie's
stockholders in the case of items (a) and (b) set forth below, the following
items:
(a) certificates representing 236,859 shares of Union Common Stock and
certificates representing 2,762.24 shares of Union Preferred Stock (as defined
below), in such denominations and registered in such names as set forth in
written instructions from Prairie delivered to Union within three Business Days
of the Closing Date, as defined below;
(b) evidence of the wire transfer by Union or its agents to each of the
shareholders of Prairie as of the Closing, his pro rata share of $6,092,000,
the cash portion of the Merger Consideration, as defined below, all in
accordance with written instructions from Prairie delivered to Union within
three Business Days of the Closing Date;
(c) a good standing certificate for Union issued by the Secretary of State
of each of the States of Delaware and Illinois, and dated in each case not more
than fifteen (15) Business Days prior to the Closing Date;
(d) a good standing certificate for Acquisition Corp issued by the
Secretary of State of the State of Illinois, dated not more than fifteen (15)
Business Days prior to the Closing Date;
(e) a copy of the certificate of incorporation of Union certified not more
than fifteen (15) Business Days prior to the Closing Date by the Secretary of
State of the State of Delaware;
(f) a copy of the articles of incorporation of Acquisition Corp certified
not more that fifteen (15) Business Days prior to the Closing Date by the
Secretary of the State of the State of Illinois;
(g) a certificate of the Secretary or any Assistant Secretary of Union
dated the Closing Date certifying a copy of the bylaws of Union;
(h) a certificate of the Secretary or any Assistant Secretary of
Acquisition Corp dated the Closing Date certifying a copy of the bylaws of
Acquisition Corp;
(i) copies of resolutions of the board of directors of Union authorizing
and approving this Agreement and the consummation of the transactions
contemplated hereby, including the authorization and reservation for issuance
of the number of shares of Union Common Stock and Union Preferred Stock to be
issued pursuant to this Agreement, certified as of the Closing Date by the
Secretary or any Assistant Secretary of Union;
(j) copies of resolutions of the board of directors and the sole
stockholder of Acquisition Corp authorizing and approving this Agreement and
the consummation of the transactions contemplated hereby, certified as of the
Closing Date by the Secretary or any Assistant Secretary of Acquisition Corp;
(k) a certificate of the President or any Vice President and the Secretary
or any Assistant Secretary of Union dated the Closing Date certifying that:
(i) there have been no further amendments to the certificate or articles of
incorporation delivered pursuant to subsections (e) and (f) of this Section;
and (ii) the statements made in Sections 10.1 and 10.2 are true and accurate;
(l) copies of each of the regulatory approvals necessary to consummate the
transactions contemplated herein;
(m) a legal opinion from Barack, Ferrazzano, Kirschbaum & Perlman, counsel
for Union and Acquisition Corp, dated as of the Effective Time, addressed to
Prairie in substantially the form attached as Exhibit A;
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(n) a Registration Agreement in the form attached as Exhibit B signed by
authorized officers of Union; and
(o) such other documents as Prairie or its counsel shall reasonably
request.
SECTION 7.7 PRAIRIE'S DELIVERIES AT CLOSING. At the Closing, Prairie
shall deliver, or cause to be delivered to Union the following items:
(a) a good standing certificate for Prairie issued by the Secretary of
State of the State of Illinois, dated not more than fifteen (15) Business Days
prior to the Closing Date;
(b) a good standing certificate for each of Farmers State Bank of Ferris,
an Illinois state bank with its main office located in Carthage, Illinois (the
"Ferris Bank"), the Hanover State Bank, an Illinois state bank with its main
office located in Hanover, Illinois (the "Hanover Bank"), the Bank of Ladd, an
Illinois state bank with its main office located in Ladd, Illinois (the "Ladd
Bank"), Manlius National Bank, a national bank with its main office located in
Manlius, Illinois (the "Manlius Bank"), the Tampico National Bank, a national
bank with its main office located in Tampico, Illinois (the "Tampico Bank") and
the Tiskilwa State Bank, an Illinois state bank with its main office located in
Tiskilwa, Illinois (the "Tiskilwa Bank," and collectively with the Ferris Bank,
the Hanover Bank, the Ladd Bank, the Manlius Bank and the Tampico Bank, the
"Prairie Subsidiaries"), issued by the Commissioner of Banks and Trust
Companies for the State of Illinois (the "Commissioner") or the Office of the
Comptroller of the Currency (the "OCC"), as appropriate, and dated in each case
not more than fifteen Business Days prior to the Closing Date;
(c) a copy of the articles of incorporation of Prairie certified by the
Secretary of State of the State of Illinois not more that fifteen (15) Business
Days prior to the Closing Date;
(d) a copy of the articles of association or charter of each of the
Prairie Subsidiaries certified by the Commissioner or the OCC, as appropriate,
not more than fifteen (15) Business Days prior to the Closing Date;
(e) a certificate of the Secretary or any Assistant Secretary of Prairie
dated the Closing Date certifying a copy of the bylaws of Prairie;
(f) a certificate of the Cashier or any Assistant Cashier of each of the
Prairie Subsidiaries dated the Closing Date certifying a copy of the bylaws of
the Prairie Subsidiary of which he or she holds such office;
(g) copies of resolutions of the board of directors of Prairie authorizing
and approving this Agreement and the consummation of the transactions
contemplated hereby, certified as of the Closing Date by the Secretary or any
Assistant Secretary of Prairie;
(h) a certificate executed by the President or any Vice President and the
Secretary or any Assistant Secretary of Prairie dated the Closing Date
certifying that: (i) there have been no further amendments to the articles of
incorporation, articles of association and charters delivered pursuant to
subsections (c) and (d) of this Section; and (ii) the statements made in
Sections 9.1 and 9.2 are true and accurate;
(i) a list of Prairie's shareholders as of the Closing Date certified by
the Secretary or any Assistant Secretary of Prairie;
(j) a legal opinion of Burke, Warren & MacKay, P.C., Prairie's counsel,
dated as of the Effective Time, addressed to Union in substantially the form
attached as Exhibit C;
(k) a Standstill Agreement in the form attached as Exhibit D signed by
holders of 100% of Prairie Common Stock; and
(l) such other documents as Union or its counsel shall reasonably request.
SECTION 7.8 CLOSING; EFFECTIVE TIME. (a) The Closing shall be on a date
agreed to by the parties hereto which is no earlier than the fifth Business Day
after the receipt of the last necessary regulatory approval of the
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Merger and the expiration of all requisite waiting periods (the "Closing
Date"). In the event the parties fail to so agree, the Closing shall take
place on the last Business Day of the month in which: (i) the last required
regulatory approval of the Merger is received; (ii) the last requisite waiting
period has expired; or (iii) all of the conditions provided for in Articles 8,
9 and 10 have been met or waived in writing; whichever is later.
(b) The parties hereto agree to file on the Closing Date the appropriate
articles of merger, as contemplated by Section 11.25 of the Illinois BCA, with
the Secretary of State of the State of Illinois. The Merger shall be effective
upon the close of business on the day when the Secretary of State of the State
of Illinois issues a certificate of merger in connection with the Merger (the
"Effective Time").
(c) The Closing shall take place at 10:00 a.m., local time, on the Closing
Date, at such place as the parties hereto may mutually agree, and in the event
they fail to agree, at Union's offices located at 122 West Madison Street,
Ottawa, Illinois.
SECTION 7.9 CONFIRMING DUE DILIGENCE. (a) Immediately after the execution
of this Agreement, Union shall initiate an additional pre-acquisition
investigation and review of the books, records and facilities of Prairie and
the Prairie Subsidiaries and will complete such pre-acquisition investigation
not later than 45 days following the date of this Agreement. Union shall have
the right to terminate this Agreement by giving written notice of its election
to terminate to Prairie, together with a brief statement of the reason
therefor, by 5:00 p.m., Ottawa, Illinois time, on or before the 50th day after
the date of this Agreement in the event that such pre-acquisition investigation
and review discloses matters not previously disclosed to Union which Union in
good faith believes either: (i) violate or contravene any of the
representations and warranties of Prairie contained in this Agreement or in any
of the Schedules hereto provided by Prairie where the same would reasonably be
expected to have a material adverse effect upon the consolidated financial
condition, assets or business of Prairie and the Prairie Subsidiaries taken as
a whole; or (ii) could reasonably be expected to affect in a material and
adverse manner the business and affairs of the Surviving Corporation, on a
consolidated basis, following consummation of the Merger, and which in either
case of item (i) or (ii) of this subsection has not been cured within ten
Business Days of receipt of such written notice to Prairie. Nothing in this
Section shall limit in any respect any other right or basis that Union may then
or thereafter have to terminate this Agreement by reason of any breach hereof
by Prairie or any breach or inaccuracy of any of the aforesaid representations
and warranties of Prairie.
(b) Immediately after the execution of this Agreement, Prairie shall
initiate an additional pre-acquisition investigation and review of the books,
records and facilities of Union and the Union Subsidiaries and will complete
such pre-acquisition investigation not later than 45 days following the date of
this Agreement. Subject to the conditions of this paragraph, Prairie shall
have the right to terminate this Agreement by giving written notice of its
election to terminate to Union, together with a brief statement of the reason
therefor, by 5:00 p.m., Ottawa, Illinois time, on or before the 50th day after
the date of this Agreement in the event that such pre-acquisition investigation
and review discloses matters not previously disclosed to Prairie which Prairie
in good faith believes either: (i) violate or contravene any of the
representations and warranties of Union contained in this Agreement or in any
of the Schedules hereto provided by Union where the same would reasonably be
expected to have a material adverse effect upon the consolidated financial
condition, assets or business of Union and the Union Subsidiaries taken as a
whole; or (ii) could reasonably be expected to affect in a material and adverse
manner the business and affairs of the Surviving Corporation, on a consolidated
basis, following consummation of the Merger, and which in either case of item
(i) or (ii) of this subsection has not been cured within ten Business Days of
receipt of such written notice to Union. Nothing in this Section shall limit
in any respect any other right or basis that Prairie may then or thereafter
have to terminate this Agreement by reason of any breach hereof by Union or any
breach or inaccuracy of any of the aforesaid representations and warranties of
Union.
ARTICLE 8
TREATMENT OF AND PAYMENT FOR SHARES
SECTION 8.1 TREATMENT OF ACQUISITION CORP STOCK. Each share of common
stock, no par value per share, of Acquisition Corp issued and outstanding
immediately prior to the Effective Time shall at the Effective Time be
converted into and shall thereafter represent one share of common stock of the
Surviving Corporation, no par value.
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SECTION 8.2 TREATMENT OF PRAIRIE STOCK. (a) Subject to the provisions of
this Article, by virtue of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all of the shares of Prairie Common
Stock and all of the shares of Prairie Preferred Stock, in each case issued and
outstanding immediately prior to the Effective Time, shall be deemed
surrendered and automatically converted into and shall thereafter represent the
right to receive the cash and the number of shares of stock as calculated below
(the "Merger Consideration"):
(i) cash of $6,092,000;
(ii) 236,859 shares of Union Common Stock; and
(iii) 2,762.24 shares of the preferred stock of Union, no par value per
share, and with the other terms and conditions set forth in Schedule 3.2 of the
Union Book of Schedules (the "Union Preferred Stock").
(b) If between the date hereof and the Effective Time, the number of
outstanding shares of Union Common Stock shall be changed into a different
number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares
or readjustment, or if a stock dividend thereon shall be declared with a record
date within such period, then the number of shares of Union Common Stock set
forth in this Section will be appropriately and proportionately adjusted so
that the number of such shares of Union Common Stock will equal the number of
shares of Union Common Stock which holders of shares of Prairie Common Stock
and Prairie Preferred Stock would have received pursuant to this Section, had
the record date for such reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or stock dividend been
immediately following the Effective Time.
(c) Subject to the terms of Section 3.2(d), each of the shareholders of
Prairie shall be entitled to receive his pro rata share of the Merger
Consideration based upon each such holder's percentage ownership of the issued
and outstanding shares of Prairie Common Stock immediately prior to the
Effective Time. After the Effective Time, no holder of any shares of the
capital stock of Prairie which are issued and outstanding immediately prior to
the Effective Time shall have any rights in respect of such capital stock
except to receive his pro rata share of the Merger Consideration.
(d) Notwithstanding anything contained herein to the contrary, Prairie
shall deliver to Union by no later than 5:00 p.m. Ottawa, Illinois time on the
twentieth day after the date of this Agreement, an agreement executed by the
holders as of such date of all of the shares of Prairie Preferred Stock to a
plan or arrangement pursuant to which immediately after the Closing: (i) the
Surviving Corporation shall have capital stock outstanding comprised of only
shares of common stock, $1.00 par value per share, which outstanding stock
formerly represented shares of the common stock of Acquisition Corp, all of
which will be owned by Union; (ii) except for dissenters' rights under the
Illinois BCA, no holder of Prairie Preferred Stock (other than Messrs. Wayne W.
Whalen and Dennis J. McDonnell) shall have any claim against Union, Prairie,
Acquisition Corp or the Surviving Corporation as a result of the consummation
of any of the transactions contemplated by this Agreement; (iii) none of the
holders of the capital stock of Prairie as of the date of this Agreement shall
be stockholders of Union, except for Messrs. Whalen and McDonnell; and (iv)
Union shall have not been required to deliver any cash, securities or other
property to any current or former shareholders of Prairie other than the Merger
Consideration. If Prairie fails to make such delivery, this Agreement shall
terminate and such termination shall have the effect as set forth in Section
13.2.
SECTION 8.3 FULL SATISFACTION. All rights to receive the Merger
Consideration into and for which shares of Prairie Common Stock shall have been
converted and exchanged pursuant to this Agreement shall be deemed to have been
paid and issued in full satisfaction of all rights pertaining to such converted
and exchanged shares of Prairie Common Stock.
SECTION 8.4 TAX FREE REORGANIZATION. The parties hereto intend for the
Merger to qualify as a nontaxable reorganization within the meaning of Section
368 and related sections of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (collectively, the "Code"),
and agree to cooperate and to take such actions as may be reasonably necessary
to ensure such result.
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ARTICLE 9
REPRESENTATIONS AND WARRANTIES BY PRAIRIE
Prairie hereby represents and warrants to Union as follows:
SECTION 9.1 PRAIRIE ORGANIZATION. Prairie: (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois, is a registered bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is duly qualified to do
business and is in good standing in each other jurisdiction in which the nature
of the business conducted or the properties or assets owned or leased by it
makes such qualification necessary and where failure to be so qualified would
reasonably be expected to have a material adverse effect on the financial
condition, assets or business of Prairie or any of the Prairie Subsidiaries;
(b) has full power and authority, corporate and otherwise, to own, operate and
lease its properties as presently owned, operated and leased, and to carry on
its business as it is now being conducted; and (c) has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement in accordance with its terms. Except as set forth on Schedule 4.1 of
the Prairie Book of Schedules and other than solely as trustee, Prairie owns no
voting stock or equity securities of any corporation, association, partnership
or other entity, other than issued and outstanding shares of the capital stock
of the Prairie Subsidiaries.
SECTION 9.2 PRAIRIE CAPITALIZATION. The authorized capital stock of
Prairie consists, and at the Effective Time will consist, of: (i) 1,000 shares
of common stock, no par value per share, all of which are issued and
outstanding and; (ii) 1,000,000 shares of preferred stock, with the terms and
conditions as set forth in Schedule 4.2 of the Prairie Book of Schedules, of
which 12,184 shares are issued and outstanding. All of the outstanding shares
of capital stock of Prairie have been duly and validly authorized and issued
and are fully paid and nonassessable. There are no outstanding subscriptions,
contracts, conversion privileges, options, warrants, calls or other rights
obligating Prairie to issue, sell or otherwise dispose of, or to purchase,
redeem or otherwise acquire, any shares of capital stock of Prairie. Except as
set forth on Schedule 4.2 of the Prairie Book of Schedules, since December 31,
1994, no shares of the capital stock of Prairie or any Prairie Subsidiary have
been purchased, redeemed or otherwise acquired, directly or indirectly, by
Prairie or any Prairie Subsidiary and no dividends or other distributions have
been declared, set aside, made or paid to the shareholders of Prairie or any
Prairie Subsidiary.
SECTION 9.3 PRAIRIE SUBSIDIARIES' ORGANIZATION. (a) The Ferris Bank is an
Illinois state bank with its main office located in Carthage, Illinois, and is
duly organized, validly existing and in good standing under the laws of the
State of Illinois. The Ferris Bank has full power and authority, corporate or
otherwise, to carry on its business as it is now being conducted and to own or
hold under lease the properties and assets it owns or holds under lease.
Except as set forth on Schedule 4.3 of the Prairie Book of Schedules and other
than solely as trustee, the Ferris Bank owns no voting stock or equity
securities of any corporation, association, partnership or other entity. All
of the deposit liabilities of the Ferris Bank are insured by the Federal
Deposit Insurance Corporation (the "FDIC") through the Bank Insurance Fund (the
"BIF") to the fullest extent permitted by applicable law and the Ferris Bank
pays to the FDIC the lowest deposit insurance premium assessment (currently the
minimum semi-annual statutory assessment of $1,000).
(b) The Hanover Bank is an Illinois state bank with its main office
located in Hanover, Illinois, and is duly organized, validly existing and in
good standing under the laws of the State of Illinois. The Hanover Bank has
full power and authority, corporate or otherwise, to carry on its business as
it is now being conducted and to own or hold under lease the properties and
assets it owns or holds under lease. Except as set forth on Schedule 4.3 of
the Prairie Book of Schedules and other than solely as trustee, the Hanover
Bank owns no voting stock or equity securities of any corporation, association,
partnership or other entity. All of the deposit liabilities of the Hanover
Bank are insured by the FDIC through the BIF to the fullest extent permitted by
applicable law and the Hanover Bank pays to the FDIC the lowest deposit
insurance premium assessment (currently the minimum semi-annual statutory
assessment of $1,000).
(c) The Ladd Bank is an Illinois state bank with its main office located
in Ladd, Illinois, and is duly organized, validly existing and in good standing
under the laws of the State of Illinois. The Ladd Bank has full power and
authority, corporate or otherwise, to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it owns or
holds under lease. Except as set forth on Schedule 4.3 of the Prairie Book of
Schedules and other than solely as trustee, the Ladd Bank owns no voting stock
or equity securities
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of any corporation, association, partnership or other entity. All of the
deposit liabilities of the Ladd Bank are insured by the FDIC through the BIF to
the fullest extent permitted by applicable law and the Ladd Bank pays to the
FDIC the lowest deposit insurance premium assessment (currently the minimum
semi-annual statutory assessment of $1,000).
(d) The Manlius Bank is a national bank with its main office located in
Manlius, Illinois, and is duly organized, validly existing and in good standing
under the laws of the United States. The Manlius Bank has full power and
authority, corporate or otherwise, to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it owns or
holds under lease. Except as set forth on Schedule 4.3 of the Prairie Book of
Schedules and other than solely as trustee, the Manlius Bank owns no voting
stock or equity securities of any corporation, association, partnership or
other entity. All of the deposit liabilities of the Manlius Bank are insured
by the FDIC through the BIF to the fullest extent permitted by applicable law
and the Manlius Bank pays to the FDIC the lowest deposit insurance premium
assessment (currently the minimum semi-annual statutory assessment of $1,000).
(e) The Tampico Bank is a national bank with its main office located in
Tampico, Illinois, and is duly organized, validly existing and in good standing
under the laws of the United States. The Tampico Bank has full power and
authority, corporate or otherwise, to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it owns or
holds under lease. Except as set forth on Schedule 4.3 of the Prairie Book of
Schedules and other than solely as trustee, the Tampico Bank owns no voting
stock or equity securities of any corporation, association, partnership or
other entity. All of the deposit liabilities of the Tampico Bank are insured
by the FDIC through the BIF to the fullest extent permitted by applicable law
and the Tampico Bank pays to the FDIC the lowest deposit insurance premium
assessment (currently the minimum semi-annual statutory assessment of $1,000).
(f) The Tiskilwa Bank is an Illinois state bank with its main office
located in Tiskilwa, Illinois, and is duly organized, validly existing and in
good standing under the laws of the State of Illinois. The Tiskilwa Bank has
full power and authority, corporate or otherwise, to carry on its business as
it is now being conducted and to own or hold under lease the properties and
assets it owns or holds under lease. Except as set forth on Schedule 4.3 of
the Prairie Book of Schedules and other than solely as trustee, the Tiskilwa
Bank owns no voting stock or equity securities of any corporation, association,
partnership or other entity. All of the deposit liabilities of the Tiskilwa
Bank are insured by the FDIC through the BIF to the fullest extent permitted by
applicable law and the Tiskilwa Bank pays to the FDIC the lowest deposit
insurance premium assessment (currently the minimum semi-annual statutory
assessment of $1,000).
SECTION 9.4 PRAIRIE SUBSIDIARIES' CAPITALIZATION. (a) The authorized
capital stock of the Ferris Bank consists, and at the Effective Time will
consist, of 2,675 shares of common stock, $100 par value per share, all of
which shares are issued and outstanding. All of the outstanding shares of
capital stock of the Ferris Bank have been duly and validly authorized and
issued and are fully paid and nonassessable and owned by Prairie. There are no
options, warrants, rights, calls or commitments of any character relating to
any additional shares of the capital stock of the Ferris Bank. No capital
stock or other security issued by the Ferris Bank has been issued in violation
of, or without compliance with, the rights of shareholders.
(b) The authorized capital stock of the Hanover Bank consists, and at the
Effective Time will consist, of 1,800 shares of common stock, $100 par value
per share, all of which shares are issued and outstanding. All of the
outstanding shares of capital stock of the Hanover Bank have been duly and
validly authorized and issued and are fully paid and nonassessable and owned by
Prairie. There are no options, warrants, rights, calls or commitments of any
character relating to any additional shares of the capital stock of the Hanover
Bank. No capital stock or other security issued by the Hanover Bank has been
issued in violation of, or without compliance with, the rights of shareholders.
(c) The authorized capital stock of the Ladd Bank consists, and at the
Effective Time will consist, of 3,500 shares of common stock, $100 par value
per share, all of which shares are issued and outstanding. All of the
outstanding shares of capital stock of the Ladd Bank have been duly and validly
authorized and issued and are fully paid and nonassessable and owned by
Prairie, except that 700 shares of capital stock of the Ladd Bank are held by
less than 20 individuals not affiliated with Prairie or any of the Prairie
Subsidiaries (other than the Ladd Bank). There are no options, warrants,
rights, calls or commitments of any character relating to any additional
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shares of the capital stock of the Ladd Bank. No capital stock or other
security issued by the Ladd Bank has been issued in violation of, or without
compliance with, the rights of shareholders.
(d) The authorized capital stock of the Manlius Bank consists, and at the
Effective Time will consist, of 10,000 shares of common stock, $100 par value
per share, 6,000 of which shares are issued and outstanding. All of the
outstanding shares of capital stock of the Manlius Bank have been duly and
validly authorized and issued and are fully paid and nonassessable (except as
provided by Section 55 of the National Bank Act, as amended) and 5,910 of such
issued and outstanding shares are owned by Prairie. There are no options,
warrants, rights, calls or commitments of any character relating to any
additional shares of the capital stock of the Manlius Bank. No capital stock
or other security issued by the Manlius Bank has been issued in violation of,
or without compliance with, the rights of shareholders.
(e) The authorized capital stock of the Tampico Bank consists, and at the
Effective Time will consist, of 2,000 shares of common stock, $100 par value
per share, 850 of which shares are issued and outstanding. All of the
outstanding shares of capital stock of the Tampico Bank have been duly and
validly authorized and issued and are fully paid and nonassessable (except as
provided by Section 55 of the National Bank Act, as amended) and 845 of such
issued and outstanding shares are owned by Prairie. There are no options,
warrants, rights, calls or commitments of any character relating to any
additional shares of the capital stock of the Tampico Bank. No capital stock
or other security issued by the Tampico Bank has been issued in violation of,
or without compliance with, the rights of shareholders.
(f) The authorized capital stock of the Tiskilwa Bank consists, and at the
Effective Time will consist, of 15,000 shares of common stock, $20 par value
per share, all of which shares are issued and outstanding. All of the
outstanding shares of capital stock of the Tiskilwa Bank have been duly and
validly authorized and issued and are fully paid and nonassessable and 14,248
of such issued and outstanding shares are owned by Prairie. There are no
options, warrants, rights, calls or commitments of any character relating to
any additional shares of the capital stock of the Tiskilwa Bank. No capital
stock or other security issued by the Tiskilwa Bank has been issued in
violation of, or without compliance with, the rights of shareholders.
SECTION 9.5 AUTHORIZATION. Prairie has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and
the execution, delivery and performance of this Agreement by Prairie, and
consummation by it of the transactions contemplated hereby have been authorized
by all necessary corporate action, including, but not limited to, the approval
of its shareholders. This Agreement constitutes a legal, valid and binding
obligation of Prairie enforceable in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
laws and subject to general principles of equity.
SECTION 9.6 LITIGATION AND REGULATORY MATTERS. Schedule 4.6 of the
Prairie Book of Schedules sets forth a list of all actions, suits or
proceedings pending as of the date hereof in which Prairie or any Prairie
Subsidiary is a named party. Except as set forth on Schedule 4.6 of the
Prairie Book of Schedules, there is no action, suit, proceeding, claim or
formal written protest by any Person or agency, or any investigation or report
by any regulatory authority having jurisdiction over Prairie or any Prairie
Subsidiary or any of its respective assets or businesses which is pending or,
to Prairie's knowledge, threatened against Prairie or any Prairie Subsidiary,
or any of its respective officers or directors in their capacities as such, or
its assets, business or goodwill which would reasonably be expected to have a
material adverse effect on the financial condition, assets or business of
Prairie or any of the Prairie Subsidiaries or which would impair Prairie's
ability to consummate the Merger. Prairie further represents and warrants that
except as set forth on Schedule 4.6 of the Prairie Book of Schedules, it does
not know or have any reason to believe that there is any basis for assertion
against it of any material claims based upon the wrongful action or inaction of
either Prairie or any Prairie Subsidiary, and any of its officers, directors or
employees which would reasonably be expected to have a material adverse effect
on the financial condition, assets or business of Prairie or any of the Prairie
Subsidiaries or which would impair Prairie's ability to consummate the Merger.
Neither Prairie nor any Prairie Subsidiary is subject to, or in default with
respect to, nor are any of its assets subject to, any outstanding judgment,
regulatory agreement, injunction, writ, order or decree or any other
requirement of any governmental body or court or of any governmental agency or
instrumentality which would reasonably be expected to have a material adverse
effect on the financial condition, assets or business of Prairie or any of the
Prairie Subsidiaries.
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SECTION 9.7 INSURANCE. Schedule 4.7 of the Prairie Book of Schedules
lists and briefly describes the policies of insurance (including bankers
blanket bond and insurance providing benefits for employees) owned or held by
Prairie or any Prairie Subsidiary on the date hereof. Each such policy is, and
Prairie will use all reasonable efforts to keep each such policy, in full force
and effect (except for any expiring policy which is replaced by coverage at
least as extensive) until the Effective Time. All premiums due on such
policies have been paid.
SECTION 9.8 DEFAULTS UNDER AGREEMENTS. Neither Prairie nor any Prairie
Subsidiary is in default or alleged to be in default, and Prairie has no
knowledge of any event which with notice or lapse of time or both would
constitute such a default, under any loan or credit agreement, conditional
sales contract or other title retention agreement or security agreement
relating to money borrowed by Prairie or any Prairie Subsidiary, agreements
pursuant to which it leases real or personal property or any other instrument
or obligation, which would reasonably be expected to have a material adverse
effect on the financial condition, assets or business of Prairie or any of the
Prairie Subsidiaries. Prairie has no knowledge of any material default under
such instruments by any other party thereto and has no knowledge of any event
which with notice or lapse of time or both would constitute such a default.
SECTION 9.9 FINANCIAL STATEMENTS AND REPORTS. Copies of the following
financial statements and reports of Prairie and the Prairie Subsidiaries
(collectively, the "Prairie Financial Statements") are set forth in Schedule
4.9 of the Prairie Book of Schedules:
(a) Consolidated Balance Sheets and the related Statements of Income,
Statements of Changes in Shareholders' Equity and Statements of Cash Flow of
Prairie for the years ended December 31, 1990, 1991, 1992, 1993 and 1994;
(b) Reports of Prairie on Form F.R. Y-9C and F.R. Y-9LP as of the close of
business on March 31, June 30, and September 30, 1995; and
(c) the Consolidated Report of Condition and Income ("Call Report") for
each of the Prairie Subsidiaries at the close of business on March 31, June 30,
and September 30, 1995, and December 31, 1992, 1993 and 1994.
The Prairie Financial Statements are complete and correct in all material
respects and fairly present the respective financial positions of Prairie and
the Prairie Subsidiaries at the dates shown and the results of operations for
the periods covered. The Prairie Financial Statements described in clause (a)
above are audited statements and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis. The
Prairie Financial Statements described in clauses (b) and (c) above have been
prepared on a basis consistent with past accounting practices and as required
by applicable rules or regulations and fairly present the consolidated
financial condition and results of operations at the dates and for the periods
presented, subject to year-end audit adjustments (which changes in the
aggregate would not reasonably be expected to be materially adverse). The
Prairie Financial Statements do not include any material assets or omit to
state any material liabilities, absolute or contingent, or other facts, which
inclusion or omission would render the Prairie Financial Statements misleading
in any material respect.
SECTION 9.10 PROPERTIES, CONTRACTS, EMPLOYEE BENEFIT PLANS AND OTHER
AGREEMENTS. Schedule 4.10 of the Prairie Book of Schedules lists or describes
the following:
(a) All real property owned by Prairie or any Prairie Subsidiary and the
principal buildings and structures located thereon, together with a legal
description of such real estate, and each lease of real property to which
Prairie or any Prairie Subsidiary is a party, identifying the parties thereto,
the annual rental payable, the expiration date thereof and a brief description
of the property covered;
(b) All loan and credit agreements, conditional sales contracts or other
title retention agreements or security agreements relating to money borrowed by
Prairie or any Prairie Subsidiary, exclusive of deposit agreements with
customers of any of the Prairie Subsidiaries entered into in the ordinary
course of business, agreements for the purchase of federal funds and repurchase
agreements;
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(c) All agreements, loans, contracts, leases, guaranties, letters of
credit, lines of credit or commitments of Prairie or any of the Prairie
Subsidiaries not referred to elsewhere in this Section which:
(i) involve payment by Prairie or any Prairie Subsidiary (other than
as disbursement of loan proceeds to customers) of more than $25,000;
(ii) involve payments based on profits of Prairie or any Prairie
Subsidiary;
(iii) relate to the future purchase of goods or services in excess
of the requirements of its respective business at current levels or for
normal operating purposes;
(iv) were not made in the ordinary course of business; or
(v) materially affect the business or financial condition of Prairie
or any Prairie Subsidiary;
(d) All profit sharing, group insurance, hospitalization, stock option,
pension, retirement, bonus, deferred compensation, stock bonus, stock purchase
or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Prairie or any Prairie
Subsidiary for the benefit of its respective officers, directors or employees,
including each trust or other agreement with any custodian or any trustee for
funds held under any such agreement, plan or arrangement (collectively, the
"Prairie Employee Benefit Plans"), and, in respect to any of them, the latest
reports or forms, if any, filed with the Department of Labor and Pension
Benefit Guaranty Corporation under ERISA, any current financial or actuarial
reports and any currently effective United States Internal Revenue Service
("IRS") private rulings or determination letters obtained by or for the benefit
of Prairie or any Prairie Subsidiary;
(e) All leases or licenses with respect to personal property, whether as
lessee or licensee, with annual rental or other payments due thereunder in
excess of $12,000;
(f) All employment and consulting contracts (except for ordinary oral
employment contracts with employees of Prairie or any Prairie Subsidiary
creating at will employment relationships); and
(g) The name and current annual salary of each director, officer or
employee of Prairie or any Prairie Subsidiary, and the profit sharing, bonus or
other form of compensation (other than salary) paid or payable by Prairie, any
Prairie Subsidiary or a combination of both to or for the benefit of each such
person in question for the year ending December 31, 1994, and any employment
agreement or arrangement with respect to each such person.
Copies of each document, plan or contract listed and described in Schedule
4.10 of the Prairie Book of Schedules are appended to such Schedule and
included in the Prairie Book of Schedules.
SECTION 9.11 ARTICLES, CHARTERS AND BYLAWS. The copies of: (a) the
articles of incorporation and all amendments thereto of Prairie; (b) the bylaws
of Prairie, as amended to date; (c) the articles of association or charter and
all amendments thereto of each of the Prairie Subsidiaries; and (d) the bylaws
of each of the Prairie Subsidiaries, as amended to date, are all complete and
correct and set forth in Schedule 4.11 of the Prairie Book of Schedules.
SECTION 9.12 DISCLOSURES. No representation or warranty made herein by
Prairie contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained herein under the
circumstances under which they were made not misleading. Except as and to the
extent reflected or reserved against in Prairie's audited financial statements
for the year ended December 31, 1994, and the Call Reports for the quarter
ended September 30, 1995 for each of the Prairie Subsidiaries, or the
Subsequent Prairie Financial Statements (as defined below), neither Prairie nor
any Prairie Subsidiary has, and with respect to the Subsequent Prairie
Financial Statements will not have, any liabilities or obligations, of any
nature, secured or unsecured, (whether accrued, absolute, contingent or
otherwise) including, without limitation, any tax liabilities due or to become
due, which would reasonably be expected to have a material adverse effect on
the financial condition, assets or business of Prairie or any of the Prairie
Subsidiaries.
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SECTION 9.13 EFFECT OF AGREEMENT. The execution, delivery and performance
of this Agreement by Prairie and the consummation by it of the transactions
contemplated hereby do not: (a) require the consent, waiver, order,
registration, qualification, approval, license or authorization of any Person,
court, regulatory authority or other governmental body, other than approval of
the holders of Prairie Common Stock and Prairie Preferred Stock as may be
required in connection or in compliance with the provisions of the Illinois
BCA, the BHCA and the Illinois Banking Act, as amended (the "Illinois Banking
Act"); (b) violate, with or without the giving of notice or the passage of time
or both, in any material respect any provision of law applicable to Prairie;
(c) except as disclosed in the Prairie Book of Schedules, conflict with or
result in a breach of any terms of Prairie's articles of incorporation or
bylaws or any material mortgage, deed of trust, license, indenture or other
material agreement or instrument, or any order, judgment, decree, statute,
regulation or other restriction of any kind or character, to which Prairie or
any Prairie Subsidiary is a party or by which Prairie or any Prairie Subsidiary
or any of its respective assets may be bound; (d) give to others any right to
accelerate or terminate, or result in acceleration or termination of, any such
material agreement or instrument; (e) result in termination of any provision of
any such material agreement or instrument; or (f) result in the creation of any
lien, charge or encumbrance upon any of the property or assets of Prairie or
any Prairie Subsidiary.
SECTION 9.14 BOOKS AND RECORDS. The books and records of Prairie and the
Prairie Subsidiaries are in all material respects complete and correct and
accurately reflect the basis for the respective financial condition and results
of operations of Prairie and the Prairie Subsidiaries set forth in the Prairie
Financial Statements.
SECTION 9.15 COMPLIANCE WITH APPLICABLE LAW. Each of Prairie and the
Prairie Subsidiaries holds all licenses, certificates, permits, franchises and
rights from all appropriate federal, state or other public authorities
necessary for the conduct of its respective business and where failure to do so
would reasonably be expected to have a material adverse effect on the financial
condition, assets or business of Prairie or any of the Prairie Subsidiaries.
Each of Prairie and the Prairie Subsidiaries has complied in all material
respects with all applicable federal, state and local statutes, ordinances,
regulations, rules or requirements, and neither Prairie nor any Prairie
Subsidiary is presently charged with, or to the knowledge of Prairie, under
governmental investigation with respect to, any actual or alleged material
violations of any statute, ordinance, regulation or rule.
SECTION 9.16 INTERIM EVENTS. Except as disclosed on Schedule 4.16 of the
Prairie Book of Schedules and as otherwise permitted hereunder, since December
31, 1994, neither Prairie nor any of the Prairie Subsidiaries has:
(a) Suffered any changes having a material adverse effect on the financial
condition, assets or business of Prairie or any of the Prairie Subsidiaries, or
in the operation or conduct of their respective businesses;
(b) Suffered any material damage, destruction or loss to any of its
respective properties whether covered by insurance or not;
(c) Declared any dividend or other distribution with respect to its stock,
repurchased or redeemed shares of its stock, issued any shares of its stock or
sold or agreed to issue or sell any of its stock or any right to purchase or
acquire any such stock or any security convertible into such stock or taken any
action to reclassify, recapitalize or split up its stock or issued any stock
appreciation rights;
(d) Granted or agreed to grant any increase in benefits payable or to
become payable under any Prairie Employee Benefit Plan;
(e) Cancelled or compromised any debt or claim other than in the ordinary
course of business;
(f) Entered into any transaction, contract or commitment other than in the
ordinary course of business;
(g) Incurred any obligation or liability (fixed or contingent) other than
obligations and liabilities incurred in the ordinary course of its respective
business;
(h) Mortgaged, pledged or subjected to a lien, security interest or other
encumbrance any of its assets except to tax and other liens which arise by
operation of law and with respect to which payment is not past due and except
for pledges or liens: (i) required to be granted in connection with the
acceptance by any of the Prairie
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Subsidiaries of government deposits; (ii) granted in connection with repurchase
or reverse repurchase agreements; or (iii) otherwise incurred in the ordinary
course of the conduct of its respective business;
(i) Conducted its respective business in any manner other than
substantially as it was being conducted prior to such time;
(j) Leased, sold or otherwise disposed of any of its assets except in the
ordinary course of business or leased, purchased or otherwise acquired from
third parties any assets except in the ordinary course of business;
(k) Except for the transactions contemplated by this Agreement, merged,
consolidated or agreed to merge or consolidate with or into any other Person,
or acquired or agreed to acquire any stock, equity interest or business of any
other Person;
(l) Agreed to enter into any transaction for the borrowing or loaning of
monies, other than in the ordinary course of business; or
(m) Increased the salary of any officer or the compensation or fees
payable to any director, except for normal increases in the ordinary course of
business or in accordance with any Prairie Employee Benefit Plan, or entered
into any employment contract with any officer or salaried employee or installed
any employee welfare, stock option, profit sharing or other similar plan or
arrangement.
SECTION 9.17 TAXES. Each of Prairie and the Prairie Subsidiaries has
filed with the appropriate governmental agencies all federal, state and local
income, franchise, excise, sales, use, real and personal property and other tax
returns and reports required to be filed by it. Except as set forth on
Schedule 4.17 of the Prairie Book of Schedules, neither Prairie nor any Prairie
Subsidiary is: (a) delinquent in the payment of any taxes shown on such returns
or reports or on any assessments received by it for such taxes; (b) aware of
any pending or threatened examination for income taxes for any year by the IRS
or any state tax agency; (c) subject to any agreement extending the period for
assessment or collection of any federal or state tax; or (d) a party to any
action or proceeding nor has any claim been asserted against it by any
governmental authority for assessment or collection of taxes. None of the tax
liabilities of Prairie or any Prairie Subsidiary has ever been audited by the
IRS or any state tax agency for any period since January 1, 1992. Neither
Prairie nor any Prairie Subsidiary is, to the knowledge of Prairie, a party to
any threatened action or proceeding by any governmental authority for
assessment or collection of taxes. The reserve for taxes in the audited
financial statements of Prairie for the year ended December 31, 1994, is
adequate to cover all of the tax liabilities of Prairie and the Prairie
Subsidiaries (including, without limitation, income taxes and franchise fees)
that may become payable in future years in respect to any transactions
consummated prior to December 31, 1994. Neither Prairie nor any Prairie
Subsidiary has and, to the best of Prairie's knowledge, will not have any
liability for taxes of any nature for or in respect of the operation of its
business or ownership of its assets from December 31, 1994, up to and including
the Effective Time, except to the extent reflected on the audited Prairie
Financial Statements for the year ended December 31, 1994, and each of the
Prairie Subsidiaries' Call Reports, or on the Subsequent Prairie Financial
Statements or otherwise reflected in the books and records of Prairie and the
Prairie Subsidiaries for the period following its then most recent of the
Subsequent Prairie Financial Statements.
SECTION 9.18 PRAIRIE EMPLOYEE BENEFIT PLANS. Except as set forth on
Schedule 4.18 of the Prairie Book of Schedules, neither Prairie nor any Prairie
Subsidiary has any other Prairie Employee Benefit Plans, collective bargaining
agreements, contracts or arrangements under which pensions, deferred
compensation or other retirement benefits are being paid or may become payable
respectively by Prairie or any Prairie Subsidiary.
SECTION 9.19 COMPLIANCE WITH ERISA. Except as set forth in Schedule 4.19
of the Prairie Book of Schedules, all employee benefit plans (as defined in
Section 3(3) of ERISA) established or maintained by Prairie or any Prairie
Subsidiary, or to which Prairie or any Prairie Subsidiary contributes, are in
compliance in all material respects with all applicable requirements of ERISA,
and are in compliance in all material respects with all applicable requirements
(including qualification and non-discrimination requirements in effect as of
the Effective Time) of the Code for obtaining the tax benefits the Code
thereupon permits with respect to such employee benefit plans. For purposes of
this Section, non-compliance with the Code and ERISA is material if such
non-compliance would reasonably be expected to have a material adverse effect
on the financial condition, assets or business of Prairie or any of the Prairie
Subsidiaries. No such employee benefit plan has, or as of the Effective Time
will have, any
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amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of
ERISA) for which Prairie or any Prairie Subsidiary would be liable to any
Person under Title IV of ERISA if any such employee benefit plan were
terminated as of the Effective Time, which amounts would be material to Prairie
or any Prairie Subsidiary. Such employee benefit plans are funded in
accordance with Section 412 of the Code (if applicable). There would be no
obligations which would be material to Prairie or any of the Prairie
Subsidiaries under Title IV of ERISA relating to any such employee benefit plan
that is a multi-employer plan if any such plan were terminated or if Prairie or
any of the Prairie Subsidiaries withdrew from any such plan as of the Effective
Time.
SECTION 9.20 COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of Prairie and the
Prairie Subsidiaries has conducted its respective business in material
compliance with all federal, state, county and municipal laws, including
statutes, regulations, rules, ordinances, orders, restrictions and
requirements, relating to underground storage tanks, petroleum products, air
pollutants, water pollutants or process waste water or otherwise relating to
the environment or toxic or hazardous substances or to the manufacture,
processing, distribution, use, recycling, generation, treatment, handling,
storage, disposal or transport of any hazardous or toxic substances or
petroleum products (including polychlorinated biphenyls, whether contained or
uncontained, and asbestos-containing materials, whether friable or not),
including, but not limited to, the Federal Solid Waste Disposal Act, the
Hazardous and Solid Waste Amendments, the Federal Clean Air Act, the Federal
Clean Water Act, the Occupational Health and Safety Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
and the Superfund Amendments and Reauthorization Act of 1986, all as amended,
and regulations of the Environmental Protection Agency, the Nuclear Regulatory
Agency and any state department of natural resources or state environmental
protection agency now or at any time hereafter in effect (collectively, the
"Environmental Laws"). There are no pending or, to the knowledge of Prairie,
threatened actions or proceedings by any local municipality, sewerage district
or other governmental entity against Prairie or any Prairie Subsidiary with
respect to the Environmental Laws and, to the knowledge of Prairie, there is no
basis or grounds for any such action or proceeding. Except as set forth on
Schedule 4.20 of the Prairie Book of Schedules, no environmental clearances or
other governmental approvals are required for the conduct of the business of
Prairie or any Prairie Subsidiary or the consummation of the transactions
contemplated hereby. To the best knowledge and belief of management of
Prairie, neither Prairie nor any Prairie Subsidiary is the owner of any
interest in real estate on which any substances have been used, stored,
deposited, treated, recycled or disposed of, which substances if known to be
present on, at or under such property, would require clean-up, removal or some
other remedial action under any Environmental Laws.
SECTION 9.21 BROKERAGE COMMISSIONS. All negotiations relating to this
Agreement and the transactions contemplated herein have been and will be
carried on by Prairie directly with Union, its counsel, accountants and other
representatives in such a manner that no actions of Prairie or any Prairie
Subsidiary or any of its respective officers, agents or representatives shall
give rise to any claim against Prairie or Union or any of its respective
Affiliates for any brokerage commission, finder's fee, investment advisor's fee
or other like payment, except that Union has agreed to make payment to Hoefer &
Arnett Incorporated, Austin, Texas, for services rendered as financial advisor
to Union in connection with the transactions contemplated by this Agreement.
SECTION 9.22 LOAN LOSS RESERVE. The reserve for possible loan and lease
losses shown on the September 30, 1995, Call Report of each of the Prairie
Subsidiaries is adequate in all material respects under the requirements of
generally accepted accounting principles to provide for possible losses, net of
recoveries relating to loans previously charged off, on loans outstanding
(including, without limitation, accrued interest receivable) as of September
30, 1995, for such Prairie Subsidiary. Except as set forth in Schedule 4.22,
the aggregate loan balances of each of the Prairie Subsidiaries at such date in
excess of such reserves are, to the knowledge and belief of Prairie, and based
on past loan loss experience, collectible in accordance with their terms.
SECTION 9.23 REGULATORY FILINGS. Each of Prairie and the Prairie
Subsidiaries has filed in a timely manner all required filings with all proper
regulatory authorities, including, but not limited to: (a) the Federal
Reserve; (b) the OCC; (c) the FDIC; (d) the Commissioner; and (e) the Secretary
of State of the State of Illinois. To the best knowledge of Prairie, all such
filings were accurate and complete in all material respects as of the dates of
the filings, and no such filing has made any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading.
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SECTION 9.24 TRUST ADMINISTRATION. Each of Prairie and the Prairie
Subsidiaries has properly administered, in all material respects, all accounts
for which it acts as fiduciary, including but not limited to accounts for which
it serves as a trustee, agent, custodian, personal representative, guardian or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulations and common law. To Prairie's
knowledge, none of Prairie or any Prairie Subsidiary, or any director, officer
or employee of Prairie or any Prairie Subsidiary has committed any material
breach of trust with respect to any such fiduciary account, and the accounting
for each such fiduciary account is true and correct in all material respects
and accurately reflect the assets of such fiduciary account.
SECTION 9.25 APPROVAL DELAYS. To Prairie's knowledge, Prairie knows of no
reason why the granting of any of the regulatory approvals referred to in
Section 12.2 would be denied or unduly delayed.
SECTION 9.26 SHAREHOLDER APPROVALS. The record owners of 100% of
Prairie's issued and outstanding common stock have unanimously approved and
authorized this Agreement and the Merger as required by the Illinois BCA.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES BY UNION
Union hereby represents and warrants to Prairie as follows:
SECTION 10.1 UNION ORGANIZATION. (a) Union: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is a registered bank holding company under the BHCA; (ii) is duly
qualified to do business and is in good standing in the State of Illinois and
in each other jurisdiction in which the nature of the business conducted or the
properties or assets owned or leased by it makes such qualification necessary
and where failure to be so qualified would reasonably be expected to have a
material adverse effect on the consolidated financial condition, assets or
business of Union and the Subsidiaries of Union (the "Union Subsidiaries"); and
(iii) has full power and authority, corporate and otherwise, to own, operate
and lease its properties as presently owned, operated and leased, and to carry
on its business as it is now being conducted. Except as set forth on Schedule
5.1 of the Union Book of Schedules and other than solely as trustee, Union owns
no voting stock or equity securities of any corporation, association,
partnership or other entity, other than issued and outstanding shares of the
capital stock of the Union Subsidiaries.
(b) Acquisition Corp: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois; (ii) is
not engaged in any business; and (iii) has the requisite corporate power and
authority to enter into and perform this Agreement in accordance with its
terms.
SECTION 10.2 UNION CAPITALIZATION. The authorized capital stock of Union
consists, and at the Effective Time will consist, of: (i) 2,000,000 shares of
common stock, $1.00 par value per share, of which as of the close of business
on December 31, 1995, 800,000 shares were outstanding and 89,421 shares were
held in the treasury; and (ii) 200,000 shares of preferred stock, no par value
per share, none of which shares were issued and outstanding as of the close of
business on December 31, 1995. The maximum number of shares of Union Common
Stock (assuming for this purpose that share equivalents constitute Union Common
Stock) that would be outstanding as of the Effective Time of the Merger if all
options, warrants, conversion rights and other rights with respect thereto were
exercised and the restrictions on any restricted stock were no longer
applicable is 733,379. All of the outstanding shares of capital stock of Union
have been duly and validly authorized and issued and are fully paid and
nonassessable. Except as contemplated in this Agreement or as set forth in
Schedule 5.2 of the Union Book of Schedules, there are, as of the date of this
Agreement, no outstanding subscriptions, contracts, conversion privileges,
options, warrants, calls or other rights obligating Union or any Union
Subsidiary to issue, sell or otherwise dispose of, or to purchase, redeem or
otherwise acquire, any shares of capital stock of Union or any Union
Subsidiary. Except as provided on Schedule 5.2 of the Union Book of Schedules,
since December 31, 1994, no shares of Union capital stock have been purchased,
redeemed or otherwise acquired, directly or indirectly, by Union or any Union
Subsidiary and no dividends or other distributions have been declared, set
aside, made or paid to the stockholders of Union.
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SECTION 10.3 UNION SUBSIDIARIES' ORGANIZATION. (a) UnionBank is an
Illinois state bank with its main office located in Streator, Illinois
("UnionBank"), and is duly organized, validly existing and in good standing
under the laws of the State of Illinois. UnionBank has full power and
authority, corporate or otherwise, to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it owns or
holds under lease. Except as set forth on Schedule 5.3 of the Union Book of
Schedules and other than solely as trustee, UnionBank owns no voting stock or
equity securities of any corporation, association, partnership or other entity.
All of the deposit liabilities of UnionBank are insured by the FDIC through
the BIF to the fullest extent permitted by applicable law and UnionBank pays to
the FDIC the lowest deposit insurance premium assessment (currently the minimum
semi-annual statutory assessment of $1,000).
(b) UnionBank/Sandwich is an Illinois state bank with its main office
located in Sandwich, Illinois ("UnionBank/Sandwich"), and is duly organized,
validly existing and in good standing under the laws of the State of Illinois.
UnionBank/Sandwich has full power and authority, corporate or otherwise, to
carry on its business as it is now being conducted and to own or hold under
lease the properties and assets it owns or holds under lease. Except as set
forth on Schedule 5.3 of the Union Book of Schedules and other than solely as
trustee, UnionBank/Sandwich owns no voting stock or equity securities of any
corporation, association, partnership or other entity. All of the deposit
liabilities of UnionBank/Sandwich are insured by the FDIC through the BIF to
the fullest extent permitted by applicable law and UnionBank/Sandwich pays to
the FDIC the lowest deposit insurance premium assessment (currently the minimum
semi-annual statutory assessment of $1,000).
(c) Union Corporation is an Illinois corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois ("Union
Corporation"). Union Corporation has full power and authority, corporate or
otherwise, to carry on its business as it is now being conducted and to own or
hold under lease the properties and assets it owns or holds under lease.
Except as set forth on Schedule 5.3 of the Union Book of Schedules, Union
Corporation owns no voting stock or equity securities of any corporation,
association, partnership or other entity.
(d) UnionData Corp., Inc. is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
("UnionData"). UnionData has full power and authority, corporate or otherwise,
to carry on its business as it is now being conducted and to own or hold under
lease the properties and assets it owns or holds under lease. Except as set
forth on Schedule 5.3 of the Union Book of Schedules, UnionData owns no voting
stock or equity securities of any corporation, association, partnership or
other entity.
SECTION 10.4 UNION SUBSIDIARIES' CAPITALIZATION. (a) The authorized
capital stock of UnionBank consists, and at the Effective Time will consist, of
6,100 shares of common stock, $100 par value per share, all of which shares are
issued and outstanding. All of the outstanding shares of capital stock of
UnionBank have been duly and validly authorized and issued and are fully paid
and nonassessable and owned by Union. There are no options, warrants, rights,
calls or commitments of any character relating to any additional shares of the
capital stock of UnionBank. No capital stock or other security issued by
UnionBank has been issued in violation of, or without compliance with, the
rights of shareholders.
(b) The authorized capital stock of UnionBank/Sandwich consists, and at
the Effective Time will consist, of 75,000 shares of common stock, $10 par
value per share, all of which shares are issued and outstanding. All of the
outstanding shares of capital stock of UnionBank/Sandwich have been duly and
validly authorized and issued and are fully paid and nonassessable and owned by
Union. There are no options, warrants, rights, calls or commitments of any
character relating to any additional shares of the capital stock of
UnionBank/Sandwich. No capital stock or other security issued by
UnionBank/Sandwich has been issued in violation of, or without compliance with,
the rights of shareholders.
(c) The authorized capital stock of Union Corporation consists, and at the
Effective Time will consist, of 10,000 shares of common stock, $100 par value
per share, 5,000 of which shares are issued and outstanding. All of the
outstanding shares of capital stock of Union Corporation have been duly and
validly authorized and issued and are fully paid and nonassessable and owned by
Union. There are no options, warrants, rights, calls or commitments of any
character relating to any additional shares of stock of Union Corporation. No
capital stock or other security issued by Union Corporation has been issued in
violation of, or without compliance with, the rights of shareholders.
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(d) The authorized capital stock of UnionData consists, and at the
Effective Time will consist, of 3,000 shares of common stock, $1.00 par value
per share, all of which shares are issued and outstanding. All of the
outstanding shares of stock of UnionData have been duly and validly authorized
and issued and are fully paid and nonassessable and owned by Union. There are
no options, warrants, rights, calls or commitments of any character relating to
any additional shares of the stock of UnionData. No capital stock or other
security issued by UnionData has been issued in violation of, or without
compliance with, the rights of shareholders.
SECTION 10.5 AUTHORIZATION. Each of Union and Acquisition Corp has the
requisite corporate power and authority to enter into and perform its
respective obligations under this Agreement and the execution, delivery and
performance of this Agreement by each of Union and Acquisition Corp and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, including, but not limited to,
the approval of the sole shareholder of Acquisition Corp. This Agreement
constitutes a legal, valid and binding obligation of each of Union and
Acquisition Corp enforceable in accordance with its terms except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
similar laws and subject to general principles of equity.
SECTION 10.6 LITIGATION AND REGULATORY MATTERS. Schedule 5.6 of the Union
Book of Schedules sets forth a list of all actions, suits or proceedings
pending as of the date hereof in which Prairie or any Prairie Subsidiary is a
named party. Except as set forth on Schedule 5.6 of the Union Book of
Schedules, there is no action, suit, proceeding, claim or formal written
protest by any Person or agency, or any investigation or report by any
regulatory authority having jurisdiction over Union or any Union Subsidiary or
any of its respective assets or businesses which is pending or, to Union's
knowledge, threatened against Union or any Union Subsidiary, or any of its
respective officers or directors in their capacities as such, or its assets,
business or goodwill which would reasonably be expected to have a material
adverse effect on the financial condition, assets or business of Union or any
of the Union Subsidiaries or which would impair Union's ability to consummate
the Merger. Union further represents and warrants that it does not know or
have any reason to believe that there is any basis for assertion against it of
any material claims based upon the wrongful action or inaction of either Union
or any Union Subsidiary, and any of its officers, directors or employees which
would reasonably be expected to have a material adverse effect on the financial
condition, assets or business of Union or any of the Union Subsidiaries or
which would impair Union's ability to consummate the Merger. Neither Union nor
any Union Subsidiary is subject to, or in default with respect to, nor are any
of its assets subject to, any outstanding judgment, regulatory agreement,
injunction, writ, order or decree or any other requirement of any governmental
body or court or of any governmental agency or instrumentality which would
reasonably be expected to have a material adverse effect on the financial
condition, assets or business of Union or any of the Union Subsidiaries.
SECTION 10.7 INSURANCE. Schedule 5.7 of the Union Book of Schedules lists
and briefly describes the policies of insurance (including bankers blanket bond
and insurance providing benefits for employees) owned or held by Union or any
Union Subsidiary on the date hereof. Each such policy is, and Union will use
all reasonable efforts to keep each such policy, in full force and effect
(except for any expiring policy which is replaced by coverage at least as
extensive) until the Effective Time. All premiums due on such policies have
been paid.
SECTION 10.8 DEFAULTS UNDER AGREEMENTS. Neither Union nor any Union
Subsidiary is in default or alleged to be in default, and Union has no
knowledge of any event which with notice or lapse of time or both would
constitute such a default, under any loan or credit agreement, conditional
sales contract or other title retention agreement or security agreement
relating to money borrowed by Union or any Union Subsidiary, agreements
pursuant to which it leases real or personal property or any other instrument
or obligation, which would reasonably be expected to have a material adverse
effect on the financial condition, assets or business of Union or any of the
Union Subsidiaries. Union has no knowledge of any material default under such
instruments by any other party thereto and has no knowledge of any event which
with notice or lapse of time or both would constitute such a default.
SECTION 10.9 FINANCIAL STATEMENTS AND REPORTS. Copies of the following
financial statements and reports of Union (the "Union Financial Statements")
are set forth in Schedule 5.9 of the Union Book of Schedules:
(a) Consolidated Balance Sheets and the related Statements of Income,
Statements of Changes in Stockholders' Equity and Statements of Cash Flow of
Union for the years ended December 31, 1990, 1991, 1992, 1993 and 1994; and
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(b) Reports of Union on Form F.R. Y-9C and F.R. Y-9LP as of the close of
business on March 31, June 30, and September 30, 1995;
(c) the Call Report for each of the Union Subsidiaries required to file
such reports at the close of business on March 31, June 30, and September 30,
1995, and December 31, 1992, 1993 and 1994.
The Union Financial Statements are complete and correct in all material
respects and fairly present the consolidated financial position of Union at the
dates shown and the results of operations for the periods covered. The Union
Financial Statements are complete and correct in all material respects and
fairly present the respective financial positions of Union and the Union
Subsidiaries at the dates shown and the results of operations for the periods
covered. The Union Financial Statements described in clause (a) above are
audited statements and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The Union Financial
Statements described in clauses (b) and (c) above have been prepared on a basis
consistent with past accounting practices and as required by applicable rules
or regulations and fairly present the consolidated financial condition and
results of operations at the dates and for the periods presented, subject to
year-end audit adjustments (which changes in the aggregate would not reasonably
be expected to be materially adverse). The Union Financial Statements do not
include any material assets or omit to state any material liabilities, absolute
or contingent, or other facts, which inclusion or omission would render the
Union Financial Statements misleading in any material respect.
SECTION 10.10 PROPERTIES, CONTRACTS, EMPLOYEE BENEFIT PLANS AND OTHER
AGREEMENTS. Schedule 5.10 of the Union Book of Schedules lists or describes
the following:
(a) All real property owned by Union or any Union Subsidiary and the
principal buildings and structures located thereon, together with a legal
description of such real estate, and each lease of real property to which Union
or any Union Subsidiary is a party, identifying the parties thereto, the annual
rental payable, the expiration date thereof and a brief description of the
property covered;
(b) All loan and credit agreements, conditional sales contracts or other
title retention agreements or security agreements relating to money borrowed by
Union or any Union Subsidiary, exclusive of deposit agreements with customers
of any of the Union Subsidiaries entered into in the ordinary course of
business, agreements for the purchase of federal funds and repurchase
agreements;
(c) All agreements, loans, contracts, leases, guaranties, letters of
credit, lines of credit or commitments of Union or any of the Union
Subsidiaries not referred to elsewhere in this Section which:
(i) involve payment by Union or any Union Subsidiary (other than as
disbursement of loan proceeds to customers) of more than $25,000;
(ii) involve payments based on profits of Union or any Union
Subsidiary;
(iii) relate to the future purchase of goods or services in excess
of the requirements of its respective business at current levels or for
normal operating purposes;
(iv) were not made in the ordinary course of business; or
(v) materially affect the business or financial condition of Union
or any Union Subsidiary;
(d) All profit sharing, group insurance, hospitalization, stock option,
pension, retirement, bonus, deferred compensation, stock bonus, stock purchase
or other employee welfare or benefit agreements, plans or arrangements
established, maintained, sponsored or undertaken by Union or any Union
Subsidiary for the benefit of its respective officers, directors or employees,
including each trust or other agreement with any custodian or any trustee for
funds held under any such agreement, plan or arrangement (collectively, the
"Union Employee Benefit Plans"), and, in respect to any of them, the latest
reports or forms, if any, filed with the Department of Labor and Pension
Benefit Guaranty Corporation under ERISA, any current financial or actuarial
reports and any currently effective IRS private rulings or determination
letters obtained by or for the benefit of Union or any Union Subsidiary;
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(e) All leases or licenses with respect to personal property, whether as
lessee or licensee, with annual rental or other payments due thereunder in
excess of $12,000;
(f) All employment and consulting contracts (except for ordinary oral
employment contracts with employees of Union or any Union Subsidiary creating
at will employment relationships); and
(g) The name and current annual salary of each director, officer or
employee of Union or any Union Subsidiary, and the profit sharing, bonus or
other form of compensation (other than salary) paid or payable by Union , any
Union Subsidiary or a combination of both to or for the benefit of each such
person in question for the year ending December 31, 1994, and any employment
agreement or arrangement with respect to each such person.
Copies of each document, plan or contract listed and described in Schedule
5.10 of the Union Book of Schedules are appended to such Schedule and included
in the Union Book of Schedules.
SECTION 10.11 CERTIFICATE, ARTICLES OF INCORPORATION AND BYLAWS. The
copies of the certificate of incorporation and all amendments thereto of Union,
the articles of incorporation of Acquisition Corp and all amendments thereto
and the bylaws of Union and Acquisition Corp, as amended to date, are complete
and correct and set forth in Schedule 5.11 of the Union Book of Schedules.
SECTION 10.12 DISCLOSURES. No representation or warranty made herein by
Union contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained herein under the
circumstances under which they were made not misleading. Except as and to the
extent reflected or reserved against in Union's audited financial statements
for the year ended December 31, 1994, and the Call Reports for the quarter
ended September 30, 1995 for each of the Union Subsidiaries, or the Subsequent
Union Financial Statements (as defined below), neither Union nor any Union
Subsidiary has, and with respect to the Subsequent Union Financial Statements
will not have, any liabilities or obligations, of any nature, secured or
unsecured, (whether accrued, absolute, contingent or otherwise) including,
without limitation, any tax liabilities due or to become due, which would
reasonably be expected to have a material adverse effect on the financial
condition, assets or business of Union or any of the Union Subsidiaries.
SECTION 10.13 EFFECT OF AGREEMENT. The execution, delivery and
performance of this Agreement by Union and the consummation by it of the
transactions contemplated hereby do not: (a) require the consent, waiver,
order, registration, qualification, approval, license or authorization of any
Person, court, regulatory authority or other governmental body, other than any
consent already obtained and as may be required in connection or in compliance
with the provisions of the Illinois BCA, the BHCA and the Illinois Banking Act;
(b) violate, with or without the giving of notice or the passage of time or
both, in any material respect any provision of law applicable to Union; (c)
except as disclosed in the Union Book of Schedules, conflict with or result in
a breach of any terms of Union's certificate of incorporation or bylaws or any
material mortgage, deed of trust, license, indenture or other material
agreement or instrument, or any order, judgment, decree, statute, regulation or
other restriction of any kind or character, to which Union or any Union
Subsidiary is a party or by which Union or any Union Subsidiary or any of its
respective assets may be bound; (d) give to others any right to accelerate or
terminate, or result in acceleration or termination of, any such material
agreement or instrument; (e) result in termination of any provision of any such
material agreement or instrument; or (f) result in the creation of any lien,
charge or encumbrance upon any of the property or assets of Union or any Union
Subsidiary.
SECTION 10.14 BOOKS AND RECORDS. The books and records of Union and the
Union Subsidiaries are in all material respects complete and correct and
accurately reflect the basis for the respective financial condition and results
of operations of Union and the Union Subsidiaries set forth in the Union
Financial Statements.
SECTION 10.15 COMPLIANCE WITH APPLICABLE LAW. Each of Union and the Union
Subsidiaries holds all licenses, certificates, permits, franchises and rights
from all appropriate federal, state or other public authorities necessary for
the conduct of its respective business and where failure to do so would
reasonably be expected to have a material adverse effect on the financial
condition, assets or business of Union or any of the Union Subsidiaries. Each
of Union and the Union Subsidiaries has complied in all material respects with
all applicable federal, state and local statutes, ordinances, regulations,
rules or requirements, and neither Union nor any Union Subsidiary is presently
charged with, or to the knowledge of Union, under governmental investigation
with respect to, any actual or alleged material violations of any statute,
ordinance, regulation or rule.
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SECTION 10.16 INTERIM EVENTS. Except as disclosed on Schedule 5.16 of the
Union Book of Schedules and as otherwise permitted hereunder, since December
31, 1994, neither Union nor any of the Union Subsidiaries has:
(a) Suffered any changes having a material adverse effect on the financial
condition, assets or business of Union or any of the Union Subsidiaries, or in
the operation or conduct of their respective businesses;
(b) Suffered any material damage, destruction or loss to any of its
respective properties whether covered by insurance or not;
(c) Declared any dividend or other distribution with respect to its stock,
repurchased or redeemed shares of its stock, issued any shares of its stock or
sold or agreed to issue or sell any of its stock or any right to purchase or
acquire any such stock or any security convertible into such stock or taken any
action to reclassify, recapitalize or split up its stock or issued any stock
appreciation rights;
(d) Granted or agreed to grant any increase in benefits payable or to
become payable under any Union Employee Benefit Plan;
(e) Cancelled or compromised any debt or claim other than in the ordinary
course of business;
(f) Entered into any transaction, contract or commitment other than in the
ordinary course of business;
(g) Incurred any obligation or liability (fixed or contingent) other than
obligations and liabilities incurred in the ordinary course of its respective
business;
(h) Mortgaged, pledged or subjected to a lien, security interest or other
encumbrance any of its assets except to tax and other liens which arise by
operation of law and with respect to which payment is not past due and except
for pledges or liens: (i) required to be granted in connection with the
acceptance by any of the Union Subsidiaries of government deposits; (ii)
granted in connection with repurchase or reverse repurchase agreements; or
(iii) otherwise incurred in the ordinary course of the conduct of its
respective business;
(i) Conducted its respective business in any manner other than
substantially as it was being conducted prior to such time;
(j) Leased, sold or otherwise disposed of any of its assets except in the
ordinary course of business or leased, purchased or otherwise acquired from
third parties any assets except in the ordinary course of business;
(k) Except for the transactions contemplated by this Agreement, merged,
consolidated or agreed to merge or consolidate with or into any other Person,
or acquired or agreed to acquire any stock, equity interest or business of any
other Person;
(l) Agreed to enter into any transaction for the borrowing or loaning of
monies, other than in the ordinary course of business; or
(m) Increased the salary of any officer or the compensation or fees
payable to any director, except for normal increases in the ordinary course of
business or in accordance with any Union Employee Benefit Plan, or entered into
any employment contract with any officer or salaried employee or installed any
employee welfare, stock option, profit sharing or other similar plan or
arrangement.
SECTION 10.17 TAXES. Each of Union and the Union Subsidiaries has filed
with the appropriate governmental agencies all federal, state and local income,
franchise, excise, sales, use, real and personal property and other tax returns
and reports required to be filed by it. Except as set forth on Schedule 5.17
of the Union Book of Schedules, neither Union nor any Union Subsidiary is: (a)
delinquent in the payment of any taxes shown on such returns or reports or on
any assessments received by it for such taxes; (b) aware of any pending or
threatened examination for income taxes for any year by the IRS or any state
tax agency; (c) subject to any agreement extending the period for assessment or
collection of any federal or state tax; or (d) a party to any action or
proceeding nor has any claim been asserted against it by any governmental
authority for assessment or collection of taxes. None of the tax liabilities
of Union or any Union Subsidiary has ever been audited by the IRS or any state
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tax agency for any period since January 1, 1992. Neither Union nor any Union
Subsidiary is, to the knowledge of Union, a party to any threatened action or
proceeding by any governmental authority for assessment or collection of taxes.
The reserve for taxes in the audited financial statements of Union for the
year ended December 31, 1994, is adequate to cover all of the tax liabilities
of Union and the Union Subsidiaries (including, without limitation, income
taxes and franchise fees) that may become payable in future years in respect to
any transactions consummated prior to December 31, 1994. Neither Union nor any
Union Subsidiary has and, to the best of Union's knowledge, will not have any
liability for taxes of any nature for or in respect of the operation of its
business or ownership of its assets from December 31, 1994, up to and including
the Effective Time, except to the extent reflected on the audited Union
Financial Statements for the year ended December 31, 1994, and each of the
Union Subsidiaries' Call Reports, or on the Subsequent Union Financial
Statements or otherwise reflected in the books and records of Union and the
Union Subsidiaries for the period following its then most recent of the
Subsequent Union Financial Statements.
SECTION 10.18 UNION EMPLOYEE BENEFIT PLANS. Except as set forth on
Schedule 5.18 of the Union Book of Schedules, neither Union nor any Union
Subsidiary has any other Union Employee Benefit Plans, collective bargaining
agreements, contracts or arrangements under which pensions, deferred
compensation or other retirement benefits are being paid or may become payable
respectively by Union or any Union Subsidiary.
SECTION 10.19 COMPLIANCE WITH ERISA. Except as set forth in Schedule 5.19
of the Union Book of Schedules, all employee benefit plans (as defined in
Section 3(3) of ERISA) established or maintained by Union or any Union
Subsidiary, or to which Union or any Union Subsidiary contributes, are in
compliance in all material respects with all applicable requirements of ERISA,
and are in compliance in all material respects with all applicable requirements
(including qualification and non-discrimination requirements in effect as of
the Effective Time) of the Code for obtaining the tax benefits the Code
thereupon permits with respect to such employee benefit plans. For purposes of
this Section, non-compliance with the Code and ERISA is material if such
non-compliance would reasonably be expected to have a material adverse effect
on the financial condition, assets or business of Union or any of the Union
Subsidiaries. No such employee benefit plan has, or as of the Effective Time
will have, any amount of unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA) for which Union or any Union Subsidiary would be liable
to any Person under Title IV of ERISA if any such employee benefit plan were
terminated as of the Effective Time, which amounts would be material to Union
or any Union Subsidiary. Such employee benefit plans are funded in accordance
with Section 412 of the Code (if applicable). There would be no obligations
which would be material to Union or any of the Union Subsidiaries under Title
IV of ERISA relating to any such employee benefit plan that is a multi-employer
plan if any such plan were terminated or if Union or any of the Union
Subsidiaries withdrew from any such plan as of the Effective Time.
SECTION 10.20 COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of Union and the
Union Subsidiaries has conducted its respective business in material compliance
with all Environmental Laws. There are no pending or, to the knowledge of
Union, threatened actions or proceedings by any local municipality, sewerage
district or other governmental entity against Union or any Union Subsidiary
with respect to the Environmental Laws and, to the knowledge of Union, there is
no basis or grounds for any such action or proceeding. Except as set forth on
Schedule 5.20 of the Union Book of Schedules, no environmental clearances or
other governmental approvals are required for the conduct of the business of
Union or any Union Subsidiary or the consummation of the transactions
contemplated hereby. To the best knowledge and belief of management of Union,
neither Union nor any Union Subsidiary is the owner of any interest in real
estate on which any substances have been used, stored, deposited, treated,
recycled or disposed of, which substances if known to be present on, at or
under such property, would require clean-up, removal or some other remedial
action under any Environmental Laws.
SECTION 10.21 BROKERAGE COMMISSIONS. All negotiations relating to this
Agreement and the transactions contemplated herein and therein have been and
will be carried on by Union directly with Prairie, its counsel, accountants and
other representatives in such a manner that no actions of Union or any Union
Subsidiary or any of its respective officers, agents or representatives shall
give rise to any claim against Union or Prairie or any of its respective
Affiliates for any brokerage commission, finder's fee, investment advisor's fee
or other like payment, except that Union has agreed to make payment to Hoefer &
Arnett Incorporated, Austin, Texas, for services rendered as financial advisor
to Union in connection with the transactions contemplated hereby.
SECTION 10.22 LOAN LOSS RESERVE. The reserve for possible loan and lease
losses shown on the September 30, 1995, Call Report of each of the Union
Subsidiaries is adequate in all material respects under the requirements
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of generally accepted accounting principles to provide for possible losses, net
of recoveries relating to loans previously charged off, on loans outstanding
(including, without limitation, accrued interest receivable) as of September
30, 1995, for such Union Subsidiary. Except as set forth in Schedule 5.22, the
aggregate loan balances of each of the Union Subsidiaries at such date in
excess of such reserves are, to the knowledge and belief of Union, and based on
past loan loss experience, collectible in accordance with their terms.
SECTION 10.23 REGULATORY FILINGS. Each of Union and the Union
Subsidiaries has filed in a timely manner all required filings with all proper
regulatory authorities, including, but not limited to: (a) the Federal
Reserve; (b) the OCC; (c) the FDIC; (d) the Commissioner; and (e) the Secretary
of State of the State of Illinois. To the knowledge of Union, all such filings
were accurate and complete in all material respects as of the dates of the
filings, and no such filing has made any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made, not
misleading.
SECTION 10.24 TRUST ADMINISTRATION. Each of Union and the Union
Subsidiaries has properly administered, in all material respects, all accounts
for which it acts as fiduciary, including but not limited to accounts for which
it serves as a trustee, agent, custodian, personal representative, guardian or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulations and common law. To Union's
knowledge, none of Union or any Union Subsidiary, or any director, officer or
employee of Union or any Union Subsidiary has committed any material breach of
trust with respect to any such fiduciary account, and the accounting for each
such fiduciary account is true and correct in all material respects and
accurately reflect the assets of such fiduciary account.
SECTION 10.25 APPROVAL DELAYS. To Union's knowledge, Union knows of no
reason why the granting of any of the regulatory approvals referred to in
Section 12.2 would be denied or unduly delayed.
SECTION 10.26 SHARES TO BE ISSUED IN MERGER. The shares of Union Common
and Preferred Stock which the shareholders of Prairie will be entitled to
receive pursuant to this Agreement upon consummation of the Merger are duly
authorized and will, when issued pursuant to this Agreement, be validly issued,
fully paid and nonassessable, and will not have been issued in violation of any
pre-emptive rights.
SECTION 10.27 SHAREHOLDER APPROVALS. The record owners of 100% of
Acquisition Corp's issued and outstanding voting stock have unanimously
approved and authorized this Agreement and the Merger as required by the
Illinois BCA.
ARTICLE 11
COVENANTS OF PRAIRIE
From and after the date hereof and until the Effective Time:
SECTION 11.1 INFORMATION, ACCESS THERETO, CONFIDENTIALITY. (a) Union, its
representatives and agents shall, at all times during normal business hours
prior to the Closing Date and upon prior reasonable notice, have full and
continuing access to the facilities, operations, records and properties of
Prairie and the Prairie Subsidiaries. Union, its representatives and agents
may, prior to the Closing Date, make or cause to be made such reasonable
investigation of the operations, records and properties of Prairie and the
Prairie Subsidiaries and of its and their financial and legal condition as
Union shall deem necessary or advisable to familiarize itself with such
records, properties and other matters; provided, that such access or
investigation shall not interfere unnecessarily with the normal operations of
Prairie or any of the Prairie Subsidiaries. Upon request, each of Prairie and
the Prairie Subsidiaries will furnish Union or its representatives or agents,
its attorneys' responses to auditors' requests for information, and such
financial and operating data and other information reasonably requested by
Union developed by Prairie or any of the Prairie Subsidiaries, its auditors,
accountants or attorneys (provided with respect to attorneys, such disclosure
would not result in the waiver by Prairie of any claim of attorney-client
privilege), and will permit Union, its representatives or agents to discuss
such information directly with any individual or firm performing auditing or
accounting functions for Prairie or any of the Prairie Subsidiaries, and such
auditors and accountants shall be directed to furnish copies of any reports or
financial information as developed to Union or its representatives or agents.
No investigation by Union shall affect the representations and warranties made
by Prairie.
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This Section shall not require the disclosure of any information the disclosure
of which to Union would be prohibited by law.
(b) Any confidential information or trade secrets received by Prairie, its
employees or agents in the course of the examination described in Section 7.1
shall be treated confidentially, and any correspondence, memoranda, records,
copies, documents and electronic or other media of any kind containing either
such confidential information, or trade secrets or both shall be destroyed by
Prairie or, at Union's request, returned to Union in the event this Agreement
is terminated as provided in Section 13.1. Such information shall not be used
by Prairie or its agents to the detriment of Union or any Union Subsidiary.
SECTION 11.2 CARRY ON IN REGULAR COURSE. Each of Prairie and the Prairie
Subsidiaries shall carry on its business in substantially in the same manner as
is presently being conducted and shall not make or institute any unusual or
material change in its methods of doing business without the prior written
consent of Union. Prairie shall, and shall also cause each of the Prairie
Subsidiaries to, unless otherwise consented to in writing in advance by Union:
(a) Enter into loan transactions only in accordance with past practices
and its respective loan policy, and in that connection, Prairie will, from the
date hereof to the Effective Time:
(i) apprise Union of all new credits or new lending
relationships approved in excess of $75,000 to any Person or
Persons and his, her or their Affiliates; and
(ii) not enter into any new credit or new lending
relationships in excess of $150,000 to any Person or Persons
and his, her or their Affiliates; and
(iii) other than incident to a reasonable loan
restructuring, extend additional credit to any Person or
Persons and his, her or their Affiliates if such Person or
such Affiliate is the obligor under any indebtedness to any of
the Prairie Banks which constitutes a non-performing loan or
against any part of such indebtedness any of the Prairie Banks
has established loss reserves or any part of which has been
charged-off by any of the Prairie Banks;
(b) Maintain all of its assets necessary for the conduct of its business
in good operating condition and repair, consistent with past practice,
reasonable wear and tear and damage by fire or unavoidable casualty excepted,
and maintain policies of insurance upon its assets and with respect to the
conduct of its business in amounts and kinds comparable to that in effect on
the date hereof and pay all premiums on such policies when due;
(c) Use all reasonable efforts to preserve its present business
organization intact, keep available the services of its present officers and
employees and preserve its present relationships with Persons having business
dealings with it, and in connection therewith, permit representatives of Union
no earlier than the date of acceptance for filing of the application filed by
Union with the Federal Reserve requesting prior approval of the Merger:
(i) to participate in meetings or discussions with
such officers and employees of Prairie and any Prairie
Subsidiary in connection with employment opportunities with
Union and the Surviving Corporation after the Effective Time,
provided, that Union has first discussed its intent to
participate or hold such discussions with the President of the
appropriate Prairie Subsidiary; and
(ii) to contact Persons having dealings with Prairie
or any Prairie Subsidiary for the purpose of informing such
Persons of the progress of the Merger and the services to be
offered by Union and the Surviving Corporation after the
Effective Time, provided, that Union has first discussed its
intent to make such contacts with the President of the
appropriate Prairie Subsidiary and Mr. Robert Davidson;
(d) Maintain its books, accounts and records in the usual, regular and
ordinary manner, on a basis consistent with prior years and comply in all
material respects with all laws and regulations applicable to it and to the
conduct of its business;
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(e) Make no amendment to its articles of incorporation, articles of
association, charter or bylaws and enter into no merger or consolidation with,
or sale of a significant portion of its assets to, any other Person;
(f) Make no change in the number of shares of its capital stock issued and
outstanding, grant or make no option, warrant, call, right, commitment or any
other security or agreement of any character obligating it to issue any shares
of its capital stock and issue no other securities or evidences of
indebtedness;
(g) Make no increase in the compensation payable or to become payable by
it to any employee except for normal periodic increases, and as may be
required, or as is normal and customary based upon past practices over the last
three (3) fiscal years, under the terms of any existing Prairie Employee
Benefit Plan;
(h) Except as otherwise permitted by Section 6.10 below, and except for
payment of dividends consistent with past practice from the Prairie
Subsidiaries to Prairie as necessary to allow Prairie to make any required
payments on existing indebtedness and to cover Prairie's ordinary operating
expenses, declare or pay no dividend or other distribution with respect to its
stock, repurchase or redeem shares of its stock, issue any shares of its stock
or agree to issue or sell any of its stock or any right to purchase or acquire
any such stock or any security convertible into such stock or taken any action
to reclassify, recapitalize or split up its stock or issue any stock
appreciation rights;
(i) Make no investment of a capital nature exceeding $25,000 or aggregate
investments of a capital nature exceeding $50,000;
(j) Make no purchase or sale of securities or other assets for the
investment portfolio of Prairie or any of the Prairie Subsidiaries, except in
accordance with the investment guidelines set forth in Schedule 6.2 of the
Prairie Book of Schedules;
(k) Except for modifications necessary to comply with any applicable law,
rule or regulation, make no change in any Prairie Employee Benefit Plan;
(l) Cause each of the Prairie Subsidiaries, consistent with each such
Prairie Subsidiary's past practices, to maintain a reserve for possible loan
and lease losses which is adequate in all material respects under the
requirements of generally accepted accounting principles to provide for
possible losses, net of recoveries relating to loans previously charged off, on
loans outstanding (including, without limitation, accrued interest receivable);
(m) Not enter into any new material lease, contract or agreement, nor make
any material change in any existing material lease, contract or agreement,
including, but not limited to, extending the current term of any such lease,
contract or agreement through action or inaction; and
(n) File in a timely manner all required filings with all proper
regulatory authorities and cause such filings to be true and correct in all
material respects.
With respect to any written request by Prairie for Union's consent to any
non-permitted action of Prairie or any Prairie Subsidiary described in this
Section, Prairie shall be entitled to conclusively presume Union has consented
to any such action unless Prairie shall have received Union's written objection
to such action within five Business Days of the date of Union's receipt of such
written request.
SECTION 11.3 SUBSEQUENT PRAIRIE FINANCIAL STATEMENTS. As soon as
available after the date hereof, Prairie will furnish Union copies of the
monthly unaudited consolidated balance sheets and profit and loss statements of
Prairie prepared for its internal use, Call Reports for each of the Prairie
Subsidiaries for each quarterly period completed prior to the Effective Time,
and all other financial reports or statements submitted to regulatory
authorities after the date hereof, to the extent permitted by law
(collectively, the "Subsequent Prairie Financial Statements"). The Subsequent
Prairie Financial Statements shall be prepared on a basis consistent with past
accounting practices and shall fairly present the financial condition and
results of operations for the dates and periods presented. The Subsequent
Prairie Financial Statements will not include any material assets or omit to
state any material liabilities, absolute or contingent, or other facts, which
inclusion or omission would render such financial statements misleading in any
material respect.
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SECTION 11.4 ADVICE OF CHANGES. Between the date hereof and the Closing
Date, Prairie shall promptly advise Union in writing of any fact which, if
existing or known at the date hereof, would have been required to be set forth
or disclosed in or pursuant to this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the representations
contained herein materially untrue, provided, however, that receipt of notice
of such facts after the date of this Agreement shall have no effect on the
truth and accuracy of the representations and warranties made in this Agreement
as of the date hereof.
SECTION 11.5 INFORMATION PROVIDED TO UNION. Prairie agrees that none of
the information concerning Prairie or any Prairie Subsidiary which is provided
or to be provided by Prairie or any Prairie Subsidiary to Union for inclusion
or which is included in any documents to be filed with any governmental
authority in connection with the transactions contemplated by this Agreement
will, at the respective times such documents are filed, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading. Notwithstanding the
foregoing, Prairie shall have no responsibility for the truth or accuracy of
any information with respect to Union or the Union Subsidiaries or any of their
affiliates or associates contained in any such filings.
SECTION 11.6 PRAIRIE SUBSIDIARIES' MINORITY STOCK. After the execution of
this Agreement, Prairie acknowledges that Union intends to offer to buy all of
the shares of the capital stock of any of the Prairie Subsidiaries not
currently owned by Prairie (the "Prairie Subsidiaries' Minority Stock").
Prairie agrees to use all reasonable efforts, and to cause each of the
directors and officers of Prairie and the Prairie Subsidiaries to use all his
or her reasonable efforts, to assist Union in acquiring all of the Prairie
Subsidiaries' Minority Stock or in entering into binding agreements to acquire
the Prairie Subsidiaries' Minority Stock on or after the Closing under this
Agreement. Union agrees not to contact any of the holders of the Prairie
Subsidiaries' Minority Stock concerning Union's offer to buy such stock, except
with the concurrence and participation of Mr. Robert Davidson.
SECTION 11.7 TITLE TO REAL ESTATE. Within 90 days of the date of this
Agreement, Prairie shall obtain and deliver to Union, with respect to all real
estate owned by Prairie or any of the Prairie Subsidiaries, an owner's
preliminary report of title covering a date subsequent to the date hereof,
issued by Chicago Title Insurance Company or such other title insurance company
as is acceptable to Buyer, which preliminary report shall contain a commitment
of such title insurance company to issue an ALTA owner's title insurance policy
insuring the fee simple title of Union, the Surviving Corporation or one of the
Prairie Subsidiaries in such real estate in an amount to be determined, subject
only to: (a) public utility easements; (b) private easements, covenants and
restrictions which do not,in the reasonable judgment of Union, adversely impair
Prairie's or the respective Prairie Subsidiary's ability to use, or the value
of, the property; and (c) liens of current state and local property taxes which
are not delinquent or subject to penalty.
SECTION 11.8 ENVIRONMENTAL MATTERS. Union may in its discretion, prior to
the Closing, retain at its own expense an independent professional consultant
to perform an environmental site assessment and render to Union a report (an
"Environmental Report") to determine if any real property in which Prairie, or
any of the Prairie Subsidiaries, holds any interest contains or gives evidence
that any violations of Environmental Laws have occurred on any such property.
Neither Union nor its independent professional consultant shall enter upon any
such real property in which Prairie or any Prairie Subsidiary holds only a
mortgagee's interest without the prior permission of Prairie and the Person in
possession thereof. Prairie shall not withhold such permission unreasonably,
and shall use all reasonable efforts to obtain such permission for Union from
the Person in possession of any such mortgaged real property for which Union
desires its independent professional consultant to conduct a site assessment.
Union shall have no duty to act upon any information produced by such reviews
or investigations with or for the benefit of Prairie, any Prairie Subsidiary or
any other Person, but shall provide such information to Prairie as soon as
practicable after such information becomes available to Union. Union shall be
responsible for and cause the repair of any property that is damaged by the
environmental testing described in this Section.
SECTION 11.9 OTHER OFFERS. None of Prairie, any Prairie Subsidiary or any
Affiliate of Prairie or any of its respective directors, officers, employees,
representatives or agents, shall, directly or indirectly, make, encourage,
facilitate, solicit, assist or initiate any inquiry or proposal, or participate
in any negotiations with, or provide any information to, any corporation,
partnership, agent, attorney, financial advisor, Person or other entity or
group (other than Union, Acquisition Corp, an Affiliate of Union or Acquisition
Corp or an officer, employee or other authorized representative of Union,
Acquisition Corp or such Affiliate) relating to any liquidation, dissolution,
recapitalization, merger or consolidation of Prairie or any Prairie Subsidiary;
sale of a significant
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amount of assets of Prairie or any Prairie Subsidiary; purchase or sale of
shares of capital stock of Prairie or any Prairie Subsidiary; or any similar
transactions involving Prairie or any Prairie Subsidiary, other than the
transactions contemplated by this Agreement. Upon execution of this Agreement,
Prairie shall immediately cease and cause to be terminated any and all such
current contacts and negotiations with respect to any such transaction.
Prairie shall immediately inform Union of any inquiry, proposal or request for
information (including the terms thereof and the Person making such inquiry)
which it may receive in respect of such a transaction.
SECTION 11.10 DIVIDENDS. Between the date of this Agreement and the
Effective Time, Prairie may continue to declare and pay to the holders of each
currently outstanding series or class of Prairie Preferred Stock the normal
quarterly cash dividend required by the terms of such Prairie Preferred Stock,
as set forth in the appropriate certificate of designation, and shall declare,
pay or make no other dividend or other distribution or payment in respect of,
or redemption of, shares of Prairie Common or Preferred Stock, provided,
however, that Prairie shall pay or make no such dividend or other distribution
or payment in the quarter in which the Effective Time shall occur and in which
the holders of Prairie Preferred Stock are entitled to receive regular
quarterly dividends on the Union Common and Preferred Stock received as a
result of the Merger. It is the intent of this Section to provide that holders
of Prairie Preferred Stock who are expected to receive shares of Union Common
Stock pursuant to the Merger, will receive either payment of dividends on their
shares of Prairie Preferred Stock as permitted under this Section or the
payment of cash dividends as the holders of shares of Union Common and
Preferred Stock for the calendar quarter during which the Effective Time shall
occur, but will not receive and will not become entitled to receive for the
same period during any calendar quarter both the payment of a permitted
dividend as the holder of Prairie Preferred Stock and the payment of a cash
dividend as the holders of either Union Common or Union Preferred Stock. If
Prairie does not declare and pay permitted dividends on its Prairie Preferred
Stock in a particular calendar quarter because of Prairie's reasonable
expectation that the Effective Time would occur in such quarter wherein the
holders of Prairie Preferred Stock would become entitled to receive cash
dividends for such calendar quarter on the shares of Union Common or Union
Preferred Stock, and the Effective Time does not in fact occur in said calendar
quarter, then, as a result thereof, Prairie shall be entitled to declare and
pay a permitted dividend on said shares of Prairie Preferred Stock for said
calendar quarter as soon as reasonably practicable.
SECTION 11.11 ADDITIONAL UNION ACQUISITIONS. Prairie acknowledges that
Union is currently in negotiations with respect to other possible acquisitions
and business combinations, and notwithstanding anything contained herein to the
contrary, Prairie agrees that nothing contained herein is intended to or shall
prevent Union from continuing such negotiations, commencing any other similar
negotiations or taking any such actions that may be necessary to consummate any
such other acquisitions or business combinations so long as the same do not
prevent Union from consummating the Merger.
SECTION 11.12 ACCOUNTING AND OTHER ADJUSTMENTS. Prairie agrees that it
shall, and shall cause any of the Prairie Subsidiaries, to: (a) make any
accounting adjustments or entries to its books of account and other financial
records; (b) make additional contributions to any allowance for loan and lease
losses; (c) sell or transfer any investment securities held by it; (d)
charge-off any loan or lease; (e) create any new reserve account or make
additional contributions to any other existing reserve account; (f) make
changes in any accounting method; (g) accelerate, defer or accrue any
anticipated obligation, expense or income item; and (h) make any other
adjustments which would affect the financial reporting of Union, on a
consolidated basis after the Closing, in any case as Union shall request,
provided, however, that neither Prairie nor any Prairie Subsidiary shall be
obligated to take any such requested action until immediately prior to the
Closing and at such time as Prairie shall have received reasonable assurances
that all conditions precedent to Prairie's obligations under this Agreement
(except for the completion of actions to be taken at the Closing) have been
satisfied.
ARTICLE 12
COVENANTS OF UNION
Union hereby covenants and agrees with Prairie as follows:
SECTION 12.1 INFORMATION, ACCESS THERETO, CONFIDENTIALITY. (a) Prairie,
its representatives and agents shall, at all times during normal business hours
prior to the Closing Date and upon prior reasonable notice, have full and
continuing access to the facilities, operations, records and properties of
Union and the Union Subsidiaries.
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Prairie, its representatives and agents may, prior to the Closing Date, make or
cause to be made such reasonable investigation of the operations, records and
properties of Union and the Union Subsidiaries and of its and their financial
and legal condition as Prairie shall deem necessary or advisable to familiarize
itself with such records, properties and other matters; provided, that such
access or investigation shall not interfere unnecessarily with the normal
operations of Union or the Union Subsidiaries. Upon request, Union and the
Union Subsidiaries will furnish Prairie or its representatives or agents, its
attorneys' responses to auditors' requests for information, and such financial
and operating data and other information reasonably requested by Prairie
developed by Union or the Union Subsidiaries, its auditors, accountants or
attorneys (provided with respect to attorneys, such disclosure would not result
in the waiver by Union of any claim of attorney-client privilege), and will
permit Prairie, its representatives or agents to discuss such information
directly with any individual or firm performing auditing or accounting
functions for Union or the Union Subsidiaries, and such auditors and
accountants shall be directed to furnish copies of any reports or financial
information as developed to Prairie or its representatives or agents. No
investigation by Prairie shall affect the representations and warranties made
by Union or Acquisition Corp. This Section shall not require the disclosure of
any information the disclosure of which to Prairie would be prohibited by law.
(b) Any confidential information or trade secrets received by Union,
Acquisition Corp or their employees or agents in the course of the examination
described in Section 6.1 shall be treated confidentially, and any
correspondence, memoranda, records, copies, documents and electronic or other
media of any kind containing either such confidential information, or trade
secrets or both shall be destroyed by Union or, at Prairie's request, returned
to Prairie in the event this Agreement is terminated as provided in Section
13.1. Such information shall not be used by Union, Acquisition Corp or its
agents to the detriment of Prairie or any Prairie Subsidiary.
SECTION 12.2 CONDUCT OF BUSINESS; CERTAIN COVENANTS. From and after the
execution and delivery of this Agreement and until the Effective Time, Union
will:
(a) conduct its business and operate only in accordance with sound banking
and business practices and in a manner consistent with past practices; and
(b) remain in good standing and file all required reports with all
applicable regulatory authorities.
SECTION 12.3 SUBSEQUENT UNION FINANCIAL STATEMENTS. As soon as available
after the date hereof, Union will furnish Prairie copies of its audited and
unaudited Consolidated Balance Sheets and the related Consolidated Statements
of Income, Consolidated Statements of Changes in Stockholders' Equity and
Consolidated Statements of Cash Flow for each annual and quarterly period
subsequent to December 31, 1994, completed prior to the Effective Time, and all
other financial reports or statements submitted to regulatory authorities after
the date hereof, to the extent permitted by law (collectively, the "Subsequent
Union Financial Statements"). The Subsequent Union Financial Statements shall
be prepared on a basis consistent with past accounting practices and shall
fairly present the financial condition and results of operations for the dates
and periods presented. The Union Financial Statements will not include any
material assets or omit to state any material liabilities, absolute or
contingent, or other facts, which inclusion or omission would render such
financial statements misleading in any material respect.
SECTION 12.4 ADVICE OF CHANGES. Between the date hereof and the Closing
Date, Union shall promptly advise Prairie in writing of any fact which, if
existing or known at the date hereof, would have been required to be set forth
or disclosed in or pursuant to this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the representations
contained herein materially untrue, provided, however, that receipt of notice
of such facts after the date of this Agreement shall have no effect on the
truth and accuracy of the representations and warranties made in this Agreement
as of the date hereof.
SECTION 12.5 INFORMATION PROVIDED TO PRAIRIE. Union agrees that none of
the information concerning Union or any Union Subsidiary which is provided or
to be provided by Union or any Union Subsidiary to Prairie or for inclusion in
any documents to be filed with any governmental authority in connection with
the transactions contemplated by this Agreement will, at the respective times
such documents are filed, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or. Notwithstanding the foregoing, Union
shall have no responsibility for the truth or accuracy of any information with
respect to Prairie or the Prairie Subsidiaries or any of their affiliates or
associates contained in any such filings.
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SECTION 12.6 ADDITION OF DIRECTORS AND OFFICER. As soon as practicable
after the Effective Time, but no later than 30 days, Union shall take such
steps as may be necessary to add Messrs. Scott Sullivan and Robert Doty to the
board of directors of Union, and to appoint Mr. Robert Davidson, currently an
officer of Prairie, as an officer of Union or a Union Subsidiary. At any time
prior to the termination of the Standstill Agreement, if while serving as a
director of Union either of Messrs. Sullivan or Doty dies or resigns as a
director, the other shall designate as soon as practicable thereafter a
successor to such deceased or resigning director, or in the absence of such
designation, Messrs. Whalen and McDonnell shall have the right exercisable as
soon as practicable to designate such successor, provided, however, that any
person naming such successor or successors shall have first consulted with the
remaining members of Union's board with respect to any such successor and that
a majority of such remaining members shall have consented to such successor,
which consent shall not be unreasonably withheld. After the completion of such
procedures, Union agrees to take such steps as may be necessary to add such
successor to fill any vacancy on Union's board arising as a result of such
death or resignation.
SECTION 12.7 EMPLOYEE BENEFITS. Union agrees to make available as soon as
practicable after the Effective Time to the employees of Prairie and the
Prairie Subsidiaries, so long as such persons continue to hold positions as
officers or employees with Prairie, any of the Prairie Subsidiaries, Union or
any of the Union Subsidiaries, the same employee benefits on substantially the
same terms and conditions that Union may make available to its own employees or
those of the Union Subsidiaries, and the employees of Prairie and the Prairie
Subsidiaries shall be given credit for prior service with Prairie or any of the
Prairie Subsidiaries for purposes of crediting periods of service for
eligibility and vesting of all such employee benefits offered by Union,
including, but not limited to health care and life insurance, pension and
retirement benefits and vacation and sick pay, except, however, that each such
employee of Prairie or any Prairie Subsidiary shall be treated for purposes of
Union's employee stock ownership plan as a new employee who has commenced
service with Union immediately after the Effective Time.
SECTION 12.8 ENVIRONMENTAL MATTERS. Prairie may in its discretion, prior
to the Closing, retain at its own expense an independent professional
consultant to perform an environmental site assessment and render to Prairie an
Environmental Report to determine if any real property in which Union, or any
of the Union Subsidiaries, holds any interest contains or gives evidence that
any violations of Environmental Laws have occurred on any such property.
Neither Prairie nor its independent professional consultant shall enter upon
any such real property in which Union or any Union Subsidiary holds only a
mortgagee's interest without the prior permission of Union and the Person in
possession thereof. Union shall not withhold such permission unreasonably, and
shall use all reasonable efforts to obtain such permission for Prairie from the
Person in possession of any such mortgaged real property for which Prairie
desires its independent professional consultant to conduct a site assessment.
Prairie shall have no duty to act upon any information produced by such reviews
or investigations with or for the benefit of Union, any Union Subsidiary or any
other Person, but shall provide such information to Union as soon as
practicable after such information becomes available to Prairie. Prairie shall
be responsible for and cause the repair of any property that is damaged by the
environmental testing described in this Section.
SECTION 12.9 OTHER OFFERS. None of Union, any Union Subsidiary or any
Affiliate of Union or any of its respective directors, officers, employees,
representatives or agents, shall, directly or indirectly, make, encourage,
facilitate, solicit, assist or initiate any inquiry or proposal, or participate
in any negotiations with, or provide any information to, any corporation,
partnership, agent, attorney, financial advisor, Person or other entity or
group (other than Prairie, Acquisition Corp, an Affiliate of Prairie or
Acquisition Corp or an officer, employee or other authorized representative of
Prairie, Acquisition Corp or such Affiliate) relating to any liquidation,
dissolution or recapitalization of Union or any Union Subsidiary; any merger or
consolidation of Union or any Union Subsidiary where Union or such Union
Subsidiary is not the resulting entity; sale of a significant amount of assets
of Union or any Union Subsidiary; or any similar transactions involving Union
or any Union Subsidiary, other than the transactions contemplated by this
Agreement, provided, however, that nothing contained in this Section shall be
deemed to prohibit the solicitation, negotiation or consummation of any
acquisition or purchase by Union for cash or securities of any bank or thrift
holding company, bank, thrift or other insured depository institution. Upon
execution of this Agreement, Union shall immediately cease and cause to be
terminated any and all such contacts and negotiations with respect to any such
prohibited transaction. Union shall immediately inform Prairie of any inquiry,
proposal or request for information (including the terms thereof and the Person
making such inquiry) which it may receive in respect of any transaction
prohibited by this Section.
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SECTION 12.10 DIVIDENDS. Between the date of this Agreement and the
Effective Time, Union may continue to declare and pay to the holders of Union
Common Stock a quarterly cash dividend of $0.10 per share, and shall declare,
pay or make no other dividend (other than a dividend payable solely in Union
Common Stock) or other distribution or payment in respect of, or redemption of,
shares of Union Common Stock.
SECTION 12.11 PURCHASE OF PRAIRIE ASSETS. On or prior to the Closing,
Union agrees to permit any of Prairie's shareholders to purchase from Prairie
any policies of life insurance insuring such shareholder's life, provided that
any such purchase is made for cash and the purchase price of any policy is not
less than the greater of such policy's cash surrender value or the book value
of such policy, as shown on Prairie's books and records, immediately prior to
such purchase.
ARTICLE 13
ADDITIONAL COVENANTS OF BOTH PARTIES
SECTION 13.1 COOPERATION. Each of Prairie, the Prairie Subsidiaries,
Union and Acquisition Corp will fully and promptly cooperate with each other
and their respective counsel and accountants in connection with any steps to be
taken as part of their obligations under this Agreement.
SECTION 13.2 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred by a party hereto shall be borne by such party, including the
fees of their respective accountants and attorneys.
SECTION 13.3 PUBLICITY. Prior to the Effective Time, the parties hereto
will consult with each other before issuing any press releases or otherwise
making any public statements with respect to this Agreement or the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement without the prior consent of the other parties, except as may
be required by law.
ARTICLE 14
CONDITIONS PRECEDENT TO OBLIGATIONS
OF UNION AND ACQUISITION CORP
The obligations of Union and Acquisition Corp under this Agreement are
subject, unless waived by Union or Acquisition Corp, to the satisfaction of the
following conditions on or prior to the Effective Time:
SECTION 14.1 REPRESENTATIONS AND WARRANTIES TRUE AT EFFECTIVE TIME. The
representations and warranties made by Prairie in this Agreement shall be true
and correct on and as of the Effective Time with the same effect as though such
representations and warranties had been made or given on and as of the
Effective Time, except for changes contemplated by this Agreement, and except
also for representations and warranties as of a specified time other than the
Effective Time, which shall be true and correct in all material respects at
such specified time. Prairie shall have delivered to Union a certificate of
its president or any vice president to the same effect.
SECTION 14.2 COMPLIANCE WITH AGREEMENT. Prairie shall have made all the
deliveries set forth in Section 2.7 and performed and complied with all of its
other obligations under this Agreement which are to be performed or complied
with prior to or at the Effective Time and Prairie shall have delivered to
Union a certificate of its president or any vice president to the same effect.
SECTION 14.3 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings,
corporate or other, to be taken by Prairie in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to counsel for Union, and Prairie
shall have made available to Union for examination the originals or true and
correct copies of all records and documents relating to the business and
affairs of Prairie and the Prairie Subsidiaries which Union may reasonably
request in connection with said transactions.
SECTION 14.4 STATUTORY REQUIREMENTS. This Agreement shall have been duly
and validly authorized by the board of directors and the shareholders of
Prairie. Such shareholder approval shall have been obtained in conformity with
all applicable laws at a meeting of shareholders for which proxies are
solicited in compliance with applicable laws and requirements or by the
unanimous written consent of all of Prairie's shareholders.
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SECTION 14.5 REGULATORY APPROVALS. Union shall have received any and all
required approvals from the Federal Reserve, the OCC, the Commissioner, the
FDIC and any other necessary governmental authority for the consummation of the
transactions contemplated hereby.
SECTION 14.6 ACCURACY OF FINANCIAL STATEMENTS. The Prairie Financial
Statements and the Subsequent Prairie Financial Statements, previously or
subsequently furnished to Union by Prairie shall not be inaccurate in any
material respect.
SECTION 14.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. From the date hereof
to the Effective Time, there shall be and have been no material adverse change
in the consolidated financial condition, assets or business of Prairie or any
of the Prairie Subsidiaries.
SECTION 14.8 LITIGATION. Neither Prairie nor any Prairie Subsidiary shall
be made a party to, or to the knowledge of Prairie threatened by, any actions,
suits, proceedings, litigation or legal proceedings which, in the reasonable
opinion of Union, have or are likely to have a material adverse effect on the
financial condition, assets or business of Prairie or any of the Prairie
Subsidiaries, and no action, suit, proceeding or claim shall have been
instituted, made or threatened by any Person relating to the Merger or the
validity or propriety of the transactions contemplated by this Agreement.
SECTION 14.9 CONSENTS AND APPROVALS. Any consents or approvals required
to be secured by either party by the terms of this Agreement or otherwise
reasonably necessary in the opinion of Union to consummate the transactions
contemplated by this Agreement shall have been obtained and shall be
satisfactory to Union.
SECTION 14.10 TERMINATION OF EMPLOYEE BENEFITS PLANS. Upon Union's
written request delivered to Prairie on or prior to the Closing Date, Prairie
shall take all steps necessary to terminate or freeze the benefits payable or
accruing under, any Prairie Employee Benefit Plan, all on terms reasonably
acceptable to Union.
SECTION 14.11 ENVIRONMENTAL MATTERS. Union shall have been granted the
access required by Section 6.8 to any real property in which Prairie or any of
the Prairie Subsidiaries owns any interest and for which Union desired its
independent professional consultant to prepare an Environmental Report, and the
results of any Environmental Report rendered to Union with respect to such real
property shall have not disclosed any material violation of any of the
Environmental Laws.
SECTION 14.12 OWNERSHIP INTEREST IN LADD BANK. Union shall have received
reasonably satisfactory evidence that immediately after the Effective Time, the
Surviving Corporation will own no less than 80% of the issued and outstanding
capital stock of the Ladd Bank.
SECTION 14.13 MINIMUM CAPITAL. The amount of shareholders' equity (but
not including any additions or reductions as a result of the application of
Statement of Financial Accounting Standards No. 115) of Prairie and each of the
Prairie Subsidiaries shall be no less than that shown on the appropriate
Prairie Financial Statements as of September 30, 1995.
SECTION 14.14 VOTING AGREEMENTS. Concurrently with the execution of this
Agreement, there shall have been delivered to Union a Voting Agreement in the
form attached as Exhibit E signed by holders of 100% of the voting stock of
Prairie.
ARTICLE 15
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF PRAIRIE
The obligations of Prairie under this Agreement are subject, unless waived
by Prairie, to the satisfaction on or prior to the Effective Time of the
following conditions:
SECTION 15.1 REPRESENTATIONS AND WARRANTIES TRUE AT EFFECTIVE TIME. The
representations and warranties made by Union in this Agreement shall be true
and correct on and as of the Effective Time with the same effect as though such
representations and warranties had been made or given on and as of the
Effective Time, except
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for changes contemplated by this Agreement, and except also for representations
and warranties as of a specified time other than the Effective Time, which
shall be true and correct in all material respects at such specified time.
Union shall have delivered to Prairie a certificate from the president or any
vice president to the same effect.
SECTION 15.2 COMPLIANCE WITH AGREEMENT. Union and Acquisition Corp shall
have made all the deliveries set forth in Section 2.6 and shall have performed
and complied with all of their other obligations under this Agreement which are
to be performed or complied with by them prior to or on the Effective Time and
Union shall have delivered to Prairie a certificate from the president or any
vice president to the same effect.
SECTION 15.3 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings,
corporate or other, to be taken by Union and Acquisition Corp in connection
with the transactions contemplated by this Agreement, and all documents
incident thereto, shall be reasonably satisfactory in form and substance to
counsel for Prairie, and Union and Acquisition Corp shall have made available
to Prairie and its representatives for examination the originals or true and
correct copies of all records and documents relating to the business and
affairs of Union and the Union Subsidiaries which Prairie or its counsel may
reasonably request in connection with said transactions.
SECTION 15.4 STATUTORY REQUIREMENTS. This Agreement shall have been duly
and validly authorized by the boards of directors of Union and Acquisition Corp
and the shareholders of Acquisition Corp. Such shareholder approval shall have
been obtained in conformity with all applicable laws at a meeting of
shareholders for which proxies are solicited in compliance with applicable laws
and requirements or by the unanimous written consent of all of Acquisition
Corp's shareholders.
SECTION 15.5 REGULATORY APPROVALS. Union shall have received any and all
required approvals from the Federal Reserve, the OCC, the Commissioner, the
FDIC and any other necessary governmental authority for the consummation of the
transactions contemplated hereby.
SECTION 15.6 ACCURACY OF FINANCIAL STATEMENTS. The Union Financial
Statements and the Subsequent Union Financial Statements, previously or
subsequently furnished to Prairie by Union shall not be inaccurate in any
material respect.
SECTION 15.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. From the date hereof
to the Effective Time, there shall be and have been no material adverse change
in the financial condition, assets or business of Union or any of the Union
Subsidiaries.
SECTION 15.8 LITIGATION. Neither Union nor any Union Subsidiary shall be
made a party to, or to the knowledge of Union threatened by, any actions,
suits, proceedings, litigation or legal proceedings which, in the reasonable
opinion of Prairie, have or are likely to have a material adverse effect on the
consolidated financial condition, assets or business of Union or any of the
Union Subsidiaries, and no action, suit, proceeding or claim shall have been
instituted, made or threatened by any Person relating to the Merger or the
validity or propriety of the transactions contemplated by this Agreement.
SECTION 15.9 CONSENTS AND APPROVALS. Any consents or approvals required
to be secured by either party by the terms of this Agreement, including any
approvals of changes in control of Union required to be obtained by the
shareholders of Prairie, or otherwise reasonably necessary in the opinion of
Prairie to consummate the transactions contemplated by this Agreement shall
have been obtained and shall be satisfactory to Prairie.
SECTION 15.10 ENVIRONMENTAL MATTERS. Prairie shall have been granted the
access required by Section 7.8 to any real property in which Union or any of
the Union Subsidiaries owns any interest and for which Prairie desired its
independent professional consultant to prepare an Environmental Report, and the
results of any Environmental Report rendered to Prairie with respect to such
real property shall have not disclosed any material violation of any of the
Environmental Laws.
SECTION 15.11 MINIMUM CAPITAL. The amount of stockholders' equity (but
not including any additions or reductions as a result of the application of
Statement of Financial Accounting Standards No. 115) of Union shall be no less
than that shown on the appropriate Union Financial Statements as of September
30, 1995.
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ARTICLE 16
CONDITIONS PRECEDENT TO OBLIGATIONS
OF BOTH PARTIES
SECTION 16.1 APPROVALS. All actions, consents or approvals, governmental
or otherwise, which are, or in the opinion of counsel for Union or Prairie may
be, necessary to permit or enable the Surviving Corporation upon and after the
Merger, to conduct all or any part of the business of Prairie, in the manner in
which such activities and businesses are conducted up to the Effective Time,
shall have been obtained without any conditions which in the reasonable opinion
of Union are materially adverse, and shall not have been withdrawn or stayed.
SECTION 16.2 ORDERS, DECREES AND JUDGMENTS. Consummation of the
transactions contemplated by this Agreement shall not violate any order, decree
or judgment of any court or governmental body having competent jurisdiction.
ARTICLE 17
REGULATORY APPROVALS
SECTION 17.1 INITIAL FILINGS. Union shall use all reasonable efforts to
make as soon as practicable all appropriate initial filings necessary to obtain
the regulatory approvals referred to in Section 12.2 at such time as it
reasonably believes that such filings would be accepted and approved by the
appropriate regulatory agencies. Union shall in good faith pursue the
regulatory approvals necessary to consummate the transactions contemplated in
this Agreement. Union shall provide Prairie and its counsel with a reasonable
opportunity to review and comment upon each application or document to be filed
by Union with federal or state regulatory officials to obtain such approvals,
and thereafter shall provide Prairie and its counsel with a final copy of each
such application or document as filed.
SECTION 17.2 NECESSARY APPROVALS. Union shall have primary responsibility
for preparation of all applications for regulatory approval of the transactions
contemplated in this Agreement, including, but not limited to, the preparation
of an application or any amendment thereto or any other required statements or
documents filed or to be filed by any party with: (a) the Federal Reserve; (b)
the OCC; (c) the Commissioner; and (d) any other party or governmental
authority pursuant to any applicable law or regulation, for authority to
consummate the transactions contemplated by this Agreement. Prairie agrees to
cooperate with Union and use all reasonable efforts to assist Union in
preparing such applications and in pursuit of such approvals.
ARTICLE 18
TERMINATION AND ABANDONMENT
SECTION 18.1 REASONS FOR TERMINATION AND ABANDONMENT. This Agreement may
be terminated and abandoned upon prompt written notice to the other party or
parties before the Effective Time, notwithstanding authorization and adoption
of this Agreement by the shareholders of Prairie or Acquisition Corp or both:
(a) By mutual consent of the boards of directors of Union and Acquisition
Corp and the board of directors of Prairie;
(b) By Union or Acquisition Corp at any time after ten months after the
date of this Agreement, or such later date as shall have been agreed to in
writing by the parties (as the same may be extended, the "Termination Date"),
if any of the conditions provided for in Articles 9 and 11 of this Agreement
have not been met and have not been waived in writing by Union, provided,
however, that if any condition set forth in Articles 9 or 11 is required to be
satisfied prior to the Termination Date, Union may terminate this Agreement if
such condition has not been satisfied within 30 days following receipt by
Prairie of notice of such failed condition;
(c) By Union if Prairie shall have breached one or more provisions of this
Agreement in any way which has, or would reasonably be expected to have a
material adverse effect on the rights of Union under this Agreement,
considering all such breaches in the aggregate, and where such breach has not
been cured within 30 days following receipt by Prairie of notice of such
breach;
(d) By Prairie at any time after the Termination Date if any of the
conditions provided for in Articles 10 or 11 of this Agreement have not been
met and have not been waived in writing by Prairie; provided, however,
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that if any condition set forth in Articles 10 or 11 is required to be
satisfied prior to the Termination Date, Prairie may terminate this Agreement
if such condition has not been satisfied within 30 days following receipt by
Union of notice of such failed condition; and
(e) By Prairie if either Union or Acquisition Corp shall have breached one
or more provisions of this Agreement in any way which has, or would reasonably
be expected to have a material adverse effect on the rights of Prairie under
this Agreement, considering all such breaches in the aggregate, and where such
breach has not been cured within 30 days following receipt by Union of notice
of such breach.
SECTION 18.2 EFFECT OF TERMINATION OR ABANDONMENT. Except as expressly
provided herein, in the event of the termination of this Agreement and the
abandonment of the Merger pursuant to Sections 1.2, 2.9, 3.2 or 13.1, this
Agreement shall become null and void and there shall be no liability or
restrictions on the future activities on the part of any party hereto, or its
directors, officers or shareholders, except for the obligations of Prairie and
Union concerning confidentiality referred to in Section 6.1 and Section 7.1,
respectively.
SECTION 18.3 PAYMENT TO PRAIRIE. (a) If the Merger contemplated herein is
not consummated because Union breaches its obligations under this Agreement,
unless such breach or failure is a result of the failure by Prairie to perform
and comply in all material respects with any of its material obligations under
this Agreement which are to be performed or complied with by it prior to or on
the date required hereunder, then Union shall pay to Prairie, upon its written
demand, an amount equal to Prairie's costs and expenses incurred in connection
with this Agreement, provided, however, that such amount shall in no event be
greater than $150,000. Such amount shall constitute liquidated damages and the
receipt thereof shall be Prairie's sole and exclusive remedy under this
Agreement for such breach by Union.
(b) In addition to any payment due pursuant to the immediately preceding
subsection, if the Merger contemplated herein is not consummated because Union
breaches its obligations under this Agreement, unless such breach is a result
of the failure by Prairie to perform and comply in all material respects with
any of its material obligations under this Agreement which are to be performed
or complied with by it prior to or on the date required hereunder, and within
one year after the termination of this Agreement Union enters into an agreement
with any party other than Prairie providing for the acquisition of control of
Union by such other party, then Union shall pay to Prairie, upon its written
demand, the sum of $500,000. Such sum, together with any payment which may be
due pursuant to the immediately preceding subsection, shall constitute
liquidated damages under this Agreement and the receipt thereof shall be
Prairie's sole and exclusive remedy under this Agreement for such breach by
Union or as a result of such acquisition of control of Union by a third party,
provided, further, however, that the provisions of this Section shall in no way
limit Prairie's rights against any such third party. For purposes of this
Section, the phrase "control of Union" shall mean the acquisition by any such
third party of: (a) legal or beneficial ownership (as defined by Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of greater
than 33% of the then issued and outstanding voting stock of Union or any Union
Subsidiary through any transaction to which Union or any Affiliate of Union is
a party; (b) all or substantially all of Union's assets; or (c) all or
substantially all of the assets of any of the Union Subsidiaries.
SECTION 18.4 PAYMENTS TO UNION. (a) If the Merger contemplated herein is
not consummated because Prairie breaches its obligations under this Agreement,
unless such breach or failure is a result of the failure by Union or
Acquisition Corp to perform and comply in all material respects with any of
their material obligations under this Agreement which are to be performed or
complied with by them prior to or on the date required hereunder, then Prairie
shall pay to Union, upon its written demand, an amount equal to Union's costs
and expenses incurred in connection with this Agreement, provided, however,
that such amount shall in no event be greater than $150,000. Such sum,
together with any payment which may be due pursuant to the following
subsection, shall constitute liquidated damages and the receipt thereof shall
be Union's sole and exclusive remedy under this Agreement for such breach by
Prairie.
(b) In addition to any payment due pursuant to the immediately preceding
subsection, if the Merger contemplated herein is not consummated because
Prairie breaches its obligations under this Agreement, unless such breach is a
result of the failure by Union or Acquisition Corp to perform and comply in all
material respects with any of their material obligations under this Agreement
which are to be performed or complied with by them prior to or on the date
required hereunder, and within one year after the termination of this Agreement
Prairie enters into an agreement with any party other than Union providing for
the acquisition of control of Prairie by such other party, then Prairie shall
pay to Union, upon its written demand, the sum of $500,000. Such sum, together
with any payment which may be due pursuant to the immediately preceding
subsection, shall constitute liquidated damages under this Agreement and the
receipt thereof shall be Union's sole and exclusive remedy under this Agreement
for such breach by Prairie or as a result of such acquisition of control of
Prairie by a third party, provided, further,
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however, that the provisions of this Section shall in no way limit Union's
rights against any such third party. For purposes of this Section, the phrase
"control of Prairie" shall mean the acquisition by any such third party of:
(a) legal or beneficial ownership (as defined by Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended) of greater than 33% of the
then issued and outstanding voting stock of Prairie or any Prairie Subsidiary
through any transaction to which Prairie or any Affiliate of Prairie is a
party; (b) all or substantially all of Prairie's assets; or (c) all or
substantially all of the assets of any of the Prairie Subsidiaries.
ARTICLE 19
MISCELLANEOUS
SECTION 19.1 GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement shall be governed by the internal laws of
the State of Illinois applicable to contracts made and wholly to be performed
in such state without regard to conflicts of laws.
SECTION 19.2 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned, in whole or in part, by any of the
parties hereto without the prior written consent of the other parties hereto
and any purported assignment in violation hereof shall be void and of no
effect.
SECTION 19.3 AMENDMENT AND MODIFICATION. The parties may by written
agreement signed by all parties hereto: (a) extend the time for the
performance of any of the obligations or other acts of the parties hereto; (b)
waive any inaccuracies in the representations or warranties contained in this
Agreement or in any document delivered pursuant to this Agreement; and (c)
waive compliance with or modify, amend or supplement any of the conditions,
covenants, agreements, representations or warranties contained in this
Agreement or waive or modify performance of any of the obligations of any of
the parties hereto, which are for the benefit of the waiving party, provided,
however, that no such modification, amendment or supplement agreed to after
authorization of this Agreement by the shareholders of Prairie shall affect the
rights of such shareholders in any manner which is materially adverse to such
shareholders. The failure of any party hereto to enforce at any time any
provision of this Agreement shall not be construed to be a waiver of such
provision, nor in any way affect the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
SECTION 19.4 NOTICES. All notices, requests and other communications
hereunder shall be in writing (which shall include telecopier communication)
and shall be deemed to have been duly given if delivered by hand or by
overnight express delivery service, mailed with first class postage prepaid or
telecopied if confirmed immediately thereafter by also mailing a copy of any
notice, request or other communication by mail with first class postage
prepaid:
(a) If to Prairie to:
Prairie Bancorp, Inc.
601 S. Main Street
Princeton, Illinois 61356
Attention: Robert Davidson
Executive Vice President and Chief Financial Officer
Telephone: (815) 879-6010
Telecopier: (815) 879-6040
with copies to:
Burke, Warren & MacKay, P.C.
24th Floor
225 West Washington Street
Chicago, Illinois 60606-3418
Attention: Richard W. Burke, Sr., Esq.
Telephone: (312) 357-0800
Telecopier: (312) 357-0707
36
<PAGE> 40
or to such other Person and place as Prairie shall furnish to Union in writing;
or
(b) if to Union or Acquisition Corp to:
UnionBancorp, Inc.
122 West Madison Street
Ottawa, Illinois 61350
Attention: R. Scott Grigsby
Chairman and President
Telephone: (815) 673-3333
Telecopier: (815) 434-3160
with copies to:
Barack, Ferrazzano, Kirschbaum & Perlman
333 West Wacker
Suite 2700
Chicago, Illinois 60606
Attention: John E. Freechack, Esq.
Telephone: (312) 984-3100
Telecopier: (312) 984-3150
or to such other Person or place as Union or Acquisition Corp shall furnish to
Prairie or Prairie shall furnish to Union and Acquisition Corp in writing.
Except as otherwise provided herein, all such notices, requests or other
communications shall be effective: (i) if delivered by hand, when delivered;
(ii) if mailed in the manner provided in this Section, five Business Days after
deposit with the United States Postal Service; (iii) if delivered by overnight
express delivery service, on the next Business Day after deposit with such
service; (iv) if by telecopier, on the next Business Day if also confirmed by
mail in the manner provided in this Section.
SECTION 19.5 HEADINGS. The table of contents and the captions and
headings of articles, sections, schedules and exhibits appearing in or attached
to this Agreement have been inserted solely for convenience of reference and
shall not be considered a part of this Agreement nor shall any of them affect
the meaning or interpretation of this Agreement or any of its provisions.
SECTION 19.6 ENTIRE AGREEMENT. This Agreement and any documents executed
by the parties pursuant to this Agreement and referred to herein constitute the
entire understanding and agreement of the parties hereto and supersede all
other prior agreements and understandings, written or oral, relating to such
subject matter between the parties. This Agreement and every representation,
warranty, covenant, agreement and provision hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
SECTION 19.7 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement unless the consummation of the transactions contemplated hereby
is adversely affected thereby.
SECTION 19.8 FURTHER INSTRUMENTS. The parties hereto will, at or before
the Effective Time, execute and deliver such further instruments as may be
reasonably requested by any other party which are necessary to or appropriate
with respect to the consummation of the transactions contemplated by this
Agreement.
SECTION 19.9 COUNTERPARTS. This Agreement and any amendments thereto may
be executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 19.10 ALL REASONABLE EFFORTS. Each party represents and warrants
that it will use all reasonable efforts to bring about the transactions
contemplated by this Agreement as soon as practicable provided that this
Section shall not obligate Prairie or Union to remedy any breach of any of its
representations, warranties and
37
<PAGE> 41
covenants herein. In the event that any party becomes aware of the occurrence
or impending occurrence of any event which would constitute or cause a breach
by it of any of the representations or warranties herein, or would have
constituted or caused a breach by it of any of the representations or
warranties herein, had such an event occurred or been known prior to the date
hereof, said party shall immediately give detailed and written notice thereof
to the other party.
SECTION 19.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants,
representations and warranties contained in this Agreement shall survive only
until the Effective Time.
SECTION 19.12 NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to and shall not create any rights in or confer any benefits upon any
Person or entity other than the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers as of the day and year first written
above.
ATTEST: UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- --------------------
Charles J. Grako R. Scott Grigsby
Secretary Chairman of the Board and President
ATTEST: PRAIRIE BANCORP, INC.
By: \s\ Donna Seeforth By: \s\ Robert Davidson
-------------------- ----------------------------------
Donna Seeforth Robert Davidson
Secretary Executive Vice President and Chief
Financial Officer
ATTEST: PRAIRIE ACQUISITION CORPORATION
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- ----------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President
38
<PAGE> 42
AGREEMENT AND FIRST AMENDMENT
THIS AGREEMENT AND FIRST AMENDMENT (this "Amendment") is entered into this
8th day of March, 1996, by and among PRAIRIE BANCORP, INC., an Illinois
corporation ("Prairie"), UNIONBANCORP, INC., a Delaware corporation ("Union"),
PRAIRIE ACQUISITION CORPORATION, an Illinois corporation and a wholly-owned
subsidiary of Union ("Acquisition Corp"), and WAYNE W. WHALEN and DENNIS J.
MCDONNELL (referred to collectively as the "Prairie Stockholders").
RECITALS
A. Union, Acquisition Corp and Prairie entered into an Agreement and Plan
of Merger dated January 22, 1996 (the "Agreement").
B. Each of the parties to the Agreement now desires to amend the Agreement
as set forth herein, and the Prairie Stockholders desire to undertake
obligations in addition to those of the parties to the Agreement as a further
inducement to such parties to enter into this Amendment.
NOW, THEREFORE, the parties to this Amendment, in consideration of the
mutual covenants contained herein, hereby agree as follows:
AGREEMENTS
1. All defined terms or capitalized terms used in the Agreement shall have
the same meaning in this Amendment as in the Agreement, unless said terms are
defined herein or unless the context clearly indicates to the contrary.
2. A new Section 6.13 shall be added to Article 6 to read as follows:
SECTION 6.13 PORTFOLIO LOSS. (a) If at the time immediately prior to
the Closing there exists a Portfolio Loss (as defined below), each of the
Prairie Stockholders agrees to make, and Prairie agrees to accept, at such
time an additional cash contribution to Prairie, without the receipt of
additional capital stock, in an amount equal to: (i) one-quarter of the
Portfolio Loss if the total Portfolio Loss is less than or equal to
$700,000; or (ii) $175,000 plus one-half of the amount of the Portfolio
Loss in excess of $700,000 if the total Portfolio Loss is greater than
$700,000.
(b) For purposes of this Agreement, Portfolio Loss shall mean: (i) at
the time immediately prior to the Closing, the net aggregate amount of
unrealized losses and unrealized gains in the consolidated investment
portfolio of Prairie measured by the difference between the book value and
the fair market value of such portfolio at such time prior to the Closing;
plus (ii) the aggregate amount of any losses realized by Prairie on sales
of investment securities from its consolidated investment portfolio
consummated between the date of the Agreement and the time immediately
prior to the Closing; but less (iii) the aggregate amount of any gains
realized by Prairie on sales of investment securities from its consolidated
investment portfolio consummated between the date of the Agreement and the
time immediately prior to the Closing.
(c) Prairie agrees that it will not invest the proceeds from any sales
of investment securities from its consolidated investment portfolio
consummated between the date of this Amendment and the time immediately
prior to the Closing in investments other than loans made in the ordinary
course of business by any of the Prairie Banks or in securities that would
be permissible investments under Union's investment policy or as otherwise
agreed to in writing by Union.
3. Except as expressly amended hereby, the Agreement is hereby ratified
and confirmed and shall continue in full force and effect.
4. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
1
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
caused this Amendment to be executed by their respective officers, as of the
day and year first written above.
ATTEST: UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: R. Scott Grigsby
-------------------- ----------------
Charles J. Grako R. Scott Grigsby
Secretary Chairman of the Board and President
ATTEST: PRAIRIE BANCORP, INC.
By: \s\ Donna Seeforth By: \s\ Robert Davidson
-------------------- -------------------
Donna Seeforth Robert Davidson
Secretary Executive Vice President and Chief
Financial Officer
ATTEST: PRAIRIE ACQUISITION CORPORATION
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- ---------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President
\s\ Wayne W. Whalen \s\ Dennis J. McDonnell
- ---------------------- ------------------------
WAYNE W. WHALEN DENNIS J. MCDONNELL
2
<PAGE> 44
AGREEMENT AND SECOND AMENDMENT
THIS AGREEMENT AND SECOND AMENDMENT (this "Amendment") is entered into
this 23rd day of July, 1996, by and among PRAIRIE BANCORP, INC., an Illinois
corporation ("Prairie"), UNIONBANCORP, INC., a Delaware corporation ("Union"),
PRAIRIE ACQUISITION CORPORATION, an Illinois corporation and a wholly-owned
subsidiary of Union ("Acquisition Corp"), and WAYNE W. WHALEN and DENNIS J.
MCDONNELL (referred to collectively as the "Prairie Stockholders").
RECITALS
A. Union, Acquisition Corp and Prairie entered into an Agreement and Plan
of Merger dated January 22, 1996 (the "Agreement"), and each of the parties to
the Agreement and each of the Prairie Stockholders entered into an Agreement
and First Amendment dated March 8, 1996 (the "First Amendment").
B. Each of the parties to the Agreement, and each of the Prairie
Stockholders now desires to further amend the Agreement as set forth herein,
and the Prairie Stockholders desire to undertake obligations in addition to
those of the parties to the Agreement as a further inducement to such parties
to enter into this Amendment.
NOW, THEREFORE, the parties to this Amendment, in consideration of the
mutual covenants contained herein, hereby agree as follows:
AGREEMENTS
1. All defined terms or capitalized terms used in the Agreement shall have
the same meaning in this Amendment as in the Agreement, unless said terms are
defined herein or unless the context clearly indicates to the contrary.
2. On the last Business Day prior to the Closing Date, Union shall cause
the securities owned by Prairie that are listed on Exhibit A attached hereto
(the "Part A Securities") to be valued by Adams Financial Software, Inc.
("Adams"). If the aggregate fair market value of the Part A Securities as
determined by Adams is less than the aggregate book value (where for purposes
of this Amendment book value is determined in accordance with generally
accepted accounting principles as in effect on the date hereof and prior to any
adjustments required by Statement of Financial Accounting Standards No. 115) of
the Part A Securities as shown on Prairie's books and records on the last
Business Day prior to the Closing Date, then the number of shares of the Union
Preferred Stock to be issued by Union at the Closing pursuant to Section 3.2 of
the Agreement to the Prairie Stockholders shall be reduced by an amount equal
to: (a) the difference between the aggregate book value of the Part A
Securities and the aggregate fair market value of the Part A Securities as
determined by Adams; (b) multiplied by 61.2%; and (c) divided by $1,000. The
number of shares of Union Preferred Stock to be issued at the Closing, as
reduced, is referred to as the Actual Preferred Shares.
3. After the Closing, Union shall cause the securities owned by Prairie
that are listed on Exhibit B attached hereto (the "Part B Securities") to be
valued by Adams on a monthly basis. If the results of any such valuation show
that there is a negative difference between the aggregate fair market value of
the Part B Securities as determined by Adams and the book value of such
securities, and if such difference is greater than the aggregate stated value
of the Actual Preferred Shares, plus accrued but unpaid dividends, after taking
into account tax effects at a combined tax rate of 38.8%, Union shall
immediately take such steps as are reasonably necessary to sell all of the Part
B Securities as soon as is reasonably practicable. In any event, Union shall
sell all of the Part B Securities as soon as is reasonably practicable after
the fourth anniversary of the Closing (the "Final Sale Date"). If the
aggregate net proceeds from the sale of the Part B Securities (other than
Identified Securities, as defined below) are less than the aggregate book value
of such Part B Securities, then that number of Actual Preferred Shares equal
to: (a) the difference between the aggregate book value of the Part B
Securities (other than Identified Securities) and the aggregate net proceeds
from the sale of the Part B Securities (other than Identified Securities); (b)
multiplied by 61.2%; and (c) divided by $1,000, shall be cancelled. The number
of Actual Preferred Shares as reduced is referred to as the Net Remaining
Preferred Shares. Except as provided in Section 2 above and Section 4 below,
neither of the Prairie Stockholders will have any liability for any losses
incurred by Union upon a sale of all or any part of the Part A or Part B
Securities.
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<PAGE> 45
4. Notwithstanding anything contained herein to the contrary, Union may at
any time after the Closing notify the Prairie Stockholders in writing that it
intends to sell specifically identified Part B Securities (a "Union Sale
Request"). If Union has not received a written objection by noon of the first
Business Day following the day upon which the Prairie Stockholders received the
Union Sale Request, Union may complete the sale of securities identified in the
Sale Request (the "Identified Securities") with no liability on the part of the
Prairie Stockholders for any loss thereon. If, however, Union receives within
the time prescribed such written objection signed by each of the Prairie
Stockholders, or by their authorized agents previously identified to Union,
then Union shall not sell the Identified Securities and instead shall continue
to hold such securities until the Final Sale Date or such earlier sale date in
accordance with the terms of this Amendment or as otherwise mutually agreed
among Union and each of the Prairie Stockholders. At the Final Sale Date (or
until an earlier sale of all of the Part B Securities), if the aggregate net
proceeds from the sale of all Identified Securities are less than the aggregate
book value of such Identified Securities, then that number of Net Remaining
Preferred Shares equal to: (a) the difference between the aggregate book value
of all Identified Securities and the aggregate net proceeds from all sales of
such Identified Securities; (b) multiplied by 61.2%; and (c) divided by $1,000,
shall be cancelled. Prairie Stockholders severally and individually agree to
pay to Union in cash upon demand and after the sale of all of the Part B
Securities the amount of any negative difference between the aggregate stated
value of the Net Remaining Preferred Shares, plus accrued but unpaid dividends,
and the after tax loss determined by the difference between the aggregate book
value of all Identified Securities to which the sale thereof any Prairie
Stockholder has objected and the aggregate net proceeds from all sales of such
Identified Securities.
5. In addition to the foregoing, at any time after the Closing the Prairie
Stockholders acting in unison may request Union to sell all, but not less than
all, the Part B Securities, provided that after taking into account the
expected after tax loss to be incurred by Union as a result of such sale and
the aggregate stated value, plus accrued but unpaid dividends, of the shares of
Union Preferred Stock held by the Prairie Stockholders, the Prairie
Stockholders have established a cash escrow account in an amount reasonably
satisfactory to Union to cover any after tax loss recognized upon such sale
that would not be fully offset by the cancellation of shares of Union Preferred
Stock held by the Prairie Stockholders. Upon the receipt by Union of such
request by the Prairie Stockholders and the establishment of such escrow
account, if necessary, Union shall sell the Part B Securities as soon as is
reasonably practicable. The amount of any such after tax loss not covered by
the cancellation of shares of Union Preferred Stock (plus accrued but unpaid
dividends) held by the Prairie Stockholders shall be paid to Union from such
escrow account, and the remaining balance of such escrow account, if any, shall
be paid to the Prairie Stockholders.
6. Section 13.4(a) of the Agreement shall be deleted in its entirety and
replaced with the following:
(a) Provided that Union is ready, willing and able to consummate the
Merger on or before August 7, 1996, if the Merger contemplated herein is
not consummated because of the refusal to act by any of Prairie or one of
the Prairie Stockholders, unless such refusal is a result of the failure by
Union or Acquisition Corp to perform and comply in all material respects
with any of their material obligations under the Agreement or this
Amendment which are to be performed or complied with by them prior to or on
the date required thereunder or hereunder, then Prairie shall pay to Union,
upon its written demand, an amount equal to $500,000. Such sum, together
with any payment which may be due pursuant to Section 13.4(b), shall
constitute liquidated damages and the receipt thereof shall be Union's sole
and exclusive remedy for such breach by Prairie.
7. The Prairie Stockholders shall have no right to redeem the Union
Preferred Stock for cash and shall have no right to convert any of the Union
Preferred Stock into shares of Union Common Stock until the Final Sale Date (or
until an earlier sale of all of the Part B Securities) and after any reductions
required by this Amendment in the number of outstanding shares of Union
Preferred Stock.
8. All notices, requests and other communications hereunder shall be in
writing (which shall include telecopier communication) and shall be deemed to
have been duly given if delivered by hand or by overnight express delivery
service, mailed with first class postage prepaid or telecopied if confirmed
immediately thereafter by also mailing a copy of any notice, request or other
communication by mail with first class postage prepaid:
2
<PAGE> 46
(a) If to Union, to:
UnionBancorp, Inc.
122 West Madison Street
Ottawa, Illinois 61350
Attention: R. Scott Grigsby
Chairman and President
Telephone: (815) 433-7010
Telecopier: (815) 434-3160
(b) If to the Prairie Stockholders, to each of:
Wayne W. Whalen Dennis J. McDonnell
333 West Wacker Drive 815 Jackson
Chicago, Illinois 60606 River Forest, Illinois 60305
Telephone: (312) 407-0600 Telephone: (708) 771-5869
Telecopier: (312) 407-0411 Telecopier: (708) 771-5956
or to such other person or place as any of the parties shall furnish to the
other parties in writing, except that notices of a change of address shall be
effective only upon receipt. Except as otherwise provided herein, all such
notices, requests or other communications shall be effective: (i) if delivered
by hand, when delivered; (ii) if mailed in the manner provided in this Section,
four Business Days after deposit with the United States Postal Service; (iii)
if delivered by overnight express delivery service, on the next Business Day
after deposit with such service; or (iv) if by telecopier, on the Business Day
sent if receipt is also confirmed by telephone on the same day sent and a copy
is sent by mail in the manner provided in this Section.
9. To the extent that the terms of this Amendment are contrary to any
terms or provisions of the Agreement or the First Amendment, the terms of this
Amendment shall supersede any such contrary terms or provisions. The terms and
provisions of this Amendment shall survive the Closing.
10. Except as expressly amended hereby, the Agreement and the First
Amendment is hereby ratified and confirmed and shall continue in full force and
effect.
11. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3
<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or
caused this Amendment to be executed by their respective officers, as of the
day and year first written above.
ATTEST: UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- --------------------
Charles J. Grako R. Scott Grigsby
Secretary Chairman of the Board and President
ATTEST: PRAIRIE BANCORP, INC.
By: \s\ Donna Seeforth By: \s\ Robert Davidson
-------------------- ----------------------------------
Donna Seeforth Robert Davidson
Secretary Executive Vice President and Chief
Financial Officer
ATTEST: PRAIRIE ACQUISITION CORPORATION
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- ----------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President
\s\ Wayne H. Whalen \s\ Dennis J. McDonnell
- --------------------------- ---------------------------------------
WAYNE W. WHALEN DENNIS J. MCDONNELL
4
<PAGE> 1
EXHIBIT 10.8
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
UNIONBANCORP, INC.,
CBI ACQUISITION CORPORATION
AND
COUNTRY BANCSHARES, INC.
MARCH 21, 1996
<PAGE> 2
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Opinion of Counsel to Union
Exhibit B Form of Opinion of Counsel to CBI
Exhibit C Form of Non-Competition Agreement
Exhibit D Form of Indemnity Agreement
Exhibit E Form of Office Lease
Exhibit F Form of Paying Agent Agreement
Exhibit G Form of Voting Agreement
</TABLE>
i
<PAGE> 3
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule 4.1 CBI Organization
Schedule 4.2 CBI Capitalization
Schedule 4.3 Omni Bank Organization
Schedule 4.6 CBI Litigation and Regulatory Matters
Schedule 4.7 CBI Insurance
Schedule 4.9 CBI Financial Statements and Reports
Schedule 4.10 CBI Loan Loss Reserve
Schedule 4.12 CBI Properties, Contracts, Employee
Benefit Plans and Other Agreements
Schedule 4.14 Effect of Agreement
Schedule 4.15 CBI Articles of Incorporation, Charters
and Bylaws
Schedule 4.17 CBI Interim Events
Schedule 4.18 CBI Taxes
Schedule 4.19 CBI Title to Properties
Schedule 4.21 Compliance With ERISA by CBI
Schedule 4.22 Compliance With Environmental Laws by CBI
Schedule 7.4 Purchase of CBI Assets
Schedule 8.15 Sale of Certain Assets and Loans
</TABLE>
ii
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
this 21st day of March, 1996, by and among UNIONBANCORP, INC., a Delaware
corporation ("Union"), COUNTRY BANCSHARES, INC., an Illinois corporation
("CBI") and CBI ACQUISITION CORPORATION ("Acquisition Corp"), an Illinois
corporation and a wholly-owned subsidiary of Union.
RECITALS
A. The parties hereto desire to effect a reorganization whereby
Union desires to acquire control of CBI through the merger (the "Merger") of
Acquisition Corp with and into CBI with CBI being the surviving corporation
(the "Surviving Corporation").
B. Pursuant to the terms of this Agreement and at the time of the
closing of the Merger (the "Closing"), each outstanding share of the common
stock of CBI, $1.00 par value per share ("CBI Common Stock"), and each
outstanding share of Series 1 and Series 2 of the Class A preferred stock of
CBI, $295.00 par value per share ("CBI Preferred Stock," and collectively
referred to with the CBI Common Stock as "CBI Stock"), shall be converted into
the right to receive cash in the amount set forth herein and all of the
outstanding shares of common stock, no par value per share, of Acquisition Corp
shall be converted into and shall thereafter represent all of the issued and
outstanding stock of the Surviving Corporation.
AGREEMENTS
In consideration of the mutual covenants, representations and
warranties contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. The following terms, when used herein and
unless the context clearly requires otherwise, shall have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Acquisition Corp" shall mean CBI Acquisition Corporation, an Illinois
corporation.
"Affiliate" shall have the meaning provided in Rule 144 promulgated
under the Securities Act of 1933, as amended.
"Aggregate Amount" shall have the meaning provided in Section 3.2.
"Agreement" shall mean this Agreement and Plan of Merger.
"Articles of Merger" shall mean the articles of merger filed by CBI and
Acquisition Corp with the Secretary of State of the State of Illinois pursuant
to Section 2.8.
"BHCA" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"BIF" shall mean the Bank Insurance Fund.
"Business Day" shall mean any day when UnionBank is open for the
transaction of all banking business.
"Call Report" shall mean the Report of Condition and Income of a state
or national bank.
"Cash Price Per Common Share" shall have the meaning set forth in
Section 3.2.
"Cash Price Per Preferred Share" shall have the meaning set forth in
Section 3.2.
<PAGE> 5
"CBI" shall mean Country Bancshares, Inc., an Illinois corporation.
"CBI Book of Schedules" shall mean the Schedules and agreements and
other documentation described and referred to in Section 4 of this Agreement
with respect to CBI.
"CBI Closing Obligations" shall have the meaning provided in Section
6.9.
"CBI Common Stock" shall mean the outstanding common stock of CBI,
$1.00 par value per share.
"CBI Financial Statements" shall mean the financial statements and
reports of CBI and Omni Bank described in Section 4.9.
"CBI Preferred Stock" shall mean the outstanding Series 1 and Series 2
Class A preferred stock of CBI, $295.00 par value per share.
"CBI Stock" shall collectively mean the CBI Common Stock and the CBI
Preferred Stock.
"Certificates" shall mean one or more stock certificates representing
an outstanding share or outstanding shares of CBI Stock.
"Closing" shall mean the closing of the Merger of Acquisition Corp with
and into CBI.
"Closing Date" shall mean the day the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Commissioner" shall mean the Commissioner of Banks and Trust Companies
of the State of Illinois.
"Dissenting Shares" shall mean the shares of CBI Stock owned by
dissenting shareholders of CBI who have properly exercised their appraisal
rights pursuant to Section 11.70 of the Illinois BCA.
"Effective Time" shall have the meaning provided in Section 2.8.
"Employee Benefit Plans" shall have the meaning provided in Section
4.12.
"Environmental Laws" shall mean those statutes, regulations, rules,
ordinances, orders, restrictions and requirements relating to the protection of
the environment described in Section 4.23.
"Environmental Report" shall have the meaning set forth in Section
6.10.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement, and to any subsequent provisions of
ERISA, amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean any person (as defined in Section 3(9) of
ERISA) which together with CBI or Omni Bank would be a member of the same
"controlled group" within the meaning of Section 414(b), (m), (c) and (o) of
the Code.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve" shall mean the Board of Governors of the Federal
Reserve System.
"Illinois Act" shall mean the Illinois Banking Act.
2
<PAGE> 6
"Illinois BCA" shall mean the Illinois Business Corporation Act of
1983, as amended.
"Illinois BHCA" shall mean the Illinois Bank Holding Company Act of
1957, as amended.
"Indemnity Agreement" shall have the meaning set forth in Section 2.7.
"IRS" shall mean the United States Internal Revenue Service.
"Merger" shall mean the merger of Acquisition Corp with and into CBI.
"Merging Corporations" shall collectively mean CBI and Acquisition
Corp.
"Omni Bank" shall mean Omni Bank, an Illinois state bank with its main
office located in Macomb, Illinois.
"Paying Agent" shall mean UnionBank, an Illinois state bank with its
main office located in Streator, Illinois.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Proxy Statement" shall have the meaning provided in Section 6.4.
"Special Meeting" shall mean the special meeting of shareholders of CBI
to be held pursuant to Section 6.4.
"Subsequent CBI Financial Statements" shall have the meaning provided
in Section 6.3.
"Subsidiary" shall mean, as to any Person: (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person; and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time.
"Surviving Corporation" shall mean the corporation resulting from the
merger of Acquisition Corp with and into CBI.
"Termination Date" shall mean December 31, 1996, or such later date as
shall have been agreed to in writing by the parties.
"Transmittal Letter" shall mean the form to be used by shareholders of
CBI in surrendering their shares of CBI Stock in exchange for cash.
"Union" shall mean UnionBancorp, Inc., a Delaware corporation.
"Union Common Stock" shall mean the common stock of Union, $1.00 par
value per share.
"Union Financial Statements" shall have the meaning provided in Section
5.8.
"Union Subsidiaries" shall mean all of the direct and indirect
Subsidiaries of Union.
SECTION 1.2 PRINCIPLES OF CONSTRUCTION. (a) In this Agreement, unless
otherwise stated or the context otherwise requires, the following usages apply:
(i) actions permitted under this Agreement may be taken at any time and from
time to time in the actor's sole discretion; (ii) references to a statute shall
refer to the statute and any successor statute, and to all regulations
promulgated under or implementing the statute or successor, as in effect at the
relevant time; (iii) in computing periods from a specified date to a later
specified date, the words "from" and "commencing on" (and the like) mean "from
and including," and the words "to," "until" and "ending on" (and the like) mean
"to, but excluding"; (iv) references to a governmental or quasi-governmental
agency, authority or instrumentality shall also refer to a regulatory body that
succeeds to the functions of the agency, authority or instrumentality; (v)
indications of time of day mean Ottawa, Illinois time; (vi) "including" means
"including, but not
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limited to"; and (vii) all references to sections, schedules and exhibits are
to sections, schedules and exhibits in or to this Agreement unless otherwise
specified.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in the
United States consistent with those used in the preparation of the most recent
financial statements of CBI or audited financial statements of Union, as the
case may be.
SECTION 1.3 CBI BOOK OF SCHEDULES. The CBI Book of Schedules referred
to in this Agreement shall consist of the agreements and other documentation
described and referred to in this Agreement with respect to CBI. The CBI Book
of Schedules shall be delivered by CBI to Union and its counsel by 5:00 p.m.,
Ottawa, Illinois time, on the fifteenth day after the date of this Agreement.
Union shall have until 5:00 p.m., Ottawa, Illinois time, on the twentieth day
after the date of this Agreement to review the CBI Book of Schedules. If after
such review Union finds any of the matters disclosed in the CBI Book of
Schedules to be, in its sole determination, unacceptable to it, Union shall
have the right to terminate the Agreement by written notice sent to CBI by 5:00
p.m., Ottawa, Illinois time, of such twentieth day. Any such termination shall
have the effect as set forth in Section 13.2.
ARTICLE 2
THE MERGER
SECTION 2.1 MANNER OF MERGER. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined below),
Acquisition Corp shall be merged with and into CBI pursuant to the provisions
of, and with the effect provided in, the Illinois Business Corporation Act of
1983, as amended (the "Illinois BCA"), and CBI shall be the corporation
resulting from such merger (the "Surviving Corporation"). As a result of the
Merger, each share of CBI Common Stock and CBI Preferred Stock issued and
outstanding immediately prior to the Effective Time, other than Dissenting
Shares (as defined below), will be converted into the right to receive the Cash
Price Per Common Share and the Cash Price Per Preferred Share, respectively, as
each such term is defined below.
SECTION 2.2 EFFECT OF MERGER. (a) At the Effective Time, Acquisition
Corp shall be merged with and into CBI and CBI shall be the Surviving
Corporation. CBI and Acquisition Corp are sometimes referred to collectively
herein as the "Merging Corporations."
(b) Without limiting the generality of the foregoing, at the
Effective Time, the Surviving Corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises, as of a public
or a private nature, of each of the Merging Corporations, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and all and every
other interest, of or belonging to or due to each of the Merging Corporations,
shall be taken and deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the title to any real estate, or
any interest therein, vested in any of such corporations shall not revert or be
in any way impaired by reason of the Merger. The Surviving Corporation shall
assume and thenceforth be responsible and liable for all the liabilities and
obligations of each of the Merging Corporations and any claim existing or
action or proceeding pending by or against any of the Merging Corporations may
be prosecuted to judgment as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place. Neither rights of
creditors nor any liens upon the property of any of the Merging Corporations
shall be impaired by the Merger.
SECTION 2.3 ARTICLES OF INCORPORATION. From and after the Effective
Time and until amended as provided by law, the articles of incorporation of the
Surviving Corporation shall be the articles of incorporation of CBI as in
effect immediately prior to the Effective Time.
SECTION 2.4 BYLAWS. From and after the Effective Time and until
amended as provided by law, the bylaws of the Surviving Corporation shall be
the bylaws of CBI as in effect immediately prior to the Effective Time.
SECTION 2.5 DIRECTORS AND OFFICERS. The directors and officers of
Acquisition Corp immediately prior to the Effective Time shall serve as the
directors and officers of the Surviving Corporation until their successors
shall have been elected or appointed and shall have qualified in accordance
with the Illinois BCA and the articles of incorporation and bylaws of the
Surviving Corporation.
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SECTION 2.6 UNION'S DELIVERIES AT CLOSING. At the closing of the
Merger (the "Closing"), Union shall deliver, or cause to be delivered to CBI
the following items:
(a) evidence of the delivery by Union or its agents to the Paying
Agent (as defined below) of the aggregate Cash Price Per Common Share and the
Cash Price Per Preferred Share for payment to the holders of CBI Common Stock
and CBI Preferred Stock, respectively;
(b) a good standing certificate for Union issued by the Secretary
of State of each of the States of Delaware and Illinois, and dated in each case
not more than 15 Business Days prior to the Closing Date, as defined below;
(c) a good standing certificate for Acquisition Corp issued by the
Secretary of State of the State of Illinois and dated not more than 15 Business
Days prior to the Closing Date;
(d) a copy of the certificate of incorporation of Union certified
not more than 15 Business Days prior to the Closing Date by the Secretary of
State of the State of Delaware;
(e) a copy of the articles of incorporation of Acquisition Corp
certified not more that 15 Business Days prior to the Closing Date by the
Secretary of State of the State of Illinois;
(f) a certificate of the Secretary or any Assistant Secretary of
Union dated the Closing Date certifying a copy of the bylaws of Union;
(g) a certificate of the Secretary or any Assistant Secretary of
Acquisition Corp dated the Closing Date certifying a copy of the bylaws of
Acquisition Corp;
(h) copies of resolutions of the board of directors of Union
authorizing and approving this Agreement and the consummation of the
transactions contemplated hereby, certified as of the Closing Date by the
Secretary or any Assistant Secretary of Union;
(i) copies of resolutions of the board of directors and the sole
shareholder of Acquisition Corp authorizing and approving this Agreement and
the consummation of the transactions contemplated hereby, certified as of the
Closing Date by the Secretary or any Assistant Secretary of Acquisition Corp;
(j) a certificate of the President or any Vice President and the
Secretary or any Assistant Secretary of Union dated the Closing Date certifying
that: (i) there have been no further amendments to the certificate or articles
of incorporation delivered pursuant to subsections (d) and (e) of this Section;
(ii) all of the representations and warranties of Union and Acquisition Corp
set forth in this Agreement are true and correct with the same force and effect
as if all of such representations and warranties were made at the Closing Date;
and (iii) each of Union and Acquisition Corp has performed or complied with all
of the covenants and obligations to be performed or complied with by Union and
Acquisition Corp, respectively, under the terms of this Agreement on or prior
to the Closing Date;
(k) copies of each of the regulatory approvals necessary to
consummate the transactions contemplated herein;
(l) a legal opinion of Union's counsel, Barack, Ferrazzano,
Kirschbaum & Perlman, in the form set forth in Exhibit A attached hereto and
dated as of the Effective Time;
(m) such other documents as CBI or its counsel shall reasonably
request.
SECTION 2.7 CBI'S DELIVERIES AT CLOSING. At the Closing, CBI shall
deliver, or cause to be delivered to Union the following items:
(a) a good standing certificate for CBI issued by the Secretary of
State of the State of Illinois and dated not more than 15 Business Days prior
to the Closing Date;
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(b) a good standing certificate for Omni Bank, an Illinois state
bank with its main office located in Macomb, Illinois ("Omni Bank"), issued by
the Commissioner of Banks and Trust Companies of the State of Illinois (the
"Commissioner"), and dated not more than 15 Business Days prior to the Closing
Date;
(c) a copy of the articles of incorporation of CBI certified by the
Secretary of State of the State of Illinois not more that 15 Business Days
prior to the Closing Date;
(d) a copy of the charter of Omni Bank certified by the
Commissioner not more than 15 Business Days prior to the Closing Date;
(e) a certificate of the Secretary or any Assistant Secretary of
CBI dated the Closing Date certifying a copy of the bylaws of CBI;
(f) a certificate of the Cashier or any Assistant Cashier of Omni
Bank dated the Closing Date certifying a copy of the bylaws of Omni Bank;
(g) copies of resolutions of the board of directors and
shareholders of CBI authorizing and approving this Agreement and the
consummation of the transactions contemplated hereby, certified as of the
Closing Date by the Secretary or any Assistant Secretary of CBI;
(h) a certificate executed by the President or any Vice President
and the Secretary or any Assistant Secretary of CBI dated the Closing Date
certifying that: (i) there have been no further amendments to the articles of
incorporation and charter delivered pursuant to subsections (c) and (d) of this
Section; (ii) all of the representations and warranties of CBI set forth in
this Agreement are true and correct with the same force and effect as if all of
such representations and warranties were made at the Closing Date; and (iii)
CBI has performed or complied with all of the covenants and obligations to be
performed or complied with by CBI under the terms of this Agreement on or prior
to the Closing Date;
(i) a list of CBI's shareholders as of the Closing Date certified
by the Secretary or any Assistant Secretary of CBI;
(j) the written resignation of each person serving immediately
prior to the Effective Time as a director of Omni Bank;
(k) a legal opinion of CBI's counsel, Gerrish & McCreary, P.C., in
the form set forth in Exhibit B attached hereto and dated as of the Effective
Time;
(l) a non-competition agreement in the form attached as Exhibit C,
dated as of the Effective Time and executed by each of the holders of greater
than 10% of the issued and outstanding shares of CBI Common Stock as of the
date of this Agreement;
(m) an indemnity agreement in the form attached as Exhibit D, dated
as of the Effective Time and executed by each of the holders of greater than
10% of the issued and outstanding shares of CBI Common Stock as of the date of
this Agreement (the "Indemnity Agreement");
(n) an office lease in the form attached as Exhibit E, dated as of
the Effective Time and executed by the record owner, of the premises currently
used by Omni Bank for its branch operations in Paloma, Illinois; and
(o) such other documents as Union or its counsel shall reasonably
request.
SECTION 2.8 CLOSING; EFFECTIVE TIME. (a) The Closing shall be on a
date agreed to by the parties hereto (the "Closing Date"). In the event the
parties fail to so agree, the Closing shall take place on the last Business Day
of the month in which: (i) the last required regulatory approval of the Merger
is received; (ii) the last requisite waiting period has expired; or (iii) all
of the conditions provided for in Sections 8, 9 and 10 have been met or waived
in writing; whichever is later.
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(b) The parties hereto agree to file on the Closing Date
appropriate articles of merger, as contemplated by Section 11.25 of the
Illinois BCA (the "Articles of Merger"), with the Secretary of State of the
State of Illinois. The Merger shall be effective upon the close of business on
the day when the Articles of Merger have been accepted for filing by the
Secretary of State of the State of Illinois (the "Effective Time").
(c) Unless otherwise agreed by the parties hereto, the Closing
shall take place at 10:00 a.m. on the Closing Date, at such place as the
parties hereto may mutually agree, and in the event they fail to agree, at
Union's offices located at 122 West Madison Street, Ottawa, Illinois.
ARTICLE 3
TREATMENT OF AND PAYMENT FOR SHARES
SECTION 3.1 TREATMENT OF ACQUISITION CORP STOCK. All of the shares of
common stock, no par value per share, of Acquisition Corp issued and
outstanding immediately prior to the Effective Time shall at the Effective Time
be converted into and shall thereafter represent all of the issued and
outstanding stock of the Surviving Corporation.
SECTION 3.2 TREATMENT OF CBI STOCK. (a) Subject to the provisions of
this Article 3, and without any action on the part of the holder thereof, at
the Effective Time:
(i) each share of CBI Stock which is held in the treasury
of CBI or Omni Bank, other than as a trustee, fiduciary, nominee or in
a similar capacity, shall be canceled and retired and shall cease to
exist from and after the Effective Time, and no cash, securities or
other consideration shall be delivered in exchange therefor;
(ii) each share of CBI Preferred Stock issued and
outstanding immediately prior to the Effective Time shall be deemed
surrendered and automatically converted into and shall thereafter
represent the right to receive an amount in cash equal to $295.00 per
share, plus the amount of any accrued but unpaid dividends with respect
to such share (the "Cash Price Per Preferred Share"); and
(iii) each share of CBI Common Stock issued and outstanding
immediately prior to the Effective Time shall be deemed surrendered and
automatically converted into and shall thereafter represent the right
to receive an amount in cash equal to the quotient of:
(A) $11,445,000, as the same may be increased
pursuant to Section 8.15 (the "Aggregate Amount"), less the sum
of:
(1) the total amount paid by Union
pursuant to Section 6.9 at the direction of CBI to
satisfy any CBI Closing Obligations (as defined
below); and
(2) the total amount necessary to pay the
aggregate Cash Price Per Preferred Share to the
holders of CBI Preferred Stock; divided by
(B) the number of shares of CBI Common Stock
issued and outstanding immediately prior to the Effective Time
(the "Cash Price Per Share").
(b) After the Effective Time, no holder of CBI Stock which is
issued and outstanding immediately prior to the Effective Time will have any
rights in respect of such CBI Stock except to receive cash for the shares of
CBI Stock as provided in this Section 3.2 or to receive payment for such shares
of CBI Stock in the manner and to the extent provided in Section 11.70 of the
Illinois BCA.
SECTION 3.3 STEPS OF TRANSACTION. (a) As soon as practicable after
the date of the Special Meeting (as defined below), Union shall mail or cause
to be mailed to each then current holder of record of a certificate or
certificates representing outstanding shares of CBI Stock (the "Certificates")
instructions for the transmittal of the Certificates (the "Transmittal Letter")
and shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates (or a
lost certificate affidavit and a bond in a form reasonably acceptable to
Union). Pursuant to the terms of a paying agent agreement in the form attached
as Exhibit
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F, the parties hereto agree to appoint UnionBank, Streator, Illinois, as paying
agent (the "Paying Agent"), for the parties to effect the surrender of the
Certificates in exchange for cash and to cause the Paying Agent to comply with
the terms of such Paying Agent Agreement. Union shall use its best efforts to
mail or cause to be mailed the Transmittal Letter to all persons who become
holders of CBI Stock subsequent to the Special Meeting and prior to the close
of business of CBI on the date which is ten Business Days prior to the Closing
Date.
(b) As promptly as practicable after the Effective Time, Union
shall cause the Paying Agent to deliver to each holder of CBI Stock who has
submitted an effective Transmittal Letter accompanied by the Certificates
covered by such Transmittal Letter cash in the amounts required by Section 3.2.
(c) As promptly as practicable after the Effective Time, Union
shall send to each holder of record of CBI Stock immediately prior to the
Effective Time who has not previously submitted his or her Certificates,
additional copies of the Transmittal Letter for use in surrendering such
Certificates to the Paying Agent in exchange for cash.
(d) The right to receive cash into and for which each share of CBI
Stock shall have been converted pursuant to this Agreement, shall be deemed to
have been paid in full satisfaction of all rights pertaining to such converted
shares of CBI Stock.
(e) At the Effective Time, CBI shall deliver a certified copy of a
list of its shareholders to Union after which there shall be no further
registration or transfers on the stock transfer books of CBI of the shares of
CBI Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
to Union, they shall be cancelled and exchanged for cash as provided in this
Agreement.
(f) If any cash is to be paid to a person other than the person
whose name appears on any Certificate surrendered, it shall be a condition of
the payment thereof that the Certificate so surrendered shall be properly
endorsed, accompanied by all documents required to evidence and effect such
transfer and otherwise in proper form for transfer and that the person
requesting such payment shall pay to Union any transfer or other taxes required
by reason of such payment to a person other than the registered holder of the
Certificate surrendered, or otherwise required, or shall establish to the
satisfaction of Union that such tax has been paid or is not payable.
3.4 DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, to the extent appraisal rights are available to
CBI shareholders pursuant to the Illinois BCA, any shares held by a person who
objects to the Merger, whose shares either were not entitled to vote or were
not voted in favor of the Merger and who complies with all of the provisions of
the Illinois BCA concerning the rights of such person to dissent from the
Merger and to require appraisal of such person's shares and who has not
withdrawn such objection or waived such rights prior to the Closing Date
("Dissenting Shares") shall not be converted pursuant to Section 3.2 but shall
become the right to receive such consideration as may be determined to be due
to the holder of such Dissenting Shares pursuant to the Illinois BCA,
including, if applicable, any costs determined to be payable by CBI to the
holders of the Dissenting Shares pursuant to an order of the appropriate
Illinois Circuit Court in accordance with the Illinois BCA; provided, however,
that each Dissenting Share held by a person at the Effective Time who shall,
after the Effective Time, withdraw the demand for appraisal or lose the right
of appraisal, in either case pursuant to the Illinois BCA shall be deemed to be
converted, as of the Effective Time, into the Cash Price Per Share Amount,
without any interest thereon.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES BY CBI
CBI hereby represents and warrants to Union as follows:
SECTION 4.1 CBI ORGANIZATION. CBI: (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois, is a registered bank holding company under the federal Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is duly qualified to do
business and is in good standing in each other jurisdiction in which the nature
of the business conducted or the properties or assets owned or leased by it
makes such qualification necessary and where failure to be so qualified would
reasonably be expected to have a
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material adverse effect on the consolidated financial condition, assets or
business of CBI and Omni Bank; (b) has full power and authority, corporate and
otherwise, to own, operate and lease its properties as presently owned,
operated and leased, and to carry on its business as it is now being conducted;
and (c) has the requisite corporate power and authority to enter into and
perform its obligations under this Agreement in accordance with its terms.
Except as set forth on Schedule 4.1 of the CBI Book of Schedules, CBI owns no
voting stock or equity securities of any corporation, association, partnership
or other entity, other than all of the issued and outstanding stock of Omni
Bank.
SECTION 4.2 CBI CAPITALIZATION. The authorized capital stock of CBI
consists, and at the Effective Time will consist, of: (a) 50,000 shares of
common stock, $1.00 par value per share, of which as of the close of business
on the date of this Agreement 26,225 shares were outstanding and no shares were
held in the treasury; (b) 450 shares of Series 1 Class A preferred stock,
$295.00 par value per share, of which as of the close of business on the date
of this Agreement 383 shares were outstanding; and (c) 5,000 shares of Series 2
Class A preferred stock, $295.00 par value per share, of which as of the close
of business on the date of this Agreement 683 shares were outstanding. The
maximum number of shares of CBI Common Stock (assuming for this purpose that
share equivalents constitute CBI Common Stock) that would be outstanding as of
the Effective Time if all options, warrants, conversion rights and other rights
with respect thereto were exercised and the restrictions on any restricted
stock were no longer applicable is 26,225. All of the outstanding shares of
capital stock of CBI have been duly and validly authorized and issued and are
fully paid and nonassessable. Except as set forth on Schedule 4.2 of the CBI
Book of Schedules, there are no outstanding subscriptions, contracts,
conversion privileges, options, warrants, calls or other rights obligating CBI
or Omni Bank to issue, sell or otherwise dispose of, or to purchase, redeem or
otherwise acquire, any shares of capital stock of CBI or Omni Bank.
SECTION 4.3 OMNI BANK ORGANIZATION. Omni Bank is an Illinois state
bank with its main office located in Macomb, Illinois, and is duly organized,
validly existing and in good standing under the laws of the State of Illinois.
Omni Bank has full power and authority, corporate or otherwise, to carry on its
business as it is now being conducted and to own or hold under lease the
properties and assets it owns or holds under Lease. Except as set forth on
Schedule 4.3 of the CBI Book of Schedules, Omni Bank owns no voting stock or
equity securities of any corporation, association, partnership or other entity.
All of the deposit liabilities of Omni Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") through the BIF to the fullest extent permitted
by applicable law and Omni Bank pays the lowest premium assessed by the FDIC
for such deposit insurance.
SECTION 4.4 OMNI BANK CAPITALIZATION. The authorized capital stock of
Omni Bank consists, and at the Effective Time will consist, of 1,800 shares of
common stock, $100 par value per share, all of which shares are issued and
outstanding. All of the outstanding shares of capital stock of Omni Bank have
been duly and validly authorized and issued and are fully paid and
nonassessable and owned by CBI. There are no options, warrants, rights, calls
or commitments of any character relating to any additional shares of the
capital stock of Omni Bank. No capital stock or other security issued by Omni
Bank has been issued in violation of, or without compliance with, the rights of
shareholders.
SECTION 4.5 AUTHORIZATION. CBI has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and
the execution, delivery and performance of this Agreement by CBI, and
consummation by it of the transactions contemplated hereby have been authorized
by all necessary corporate action other than the requisite approval of the
holders of CBI Common Stock and CBI Preferred Stock. Subject to such
shareholders' approval, this Agreement constitutes a legal, valid and binding
obligation of CBI enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other
laws and subject to general principles of equity.
SECTION 4.6 LITIGATION AND REGULATORY MATTERS. Schedule 4.6 of the
CBI Book of Schedules sets forth a list of all actions, suits, agreements with
regulatory authorities or legal or administrative proceedings pending or
existing as of the date hereof in or to which CBI or Omni Bank is a named party
or is subject. Except as set forth on Schedule 4.6 of the CBI Book of
Schedules, there is no action, suit, proceeding, claim or formal written
protest by any Person or agency, or any investigation, report or agreement by
or with any regulatory authority having jurisdiction over CBI or Omni Bank or
any of its respective assets or businesses which exists or is pending or, to
CBI's knowledge, threatened against CBI or Omni Bank, or any of its respective
officers or directors in their capacities as such, or its assets, business or
goodwill which would reasonably be expected to have a material adverse effect
on the consolidated financial condition, assets or business of CBI and Omni
Bank or which would impair
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CBI's ability to consummate the Merger. CBI further represents and warrants
that except as set forth on Schedule 4.6 of the CBI Book of Schedules, it does
not know or have any reason to believe that there is any basis for assertion
against it or Omni Bank of any material claims based upon the wrongful action
or inaction of either CBI or Omni Bank, and any of its officers, directors or
employees which would reasonably be expected to have a material adverse effect
on the consolidated financial condition, assets or business of CBI and Omni
Bank or which would impair CBI's ability to consummate the Merger. Neither CBI
nor Omni Bank is subject to, or in default with respect to, nor are any of its
assets subject to, any outstanding judgment, regulatory agreement, injunction,
writ, order or decree or any other requirement of any governmental body or
court or of any governmental agency or instrumentality which would reasonably
be expected to have a material adverse effect on the consolidated financial
condition, assets or business of CBI and Omni Bank.
SECTION 4.7 INSURANCE. Schedule 4.7 of the CBI Book of Schedules
lists and briefly describes the policies of insurance (including bankers
blanket bond and insurance providing benefits for employees) owned or held by
CBI or Omni Bank on the date hereof. Each such policy is, and CBI will use its
best efforts to keep each such policy, in full force and effect (except for any
expiring policy which is replaced by coverage at least as extensive) until the
Effective Time. All premiums due on such policies have been paid.
SECTION 4.8 DEFAULTS UNDER AGREEMENTS. Neither CBI nor Omni Bank is
in default or, to the best of their knowledge, alleged to be in default, under
any loan or credit agreement, conditional sales contract or other title
retention agreement or security agreement relating to money borrowed by CBI or
Omni Bank, agreements pursuant to which it leases real or personal property or
any other instrument or obligation, which would reasonably be expected to have
a material adverse effect on the consolidated financial condition, assets or
business of CBI and Omni Bank. Neither CBI nor Omni Bank is in default in any
material respect and CBI has no knowledge of any material default under such
instruments by any other party thereto and has no knowledge of any event which
with notice or lapse of time or both would constitute a material default.
SECTION 4.9 FINANCIAL STATEMENTS AND REPORTS. Copies of the following
financial statements and reports of CBI and Omni Bank (collectively, the "CBI
Financial Statements") are set forth on Schedule 4.9 of the CBI Book of
Schedules:
(a) Consolidated Balance Sheets and the related Statements of
Income, Statements of Changes in Shareholders' Equity and Statements of Cash
Flows of CBI (or its predecessors) for the years ended December 31, 1991, 1992,
1993 and 1994;
(b) Report of CBI on Form F.R. Y-6 at the close of business on
December 31, 1994; and
(c) Consolidated Reports of Condition and Income (the "Call
Reports") for Omni Bank (or its predecessors) at the close of business on March
31, June 30 and September 30, 1995, and December 31, 1992, 1993 and 1994.
The CBI Financial Statements are complete and correct in all material
respects and fairly present the respective financial positions of CBI and Omni
Bank at the dates shown and the results of operations for the periods covered.
The CBI Financial Statements described above have been prepared on a basis
consistent with past accounting practices and as required by applicable rules
or regulations and fairly present the financial condition and results of
operations at the dates and for the periods presented, subject to year-end
audit adjustments (which changes in the aggregate would not reasonably be
expected to be materially adverse). The CBI Financial Statements do not
include any material assets or omit to state any material liabilities, absolute
or contingent, or other facts, which inclusion or omission would render the CBI
Financial Statements misleading in any material respect.
SECTION 4.10 LOAN LOSS RESERVE. The reserve for possible loan and
lease losses shown on the September 30, 1995 Call Report for Omni Bank is
adequate in all material respects under the requirements of generally accepted
accounting principles to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of September 30, 1995. Except as set forth on
Schedule 4.10 of the CBI Book of Schedules, to the best knowledge and belief of
CBI, the aggregate loan balances at such date in excess of such reserves are,
based on past loan loss experience, collectible in accordance with their terms,
and all uncollectible loans have been charged off.
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SECTION 4.11 REGULATORY FILINGS. Each of CBI and Omni Bank has filed
in a timely manner all required filings with all proper regulatory
authorities, including: (a) the Board of Governors of the Federal Reserve
System (the "Federal Reserve"); (b) the FDIC; and (c) the Commissioner. To the
best knowledge of CBI, all such filings were accurate and complete in all
material respects as of the dates of the filings, and no such filing has made
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
SECTION 4.12 PROPERTIES, CONTRACTS, EMPLOYEE BENEFIT PLANS AND OTHER
AGREEMENTS. Schedule 4.12 of the CBI Book of Schedules lists or describes the
following:
(a) Each parcel of real property owned by CBI or Omni Bank and the
principal buildings and structures located thereon, together with a legal
description of such real estate, and each lease of real property to which CBI
or Omni Bank is a party, identifying the parties thereto, the annual rental
payable, the expiration date thereof and a brief description of the property
covered, and in each case of either owned or leased real property, a
description of the property's current use, including, if applicable,
identification of each such property as a branch or main office of Omni Bank;
(b) Each loan and credit agreement, conditional sales contract or
other title retention agreement or security agreement relating to money
borrowed by CBI or Omni Bank, exclusive of any deposit agreement with customers
of Omni Bank entered into in the ordinary course of business, agreement for the
purchase of federal funds and repurchase agreement;
(c) Each agreement, loan, contract, lease, guarantee, letter of
credit, line of credit or commitment of CBI or Omni Bank not referred to
elsewhere in this Section which:
(i) involves payment by CBI or Omni Bank (other than as
disbursement of loan proceeds to customers) of more than $10,000 in
any calendar year, or of more than $20,000 when aggregated with any of
the foregoing that involved payments of less than $10,000 in any
calendar year;
(ii) involves payments based on profits of CBI or Omni Bank;
(iii) relates to the future purchase of goods or services in
excess of the requirements of its respective business at current
levels or for normal operating purposes;
(iv) was not made in the ordinary course of business; or
(v) materially affects the business or consolidated financial
condition of CBI and Omni Bank;
(d) Each profit sharing, group insurance, hospitalization, stock
option, pension, retirement, bonus, deferred compensation, stock bonus, stock
purchase or other employee welfare or benefit agreement, plan, contract or
arrangement under which pensions, deferred compensation and any other
retirement or employee benefits are being paid, may become payable, provided or
made available by CBI or Omni Bank, which was established, maintained,
sponsored or undertaken by CBI or Omni Bank for the benefit of its respective
officers, directors or employees, including each trust or other agreement with
any custodian or any trustee for funds held under any such agreement, plan or
arrangement, and all other agreements, contracts or arrangements under which
pensions, deferred compensation or other retirement benefits are being paid or
may become payable by CBI or Omni Bank (collectively, the "Employee Benefit
Plans"), and, in respect to any of them, the latest reports or forms, if any,
filed with the Department of Labor and Pension Benefit Guaranty Corporation
under ERISA, any current financial or actuarial reports and any currently
effective United States Internal Revenue Service ("IRS") private rulings or
determination letters obtained by or for the benefit of CBI or Omni Bank;
(e) Each lease or license to which CBI or Omni Bank is a party
with respect to personal property, whether as lessee or licensee, with rental
or other payments due thereunder in excess of $12,000 in any calendar year, or
of more than $20,000 in any calendar year when aggregated with any of the
foregoing that involved payments of less than $10,000 in any calendar year;
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(f) Any collective bargaining agreement and each employment and
consulting contract or similar arrangement between any Person and CBI or Omni
Bank (except for any ordinary oral employment contract with an employee of CBI
or Omni Bank creating an at will employment relationship); and
(g) The name and annual salary of each director, officer or
employee of CBI or Omni Bank, and the profit sharing, bonus or other form of
compensation (other than salary) paid or payable by CBI, Omni Bank or a
combination of both to or for the benefit of each such person in question for
the current year and for the year ended December 31, 1995.
Copies of each document, plan or contract listed and described on
Schedule 4.12 of the CBI Book of Schedules are appended to such Schedule and
included in the CBI Book of Schedules.
SECTION 4.13 DISCLOSURES. No representation or warranty made herein
by CBI contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained herein under the
circumstances under which they were made not misleading, and CBI has made full
disclosure of all material facts with respect to CBI and Omni Bank. Except as
and to the extent reflected or reserved against in the CBI Financial Statements
for the year ended December 31, 1994, and the Call Reports of Omni Bank, each
referenced in Section 4.9 above, or the Subsequent CBI Financial Statements (as
defined below), neither CBI nor Omni Bank has, and with respect to the
Subsequent CBI Financial Statements will not have, any liabilities or
obligations, of any nature, secured or unsecured, (whether accrued, absolute,
contingent or otherwise) including any tax liabilities due or to become due,
which would reasonably be expected to have a material adverse effect on the
consolidated financial condition, assets or business of CBI and Omni Bank.
SECTION 4.14 EFFECT OF AGREEMENT. Except as set forth in Schedule
4.14 of the CBI Book of Schedules, the execution, delivery and performance of
this Agreement by CBI and the consummation by it of the transactions
contemplated hereby do not: (a) require the consent, waiver, order,
registration, qualification, approval, license or authorization of any Person,
court, regulatory authority or other governmental body, other than approval of
the holders of CBI Common Stock and CBI Preferred Stock and as may be required
in connection or in compliance with the provisions of the Illinois BCA, the
BHCA, the Illinois Bank Holding Company Act of 1957, as amended (the "Illinois
BHCA"), and the Illinois Banking Act (the "Illinois Act"); (b) violate, with or
without the giving of notice or the passage of time or both, in any material
respect any provision of law applicable to CBI or Omni Bank; (c) conflict with
or result in a breach of any terms of its articles of incorporation or bylaws
or any material mortgage, deed of trust, license, indenture or other agreement
or instrument, or any order, judgment, decree, statute, regulation or other
restriction of any kind or character, to which CBI or Omni Bank is a party or
by which CBI or Omni Bank or any of its respective assets may be bound; (d)
give to others any right to accelerate or terminate, or result in acceleration
or termination of, any such agreement or instrument; (e) result in termination
of any provision of any such agreement or instrument; or (f) result in the
creation of any lien, charge or encumbrance upon any of the property or assets
of CBI or Omni Bank.
SECTION 4.15 ARTICLES OF INCORPORATION, CHARTERS AND BYLAWS. The
copies of: (a) the articles of incorporation and all amendments thereto of CBI;
(b) the bylaws of CBI, as amended to date; (c) the charter and all amendments
thereto of Omni Bank; and (d) the bylaws of Omni Bank, as amended to date, are
all complete and correct and set forth on Schedule 4.15 of the CBI Book of
Schedules.
SECTION 4.16 BOOKS AND RECORDS. Except for an adjustment of
approximately $34,000 made in December, 1995, in CBI's deferred taxes account,
the books and records of CBI and Omni Bank are in all material respects
complete and correct and accurately reflect the basis for the respective
financial condition and results of operations of CBI and Omni Bank set forth in
the CBI Financial Statements.
SECTION 4.17 INTERIM EVENTS. Except as set forth in Schedule 4.17 of
the CBI Book of Schedules, since September 30, 1995, neither CBI nor Omni Bank
has:
(a) Suffered any changes having a material adverse effect on the
consolidated financial condition, assets or business of CBI and Omni Bank, or
in the operation or conduct of its business;
(b) Suffered any material damage, destruction or loss to any of
its properties whether covered by insurance or not;
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(c) Declared any dividend or other distribution with respect to
its stock (except for payment of dividends and distributions from Omni Bank
solely to CBI), repurchased or redeemed shares of its stock, issued any shares
of its stock or sold or agreed to issue or sell any of its stock or any right
to purchase or acquire any such stock or any security convertible into such
stock or taken any action to reclassify, recapitalize or split up its stock or
issued any stock appreciation rights;
(d) Granted or agreed to grant any increase in benefits payable or
to become payable under any Employee Benefit Plan;
(e) Cancelled or compromised any debt or claim other than in the
ordinary course of business;
(f) Entered into any transaction, contract or commitment other
than in the ordinary course of business;
(g) Incurred any obligation or liability (fixed or contingent)
other than obligations and liabilities incurred in the ordinary course of its
business;
(h) Mortgaged, pledged or subjected to a lien, security interest
or other encumbrance any of its assets except to tax and other liens which
arise by operation of law and with respect to which payment is not past due and
except for pledges or liens: (i) required to be granted in connection with the
acceptance by Omni Bank of government deposits; (ii) granted in connection with
repurchase or reverse repurchase agreements; or (iii) otherwise incurred in the
ordinary course of the conduct of its business;
(i) Conducted its business in any manner other than substantially
as it was being conducted prior to such time;
(j) Leased, sold or otherwise disposed of any of its assets except
in the ordinary course of business or leased, purchased or otherwise acquired
from third parties any assets except in the ordinary course of business;
(k) Except for the transactions contemplated by this Agreement,
merged, consolidated or agreed to merge or consolidate with or into any other
Person, or acquired or agreed to acquire any stock, equity interest or business
of any other Person;
(l) Agreed to enter into any transaction for the borrowing or
loaning of monies, other than in the ordinary course of business;
(m) Made any principal or interest payment on any outstanding
indebtedness of CBI; or
(n) Increased the salary of any officer or the compensation or
fees payable to any director, except for normal increases in the ordinary
course of business or in accordance with any Employee Benefit Plan, or entered
into any employment contract with any officer or salaried employee or
implemented or made any material amendment to any employee welfare, stock
option, profit sharing or other similar plan or arrangement.
SECTION 4.18 TAXES. Each of CBI and Omni Bank has filed with the
appropriate governmental agencies all federal, state and local income,
franchise, excise, sales, use, real and personal property and other tax returns
and reports required to be filed by it. Except as set forth on Schedule 4.18
of the CBI Book of Schedules, neither CBI nor Omni Bank is: (a) delinquent in
the payment of any taxes shown on such returns or reports or on any assessments
received by it for such taxes; (b) aware of any pending or threatened
examination for income taxes for any year by the IRS or any state tax agency;
(c) subject to any agreement extending the period for assessment or collection
of any federal or state tax; or (d) a party to any action or proceeding nor has
any claim been asserted against it by any governmental authority for assessment
or collection of taxes. None of the tax liabilities of CBI or Omni Bank has
ever been audited by the IRS or any state tax agency for any period since
January 1, 1990. Neither CBI nor Omni Bank is, to the knowledge of CBI, a
party to any threatened action or proceeding by any governmental authority for
assessment or collection of taxes. The reserve for taxes in the financial
statements of CBI for the year ended December 31, 1994, is adequate to cover
all of the tax liabilities of CBI and Omni Bank (including income taxes and
franchise fees) that may become payable in future years in respect to any
transactions consummated prior to December 31, 1994. Neither CBI nor Omni Bank
has and, to the best of CBI's knowledge, will not have any liability for taxes
of any nature for or in respect of the operation of its business or ownership
of its assets from
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December 31, 1994, up to and including the Effective Time, except to the extent
reflected on the Subsequent CBI Financial Statements or otherwise reflected in
the books and records of CBI and Omni Bank for the period following its then
most recent of the Subsequent CBI Financial Statements.
SECTION 4.19 TITLE TO PROPERTIES. Each of CBI and Omni Bank has good
and marketable title to all assets and properties shown in the most recent CBI
Financial Statements, whether real or personal, tangible or intangible, which
it purports to own subject to no liens, mortgages, security interests,
encumbrances or charges of any kind except: (a) as noted in the CBI Financial
Statements or on Schedule 4.19 of the CBI Book of Schedules; (b) statutory
liens for taxes not yet delinquent or being contested in good faith by
appropriate proceedings and for which appropriate reserves have been
established and reflected on the CBI Financial Statements or will be reflected
on the Subsequent CBI Financial Statements; (c) pledges or liens required to be
granted in connection with the acceptance of government deposits, granted in
connection with repurchase or reverse repurchase agreements or otherwise
incurred in the ordinary course of business; and (d) minor defects and
irregularities in title and encumbrances which do not materially impair the use
thereof for the purposes for which they are held and which would not reasonably
be expected to have a material adverse effect on the consolidated financial
condition, assets or business of CBI and Omni Bank. Each of CBI and Omni Bank
as lessee has the right under valid and existing leases to occupy, use, possess
and control any and all of the respective property leased by it.
SECTION 4.20 COMPLIANCE WITH APPLICABLE LAW. Each of CBI and Omni
Bank holds all licenses, certificates, permits, franchises and rights from all
appropriate federal, state or other public authorities necessary for the
conduct of its business and where failure to do so would reasonably be expected
to have a material adverse effect on the consolidated financial condition,
assets or business of CBI and Omni Bank. Each of CBI and Omni Bank has
complied in all material respects with all applicable federal, state and local
statutes, ordinances, regulations, rules or requirements, and neither CBI nor
Omni Bank is presently charged with, or to the knowledge of CBI, under
governmental investigation with respect to, any actual or alleged material
violations of any statute, ordinance, regulation or rule.
SECTION 4.21 COMPLIANCE WITH ERISA. Except as set forth on Schedule
4.21 of the CBI Book of Schedules, all employee benefit plans (as defined in
Section 3(3) of ERISA) established or maintained by CBI or Omni Bank, or to
which CBI or Omni Bank contributes, are in compliance in all material respects
with all applicable requirements of ERISA, and are in compliance in all
material respects with all applicable requirements (including qualification and
non-discrimination requirements in effect as of the Effective Time) of the Code
for obtaining the tax benefits the Code thereupon permits with respect to such
employee benefit plans. For purposes of this Section, non-compliance with the
Code and ERISA is material if such non-compliance would reasonably be expected
to have a material adverse effect on the consolidated financial condition,
assets or business of CBI and Omni Bank. No such employee benefit plan has, or
as of the Effective Time will have, any amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) for which CBI or Omni Bank would
be liable to any Person under Title IV of ERISA if any such employee benefit
plan were terminated as of the Effective Time, which amounts would be material
to CBI or Omni Bank. Such employee benefit plans are funded in accordance with
Section 412 of the Code (if applicable). There would be no obligations which
would be material to CBI or Omni Bank under Title IV of ERISA relating to any
such employee benefit plan that is a multi-employer plan if any such plan were
terminated or if CBI or Omni Bank withdrew from any such plan as of the
Effective Time.
SECTION 4.22 COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of CBI and
Omni Bank has conducted its respective business in material compliance with all
federal, state, county and municipal environmental laws, including statutes,
regulations, rules, ordinances, orders, restrictions and requirements relating
to underground storage tanks, petroleum products, air pollutants, water
pollutants or process waste water or otherwise relating to the environment or
toxic or hazardous substances or to the manufacture, processing, distribution,
use, recycling, generation, treatment, handling, storage, disposal or transport
of any hazardous or toxic substances or petroleum products (including
polychlorinated biphenyls, whether contained or uncontained, and
asbestos-containing materials, whether friable or not), including the Federal
Solid Waste Disposal Act, the Hazardous and Solid Waste Amendments, the Federal
Clean Air Act, the Federal Clean Water Act, the Occupational Health and Safety
Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances
Control Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and the Superfund Amendments and Reauthorization Act of
1986, all as amended, and regulations of the Environmental Protection Agency,
the Nuclear Regulatory Agency and any state department of natural resources or
state environmental protection agency now or at any time hereafter in effect
(collectively, the "Environmental Laws"). There are no pending or, to the
knowledge of CBI, threatened actions or
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proceedings by any local municipality, sewerage district or other governmental
entity against CBI or Omni Bank with respect to the Environmental Laws and, to
the knowledge of CBI, there is no basis or grounds for any such action or
proceeding. Except as set forth on Schedule 4.22 of the CBI Book of Schedules,
no environmental clearances or other governmental approvals are required for
the conduct of the business of CBI or Omni Bank or the consummation of the
transactions contemplated hereby. Except as set forth on Schedule 4.22 of the
CBI Book of Schedules, neither CBI nor Omni Bank is the owner of any interest
in real estate on which any substances have been used, stored, deposited,
treated, recycled or disposed of, which substances if known to be present on,
at or under such property, would require clean-up, removal or some other
remedial action under any Environmental Laws.
SECTION 4.23 TRUST POWERS. Neither CBI nor Omni Bank has been
authorized to exercise any trust powers, nor have either CBI or Omni Bank
exercised any trust powers.
SECTION 4.24 BROKERAGE COMMISSIONS. All negotiations relating to
this Agreement and the transactions contemplated herein have been and will be
carried on by CBI directly with Union, its counsel, accountants and other
representatives in such a manner that no actions of CBI or Omni Bank or any of
its respective officers, agents or representatives shall give rise to any claim
against CBI or Union or any of its respective Affiliates for any brokerage
commission, finder's fee, investment advisor's fee or other like payment.
SECTION 4.25 APPROVAL DELAYS. To the best of its knowledge, CBI
knows of no reason why the granting of any of the regulatory approvals referred
to in Section 12.2 would be denied or unduly delayed.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES BY UNION
Union hereby represents and warrants to CBI as follows:
SECTION 5.1 UNION ORGANIZATION. (a) Union: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is a registered bank holding company under the BHCA; (ii) is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted or the properties or assets owned or
leased by it makes such qualification necessary and where failure to be so
qualified would reasonably be expected to have a material adverse effect on the
consolidated financial condition, assets or business of Union and its
Subsidiaries (collectively, the "Union Subsidiaries"); and (iii) has full power
and authority, corporate and otherwise, to own, operate and lease its
properties as presently owned, operated and leased, and to carry on its
business as it is now being conducted.
(b) Acquisition Corp: (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois;
(ii) is not engaged in any business; and (iii) has the requisite corporate
power and authority to enter into and perform this Agreement in accordance with
its terms.
SECTION 5.2 UNION CAPITALIZATION. The authorized capital stock of
Union consists, and at the Effective Time will consist, of (i) 2,000,000 shares
of common stock, $1.00 par value per share ("Union Common Stock"), of which as
of the close of business on December 31, 1995, 800,000 shares were outstanding
and 89,421 shares were held in the treasury; and (ii) 200,000 shares of
preferred stock, no par value per share, none of which shares were issued and
outstanding as of the close of business on December 31, 1995. All of the
issued and outstanding shares of capital stock of Union have been duly and
validly authorized and issued and are fully paid and nonassessable. As of the
date of this Agreement, there are no outstanding rights obligating Union or any
Union Subsidiary to purchase, redeem or otherwise acquire, any shares of
capital stock of Union or any Union Subsidiary.
SECTION 5.3 UNION SUBSIDIARIES' ORGANIZATION. Each of the Union
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the state of its incorporation or charter. Each of the Union
Subsidiaries has full power and authority, corporate or otherwise, to carry on
its business as it is now being conducted and to own or hold under lease the
properties and assets it owns or holds under lease.
SECTION 5.4 UNION SUBSIDIARIES' CAPITALIZATION. All of the
outstanding shares of capital stock of each of the Union Subsidiaries have been
duly and validly authorized and issued and are fully paid and nonassessable and
owned by Union or a Union Subsidiary. There are no options, warrants, rights,
calls or commitments of any character relating to any additional shares of the
capital stock of any of the Union Subsidiaries. No capital stock
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or other security issued by any of the Union Subsidiaries has been issued in
violation of, or without compliance with, the rights of stockholders.
SECTION 5.5 AUTHORIZATION. Union and Acquisition Corp each has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the execution, delivery and performance of
this Agreement by Union and Acquisition Corp and the consummation of the
transactions contemplated thereby, have been duly authorized by all necessary
corporate action of both Union and Acquisition Corp. This Agreement
constitutes a legal, valid and binding obligation of Union and Acquisition Corp
enforceable in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws and
subject to general principles of equity.
SECTION 5.6 LITIGATION AND REGULATORY MATTERS. As of the date of
this Agreement, there is no action, suit, proceeding, claim or formal written
protest by any Person or agency, or any investigation, report or agreement by
or with any regulatory authority having jurisdiction over Union or any Union
Subsidiary or any of its respective assets or businesses which exists or is
pending or, to Union's knowledge, threatened against Union or any Union
Subsidiary, or any of its respective officers or directors in their capacities
as such, or its assets, business or goodwill which would reasonably be expected
to have a material adverse effect on the consolidated financial condition,
assets or business of Union and the Union Subsidiaries or which would impair
Union's ability to consummate the Merger. Union further represents and
warrants that it does not know or have any reason to believe that there is any
basis for assertion against it or any of the Union Subsidiaries of any material
claims based upon the wrongful action or inaction of either Union or any Union
Subsidiary, and any of its officers, directors or employees which would
reasonably be expected to have a material adverse effect on the consolidated
financial condition, assets or business of Union and the Union Subsidiaries or
which would impair Union's ability to consummate the Merger. Neither Union nor
any Union Subsidiary is subject to, or in default with respect to, nor are any
of its assets subject to, any outstanding judgment, regulatory agreement,
injunction, writ, order or decree or any other requirement of any governmental
body or court or of any governmental agency or instrumentality which would
reasonably be expected to have a material adverse effect on the consolidated
financial condition, assets or business of Union and the Union Subsidiaries.
SECTION 5.7 DEFAULTS UNDER AGREEMENTS. Neither Union nor any Union
Subsidiary is in default or alleged to be in default, under any loan or credit
agreement, conditional sales contract or other title retention agreement or
security agreement relating to money borrowed by Union or any Union Subsidiary,
agreements pursuant to which it leases real or personal property or any other
instrument or obligation, which would reasonably be expected to have a material
adverse effect on the consolidated financial condition, assets or business of
Union and the Union Subsidiaries. Neither Union nor any Union Subsidiary is in
default in any material respect and Union has no knowledge of any material
default under such instruments by any other party thereto and has no knowledge
of any event which with notice or lapse of time or both would constitute a
material default.
SECTION 5.8 FINANCIAL STATEMENTS AND REPORTS. Copies of the
Consolidated Balance Sheets and the related Statements of Income, Statements of
Changes in Stockholders' Equity and Statements of Cash Flows of Union for the
two most recently completed fiscal years (the "Union Financial Statements")
have been delivered to CBI. The Union Financial Statements are complete and
correct in all material respects and fairly present the consolidated financial
position of Union and the Union Subsidiaries at the dates shown and the results
of operations for the periods covered. The Union Financial Statements are
audited statements and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The Union Financial
Statements do not include any material assets or omit to state any material
liabilities, absolute or contingent, or other facts, which inclusion or
omission would render the Union Financial Statements misleading in any material
respect.
SECTION 5.9 DISCLOSURES. No representation or warranty made herein
by Union contains any untrue statement of a material fact, or omits to state a
material fact necessary to make the statements contained herein under the
circumstances under which they were made not misleading and Union has made full
disclosure of all material facts with respect to Union. Except as and to the
extent reflected or reserved against in Union's audited financial statements
for the year ended December 31, 1994, referenced in Section 5.8 above, Union
does, as of the date of this Agreement, not have any liabilities or
obligations, of any nature, secured or unsecured, (whether accrued, absolute,
contingent or otherwise) including any tax liabilities due or to become due,
which would reasonably be expected to have a material adverse effect on the
consolidated financial condition, assets or business of Union and the Union
Subsidiaries.
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SECTION 5.10 EFFECT OF AGREEMENT. The execution, delivery and
performance of this Agreement by Union and Acquisition Corp and the
consummation by each of them of the transactions contemplated hereby do not:
(a) require the consent, waiver, order, registration, qualification, approval,
license or authorization of any Person, court, regulatory authority or other
governmental body, other than as specifically contemplated by this Agreement
and as may be required in connection or in compliance with the provisions of
the Delaware General Corporation Law, the Illinois BCA, the BHCA, the Illinois
BHCA and the Illinois Act; (b) violate, with or without the giving of notice or
the passage of time or both, in any material respect any provision of law
applicable to Union, Acquisition Corp or any of the Union Subsidiaries; (c)
conflict with or result in a breach of any terms of their certificate or
articles of incorporation or bylaws, or any material mortgage, deed of trust,
license, indenture or other agreement or instrument, or any order, judgment,
decree, statute, regulation or other restriction of any kind or character, to
which Union or any Union Subsidiary is a party or by which it or any of its
assets may be bound; (d) give to others any right to accelerate or terminate,
or result in acceleration or termination of, any such agreement or instrument;
(e) result in termination of any provision of any such agreement or instrument;
or (f) result in the creation of any lien, charge or encumbrance upon any of
the property or assets of Union or any Union Subsidiary.
SECTION 5.11 COMPLIANCE WITH APPLICABLE LAW. Each of Union and the
Union Subsidiaries holds all licenses, certificates, permits, franchises and
rights from all appropriate federal, state or other public authorities
necessary for the conduct of its business and where failure to do so would
reasonably be expected to have a material adverse effect on the consolidated
financial condition, assets or business of Union and the Union Subsidiaries.
Each of Union and the Union Subsidiaries has complied in all material respects
with all applicable federal, state and local statutes, ordinances, regulations,
rules or requirements, and neither Union nor any Union Subsidiary is presently
charged with, or to the knowledge of Union, under governmental investigation
with respect to, any actual or alleged material violations of any statute,
ordinance, regulation or rule.
SECTION 5.12 BROKERAGE COMMISSIONS. All negotiations relating to
this Agreement and the transactions contemplated herein and therein have been
and will be carried on by Union directly with CBI, its counsel, accountants and
other representatives in such a manner that no actions of Union or any Union
Subsidiary or any of its respective officers, agents or representatives shall
give rise to any claim against CBI or any of its Affiliates or Subsidiaries for
any brokerage commission, finder's fee, investment advisor's fee or other like
payment.
SECTION 5.13 APPROVAL DELAYS. To the best of its knowledge, Union
knows of no reason why the granting of any of the regulatory approvals referred
to in Section 12.2 would be denied or unduly delayed.
ARTICLE 6
COVENANTS OF CBI
From and after the date hereof and until the Effective Time:
SECTION 6.1 INFORMATION, ACCESS THERETO, CONFIDENTIALITY. Union, its
representatives and agents shall, at all times during normal business hours
prior to the Closing Date, have full and continuing access to the facilities,
operations, records and properties of CBI and Omni Bank in accordance with the
provisions of this Section. Union, its representatives and agents may, prior
to the Closing Date, make or cause to be made such reasonable investigation of
the operations, records and properties of CBI and Omni Bank and of its and
their financial and legal condition as Union shall deem necessary or advisable
to familiarize itself with such records, properties and other matters;
provided, that such access or investigation shall not interfere unnecessarily
with the normal operations of CBI or Omni Bank. Upon request, each of CBI and
Omni Bank will furnish Union or its representatives or agents, its attorneys'
responses to auditors' requests for information, and such financial and
operating data and other information reasonably requested by Union developed by
CBI or Omni Bank, its respective auditors, accountants or attorneys (provided
with respect to attorneys, such disclosure would not result in the waiver by
CBI of any claim of attorney-client privilege), and will permit Union, its
representatives or agents to discuss such information directly with any
individual or firm performing auditing or accounting functions for CBI or Omni
Bank, and such auditors and accountants shall be directed to furnish copies of
any reports or financial information as developed to Union or its
representatives or agents. CBI shall, and shall cause Omni Bank to, give Union
prior notice of each meeting of its board of directors and any committees
thereof, including Omni Bank's loan committee, and a representative of Union
shall be invited to attend each such meeting as an observer, provided, however,
that Union's representative shall not be permitted to observe any portion of
any such meeting during which the Merger or this Agreement is discussed.
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No investigation by Union or attendance by Union's representatives at any board
or committee meeting shall affect the representations, warranties and covenants
made by CBI. This Section shall not require the disclosure of any information
the disclosure of which to Union would be prohibited by law.
SECTION 6.2 CARRY ON IN REGULAR COURSE. Each of CBI and Omni Bank
shall carry on its business diligently and substantially in the same manner as
is presently being conducted and shall not make or institute any material
change from its ordinary course of doing business without the prior written
consent of Union. CBI shall, and shall also cause Omni Bank, unless otherwise
consented to in writing in advance by Union:
(a) Enter into loan transactions only in accordance with past
practices and its loan policy, and in that connection, from the date hereof to
the Effective Time, not: (i) enter into any new credit or new lending
relationships in excess of $100,000 to any Person and such Person's Affiliate;
or (ii) other than incident to a reasonable loan restructuring, extend
additional credit to any Person or such Person's Affiliate if such Person or
such Affiliate is the obligor under any indebtedness to Omni Bank which
constitutes a non-performing loan or against any part of such indebtedness for
which Omni Bank has established loss reserves or any part of which has been
charged-off by Omni Bank, provided, however, that Omni Bank shall be permitted
to make loans in excess of $100,000 without prior approval when each such loan
is: (x) an agricultural operating loan made to a current customer of Omni Bank
who has never been in default on any loan made to him or her by Omni Bank and
who currently has no outstanding balance on any previous agricultural operating
loan made by Omni Bank; and (y) no greater in principal amount than the
principal amount of the immediately preceding year's agricultural operating
loan made to such customer.
(b) Maintain all of its assets necessary for the conduct of its
business in good operating condition and repair, reasonable wear and tear and
damage by fire or unavoidable casualty excepted, and maintain policies of
insurance upon its assets and with respect to the conduct of its business in
amounts and kinds comparable to that in effect on the date hereof and pay all
premiums on such policies when due;
(c) Use its reasonable best efforts to preserve its present
business organization intact, keep available the services of its present
officers and employees and preserve its present relationships with Persons
having business dealings with it, and in connection therewith, permit
representatives of Union:
(i) to participate in meetings or discussions with such
officers and employees of CBI and Omni Bank in
connection with employment opportunities with Union
and the Surviving Corporation after the Effective
Time; and
(ii) after the date of acceptance for filing of the
application filed by Union with the Federal Reserve
requesting prior approval of the Merger, to contact
Persons having dealings with CBI or Omni Bank for the
purpose of informing such Persons of the progress of
the Merger and the services to be offered by Union
and the Surviving Corporation after the Effective
Time;
(d) Maintain its books, accounts and records in the usual, regular
and ordinary manner, on a basis consistent with prior years and comply in all
material respects with all laws and regulations applicable to it and to the
conduct of its business;
(e) Except as provided in Section 6.6, make no amendment to its
articles of incorporation, charter or bylaws and enter into no merger or
consolidation with, or sale of a significant portion of its assets to, any
other Person;
(f) Declare, pay or make no dividend or other distribution or
payment in respect of, or redemption of, shares of CBI Stock;
(g) Make no change in the number of shares of its capital stock
issued and outstanding, grant or make no option, warrant, call, right,
commitment or any other security or agreement of any character obligating it to
issue any shares of its capital stock and issue no other securities or
evidences of indebtedness;
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(h) Make no increase in the compensation payable or to become
payable by it to any employee except for normal periodic increases, and as may
be required, or as is normal and customary based upon past practices over the
last three years, under the terms of any existing Employee Benefit Plan;
(i) Not make any investment of a capital nature exceeding $10,000
or aggregate investments of a capital nature exceeding $25,000;
(j) Except for modifications necessary to comply with any
applicable law, rule or regulation, make no change in any Employee Benefit
Plan;
(k) Cause Omni Bank, consistent with past practice, to maintain a
reserve for possible loan and lease losses which is adequate in all material
respects under the requirements of generally accepted accounting principles to
provide for possible losses, net of recoveries relating to loans previously
charged off, on loans outstanding (including accrued interest receivable);
(l) Make no material change in any existing lease of real or
personal property;
(m) Enter into no new lease or extension of any current lease of
assets having annual rental payments in excess of $10,000 or such leases which
in the aggregate have annual rental payments exceeding $25,000;
(n) Make no principal payment on any outstanding indebtedness of
CBI and make no interest payments on any such indebtedness other than as
expressly required by the terms thereof; and
(o) File in a timely manner all required filings with all proper
regulatory authorities and cause such filings to be true and correct in all
material respects.
With respect to any written request by CBI for Union's consent to any
non-permitted action of CBI or Omni Bank described in this Section, CBI shall
be entitled to conclusively presume Union has consented to any such action
unless CBI shall have received Union's written objection to such action within
five Business Days of the date of Union's receipt of such written request.
SECTION 6.3 SUBSEQUENT CBI FINANCIAL STATEMENTS. As soon as
available after the date hereof, CBI will furnish Union copies of the
Consolidated Balance Sheets and the related Consolidated Statements of Income,
Consolidated Statements of Changes in Shareholders' Equity and Consolidated
Statements of Cash Flow for each annual and quarterly period subsequent to
December 31, 1994, and Call Reports for Omni Bank for each quarterly period
completed after September 30, 1995, and prior to the Effective Time, and all
other financial reports or statements submitted to regulatory authorities after
the date hereof, to the extent permitted by law (collectively, the "Subsequent
CBI Financial Statements"). The Subsequent CBI Financial Statements shall be
prepared on a basis consistent with past accounting practices and shall fairly
present the financial condition and results of operations for the dates and
periods presented. The CBI Financial Statements will not include any material
assets or omit to state any material liabilities, absolute or contingent, or
other facts, which inclusion or omission would render such financial statements
misleading in any material respect.
SECTION 6.4 PROXY STATEMENT; SHAREHOLDERS' MEETING. As soon as
practicable after the execution of this Agreement, but in no event later than
30 days after the date of this Agreement, and at least 30 days prior to the
date of the special meeting of CBI's shareholders (the "Special Meeting"), CBI
shall prepare and mail to each of its shareholders a proxy statement (the
"Proxy Statement") which complies with all rules and regulations applicable to
CBI in connection with the solicitation of proxies for the Special Meeting.
None of the information concerning CBI or Omni Bank which is included in the
Proxy Statement when mailed shall be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein not misleading or, at the time of the Special 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 Special Meeting. There
shall be included with the Proxy Statement a notice of the Special Meeting as
required by the Illinois BCA, a copy of this Agreement and a copy of Section
11.70 of the Illinois BCA governing the rights of dissenting shareholders. The
Proxy Statement shall be reasonably acceptable to Union. In advance of mailing
the Proxy Statement, or any amendment or supplement thereto, to its
shareholders, CBI shall provide Union and its counsel with a copy of the Proxy
Statement or such amendment or supplement and an opportunity to
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comment thereon. The Special Meeting shall be held at the earliest practicable
date, but in no event later than 60 days after the date of this Agreement. CBI
shall recommend to its shareholders the approval of this Agreement and the
Merger and shall solicit proxies voting in favor thereof from its shareholders.
SECTION 6.5 ADVICE OF CHANGES. Between the date hereof and the
Closing Date, CBI shall promptly advise Union in writing of any fact which, if
existing or known at the date hereof, would have been required to be set forth
or disclosed in or pursuant to this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the representations
contained herein materially untrue, provided, however, that receipt of notice
of such facts after the date of this Agreement shall have no effect on the
truth and accuracy of the representations and warranties made in this Agreement
as of the date hereof.
SECTION 6.6 OTHER OFFERS. None of CBI, Omni Bank or any Affiliate of
CBI or any of its respective directors, officers, employees, representatives or
agents, shall, directly or indirectly, make, encourage, facilitate, solicit,
assist or initiate any inquiry or proposal, or participate in any negotiations
with, or provide any information to, any corporation, partnership, agent,
attorney, financial advisor, Person or other entity or group (other than Union,
Acquisition Corp, an Affiliate of Union or Acquisition Corp or an officer,
employee or other authorized representative of Union, Acquisition Corp or such
Affiliate, or CBI's counsel and financial advisor, solely for use in connection
with the transactions contemplated hereby) relating to any: (a) liquidation,
dissolution, recapitalization, merger or consolidation of CBI or Omni Bank; (b)
sale outside the ordinary course of business of a significant amount of assets
of CBI or Omni Bank; (c) purchase or sale of shares of capital stock of CBI or
Omni Bank; or (d) any similar transactions involving CBI or Omni Bank, other
than the transactions contemplated by this Agreement, provided, however, that
CBI may provide information at the request of a third party if the board of
directors of CBI determines, in good faith, that the exercise of its fiduciary
duties to CBI's stockholders under applicable law, as advised in writing by
outside counsel reasonably acceptable to Union, requires it to take such
action, and, provided further, that CBI may not, in any event, provide to such
third party any information which it has not provided to Union. Upon execution
of this Agreement, CBI shall immediately cease and cause to be terminated any
and all such current contacts and negotiations with respect to any such
transaction. CBI shall immediately inform Union of any inquiry, proposal or
request for information (including the terms thereof and the Person making such
inquiry) which it may receive in respect of such a transaction.
SECTION 6.7 ACCOUNTING AND OTHER ADJUSTMENTS. CBI agrees that it
shall, and shall cause Omni Bank, to: (a) make any accounting adjustments or
entries to its books of account and other financial records; (b) make
additional provisions to any allowance for loan and lease losses; (c) sell or
transfer any investment securities held by it; (d) charge-off any loan or
lease; (e) create any new reserve account or make additional provisions to any
other existing reserve account; (f) make changes in any accounting method; (g)
accelerate, defer or accrue any anticipated obligation, expense or income item;
and (h) make any other adjustments which would affect the financial reporting
of Union, on a consolidated basis after the Closing, in any case as Union shall
request, provided, however, that the calculation of the Cash Price Per Share
shall not be affected by any of the actions described in this Section, except
for any such actions that CBI would have been obligated to take by any other
provision of this Agreement, and provided further, that neither CBI nor Omni
Bank shall be obligated to take any such requested action until immediately
prior to the Closing and at such time as CBI shall have received reasonable
assurances that all conditions precedent to CBI's obligations under this
Agreement (except for the completion of actions to be taken at the Closing)
have been satisfied.
SECTION 6.8 INFORMATION PROVIDED TO UNION. CBI agrees that none of
the information concerning CBI or Omni Bank which is provided or to be provided
by CBI or Omni Bank to Union for inclusion or which is included in any
documents to be filed with any governmental authority in connection with the
transactions contemplated by this Agreement will, at the respective times such
documents are filed, be false or misleading with respect to any material fact
or omit to state any material fact necessary in order to make the statements
therein not misleading.
SECTION 6.9 CBI CLOSING OBLIGATIONS. CBI agrees to take such actions
as may be necessary to ensure that the following conditions (collectively, the
"CBI Closing Obligations") are satisfied prior to, or concurrently with, the
Closing: (a) CBI shall have no outstanding liabilities, including long-term or
short-term debt; and (b) CBI shall have no outstanding subordinated debentures.
Union agrees to assist CBI in satisfying such conditions through payment of all
or a portion of the Aggregate Amount to third parties, as directed in writing
by CBI, and any such payments by Union shall reduce the Cash Price Per Share as
set forth in Section 3.2.
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SECTION 6.10 ENVIRONMENTAL MATTERS. Union may in its discretion,
prior to the Closing, retain at its own expense an independent professional
consultant to perform an environmental site assessment and render to Union a
report (an "Environmental Report") to determine if any real property in which
CBI or Omni Bank holds any interest contains or gives evidence that any
violations of Environmental Laws have occurred on any such property. Neither
Union nor its independent professional consultant shall enter upon any such
real property in which CBI or Omni Bank holds only a mortgagee's interest
without the prior permission of CBI and the Person in possession thereof. CBI
shall not withhold such permission unreasonably, and shall use all reasonable
efforts to obtain such permission for Union from the Person in possession of
any such mortgaged real property for which Union desires its independent
professional consultant to conduct a site assessment. Union shall have no duty
to act upon any information produced by such reviews or investigations with or
for the benefit of CBI, Omni Bank or any other Person, but shall provide such
information to CBI as soon as practicable after such information becomes
available to Union.
SECTION 6.11 ADDITIONAL UNION ACQUISITIONS. CBI acknowledges that
Union is currently in negotiations with respect to other possible acquisitions
and business combinations, and notwithstanding anything contained herein to the
contrary, CBI agrees that nothing contained herein is intended to or shall
prevent Union from continuing such negotiations, commencing any other similar
negotiations or taking any such actions that may be necessary to consummate any
such other acquisitions or business combinations so long as the same do not
prevent Union from consummating the Merger.
ARTICLE 7
COVENANTS OF UNION
Union hereby covenants and agrees with CBI as follows:
SECTION 7.1 CONFIDENTIALITY. Any confidential information or trade
secrets received by Union, Acquisition Corp, their employees or agents in the
course of the examination described in Section 6.1 shall be treated
confidentially, and any correspondence, memoranda, records, copies, documents
and electronic or other media of any kind containing either such confidential
information, or trade secrets or both shall be destroyed by Union or, at CBI's
request, returned to CBI in the event this Agreement is terminated as provided
in Section 13.1. Such information shall not be used by Union, Acquisition Corp
or its agents to the detriment of CBI or Omni Bank.
SECTION 7.2 CONDUCT OF BUSINESS; CERTAIN COVENANTS. From and after
the execution and delivery of this Agreement and until the Effective Time,
Union will:
(a) conduct its business and operate only in accordance with sound
banking and business practices; and
(b) remain in good standing and file all required reports with all
applicable regulatory authorities.
SECTION 7.3 ADVICE OF CHANGES. Between the date hereof and the
Closing Date, Union shall promptly advise CBI in writing of any fact which, if
existing or known at the date hereof, would have been required to be set forth
or disclosed in or pursuant to this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the representations
contained herein materially untrue, provided, however, that receipt of notice
of such facts after the date of this Agreement shall have no effect on the
truth and accuracy of the representations and warranties made in this Agreement
as of the date hereof.
SECTION 7.4 PURCHASE OF CBI ASSETS. On or prior to the Closing,
Union agrees to permit CBI's President to purchase from CBI or Omni Bank any of
the assets listed on Schedule 7.4 for cash at a price not less than the book
value of such asset as shown on the books and records of CBI or Omni Bank as of
the date of such purchase, provided, however, that any policies of life
insurance shall be purchased at not less than their respective cash surrender
values as of the date of purchase.
SECTION 7.5 INFORMATION PROVIDED TO CBI. Union agrees that none of
the information concerning Union or any Union Subsidiary which is included in
the Proxy Statement and any other documents to be filed with any governmental
authority in connection with the transactions contemplated by this Agreement
will, at the respective times such documents are filed and, in the case of the
Proxy Statement, when mailed, be false or misleading with
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respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading or, in the case of the
Proxy Statement, or any amendment thereof or supplement thereto, at the time of
the Special 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
meeting in connection with which the Proxy Statement shall be mailed.
Notwithstanding the foregoing, Union shall have no responsibility for the truth
or accuracy of any information with respect to CBI or Omni Bank or any of their
affiliates or associates contained in the Proxy Statement.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF UNION AND ACQUISITION CORP
The obligations of Union and Acquisition Corp under this Agreement are
subject, unless waived by Union or Acquisition Corp, to the satisfaction of the
following conditions on or prior to the Effective Time:
SECTION 8.1 REPRESENTATIONS AND WARRANTIES TRUE AT EFFECTIVE TIME.
The representations and warranties made by CBI in this Agreement shall be true
and correct on and as of the Effective Time with the same effect as though such
representations and warranties had been made or given on and as of the
Effective Time, except for changes contemplated by this Agreement, and except
also for representations and warranties as of a specified time other than the
Effective Time, which shall be true and correct at such specified time. CBI
shall have delivered to Union a certificate of its President or any Vice
President to the same effect.
SECTION 8.2 COMPLIANCE WITH AGREEMENT. CBI shall have performed and
complied with all of its obligations under this Agreement which are to be
performed or complied with prior to or at the Effective Time and CBI shall have
delivered to Union a certificate of its President or any Vice President to the
same effect.
SECTION 8.3 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings,
corporate or other, to be taken by CBI in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to counsel for Union, and CBI
shall have made available to Union for examination the originals or true and
correct copies of all records and documents relating to the business and
affairs of CBI which Union may reasonably request in connection with said
transactions.
SECTION 8.4 STATUTORY REQUIREMENTS. This Agreement shall have been
duly and validly approved by the board of directors and the shareholders of
CBI. Such shareholder approval shall have been obtained in conformity with all
applicable laws at a meeting of shareholders for which proxies are solicited in
compliance with applicable laws and requirements.
SECTION 8.5 REGULATORY APPROVALS. Union shall have received any and
all required approvals from the Federal Reserve, the Commissioner and any other
necessary governmental authority, for the consummation of the transactions
contemplated hereby, and all applicable waiting periods shall have expired.
SECTION 8.6 LITIGATION. Since the date of this Agreement, neither
CBI nor Omni Bank shall be made a party to, or to the knowledge of CBI
threatened by, any actions, suits, proceedings, litigation or legal proceedings
which, in the reasonable opinion of Union, have or are likely to have a
material adverse effect on the consolidated financial condition, assets or
business of CBI and Omni Bank, neither CBI nor Omni Bank shall be subject to or
threatened with an agreement with any regulatory authority and no action, suit,
proceeding or claim shall have been instituted, made or threatened by any
Person relating to the Merger or the validity or propriety of the transactions
contemplated by this Agreement.
SECTION 8.7 ACCURACY OF FINANCIAL STATEMENTS. The CBI Financial
Statements and the Subsequent CBI Financial Statements, previously or
subsequently furnished to Union by CBI shall not be inaccurate in any material
respect, unless the effect of any such inaccuracy on the amount of CBI's
shareholders' equity has already been taken into account through a reduction in
the Aggregate Amount pursuant to Section 3.2.
SECTION 8.8 ABSENCE OF CERTAIN CHANGES OR EVENTS; SHAREHOLDERS'
EQUITY. From the date hereof to the Effective Time, there shall be and have
been no material adverse change in the consolidated financial condition,
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assets or business of CBI and Omni Bank. In addition, the shareholders' equity
of CBI computed in accordance with generally accepted accounting principles
(but not including any additions or reductions as a result of the application
of FASB 115) as of the time immediately prior to the Closing shall not be less
than CBI's shareholders' equity as of September 30, 1995.
SECTION 8.9 CONSENTS AND APPROVALS. Any consents or approvals
required to be secured by CBI by the terms of this Agreement shall have been
obtained and shall be satisfactory to Union.
SECTION 8.10 TERMINATION OF EMPLOYEE BENEFITS PLANS. Upon Union's
written request delivered to CBI on or prior to the Closing Date, CBI shall
take all steps necessary to terminate or freeze the benefits payable or
accruing following the Closing under any Employee Benefit Plan, all on terms
reasonably acceptable to Union.
SECTION 8.11 CBI COMMON STOCK VOTING AGREEMENTS. Concurrently with
the execution of this Agreement, each of the holders of greater than 10% of the
issued and outstanding shares of CBI Common Stock and each of the directors of
CBI shall have executed and delivered to Union a written agreement in the form
attached as Exhibit G pursuant to which such shareholder and such director
agrees to vote his or her shares of CBI Common Stock to approve this Agreement
and the Merger.
SECTION 8.12 CBI PREFERRED STOCK VOTING AGREEMENTS. Within 20 days
of the date of this Agreement, CBI shall deliver to Union a written agreement
substantially in the form attached as Exhibit G executed by holders of greater
than two thirds of the issued and outstanding shares of CBI Preferred Stock
pursuant to which such shareholder agrees to vote his or her shares of CBI
Preferred Stock to approve this Agreement and the Merger.
SECTION 8.13 LOAN LOSS RESERVE. At the Effective Time, the reserve
for possible loan and lease losses of Omni Bank shall be adequate in all
material respects under the requirements of generally accepted accounting
principles to provide for possible losses, net of recoveries relating to loans
previously charged off, on loans outstanding (including accrued interest
receivable) as of immediately prior to the Effective Time, and such reserves
shall in no event be less than that shown on the September 30, 1995 Call Report
of Omni Bank.
SECTION 8.14 ENVIRONMENTAL MATTERS. Union shall have been granted
acceptable access to any real property in which CBI or Omni Bank owns any
interest and for which Union desired its independent professional consultant to
prepare an Environmental Report, and the results of any Environmental Report
rendered to Union with respect to such real property shall have not disclosed
any material violation of any of the Environmental Laws.
SECTION 8.15 SALE OF CERTAIN ASSETS AND LOANS. On or prior to the
Closing, CBI shall sell, or cause Omni Bank to sell, to either or both of Mr.
Ivan Wharton and Mrs. Betty Wharton the loans and other assets of CBI or Omni
Bank that are listed on Schedule 8.15 (including the real property owned by CBI
or Omni Bank which is located in Paloma, Illinois), provided, however, that
each such sale shall be non-recourse and for cash at a price not less than the
book value of such asset or loan as shown on the books and records of CBI or
Omni Bank as of the date of such sale. If prior to the Closing, Omni Bank
recovers an aggregate net amount with respect to any loan listed on Schedule
8.15 which is in excess of the book value of such loan as shown on the books
and records of Omni Bank as of the date immediately prior to such recovery,
Union agrees that the amount in excess of such book value shall be added to,
and shall increase, the Aggregate Amount.
ARTICLE 9
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF CBI
The obligations of CBI under this Agreement are subject, unless waived
by CBI, to the satisfaction on or prior to the Effective Time of the following
conditions:
SECTION 9.1 REPRESENTATIONS AND WARRANTIES TRUE AT EFFECTIVE TIME.
The representations and warranties made by Union and Acquisition Corp in this
Agreement shall be true and correct on and as of the Effective Time with the
same effect as though such representations and warranties had been made or
given on and as of the Effective Time, except for changes contemplated by this
Agreement, and except also for representations and warranties as of
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a specified time other than the Effective Time, which shall be true and correct
at such specified time. Union shall have delivered to CBI a certificate from
its President or any Vice President to the same effect.
SECTION 9.2 COMPLIANCE WITH AGREEMENT. Union and Acquisition Corp
shall have performed and complied in all material respects with all of their
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Effective Time and Union shall have delivered to CBI a
certificate from its President or any Vice President to the same effect.
SECTION 9.3 PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings,
corporate or other, to be taken by Union and Acquisition Corp in connection
with the transactions contemplated by this Agreement, and all documents
incident thereto, shall be reasonably satisfactory in form and substance to
counsel for CBI, and Union and Acquisition Corp shall have made available to
CBI and its representatives for examination the originals or true and correct
copies of all records and documents relating to the business and affairs of
Union and Acquisition Corp which CBI or its counsel may reasonably request in
connection with said transactions.
SECTION 9.4 STATUTORY REQUIREMENTS. This Agreement shall have been
duly and validly approved by the boards of directors of Union and Acquisition
Corp and by the vote of the sole shareholder of Acquisition Corp.
SECTION 9.5 CBI SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted by the shareholders of CBI in accordance with the Illinois
BCA.
SECTION 9.6 REGULATORY APPROVALS. Union shall have received any and
all required approvals from the Federal Reserve, the Commissioner and any other
necessary governmental authority, for the consummation of the transactions
contemplated hereby.
SECTION 9.7 CONSENTS AND APPROVALS. Any consents or approvals
required to be secured by either party by the terms of this Agreement or
otherwise reasonably necessary in the opinion of CBI to consummate the
transactions contemplated by this Agreement shall have been obtained and shall
be reasonably satisfactory to CBI.
SECTION 9.8 ACCURACY OF FINANCIAL STATEMENTS. The Union Financial
Statements furnished to CBI by Union shall not be inaccurate in any material
respect.
SECTION 9.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. From the date
hereof to the Effective Time, there shall be and have been no material adverse
change in the consolidated financial condition, assets or business of Union and
the Union Subsidiaries.
SECTION 9.10 LITIGATION. No action, suit, proceeding or claim shall
have been instituted, made or threatened by any Person relating to the Merger
or the validity or propriety of the transactions contemplated by this
Agreement.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS
OF EACH OF THE PARTIES
In addition to the provisions of Sections 8 and 9, the obligations of
each of the parties under this Agreement are subject, unless waived by the
other parties hereto, to the satisfaction on or prior to the Effective Time of
the following conditions:
SECTION 10.1 OTHER APPROVALS. All actions, consents or approvals,
governmental or otherwise, which are, or in the opinion of counsel for Union or
CBI may be, necessary to permit or enable the Surviving Corporation upon and
after the Merger, to conduct all or any part of the business of CBI, in the
manner in which such activities and businesses are conducted up to the
Effective Time, shall have been obtained without any conditions which in the
reasonable opinion of Union are materially adverse, and shall not have been
withdrawn or stayed.
SECTION 10.2 ORDERS, DECREES AND JUDGMENTS. Consummation of the
transactions contemplated by this Agreement shall not violate any order, decree
or judgment of any court or governmental body having competent jurisdiction.
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ARTICLE 11
ADDITIONAL COVENANTS OF THE PARTIES
SECTION 11.1 COOPERATION. Each of CBI, Acquisition Corp and Union,
will, and each of the foregoing will cause its respective Subsidiaries to,
fully and promptly cooperate with each of CBI and Union and their respective
counsel and accountants in connection with any steps to be taken as part of
their obligations under this Agreement.
SECTION 11.2 EXPENSES. Except as otherwise provided herein, all
costs and expenses incurred by a party hereto shall be borne by such party,
including the fees of their respective accountants and attorneys.
SECTION 11.3 PUBLICITY. Prior to the Effective Time, the parties
hereto will consult with each other before issuing any press releases or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such press release or
make any such public statement without the prior consent of the other parties,
except as may be required by law.
ARTICLE 12
REGULATORY APPROVALS
SECTION 12.1 INITIAL FILINGS. Union shall use its best efforts to
make as soon as practicable all appropriate initial filings necessary to obtain
the regulatory approvals referred to in Section 12.2 at such time as it
reasonably believes that such filings would be accepted and approved by the
appropriate regulatory agencies. Union shall in good faith pursue the
regulatory approvals necessary to consummate the transactions contemplated in
this Agreement. Union shall provide CBI and its counsel with a copy of each
application or document filed by it with federal or state regulatory officials
to obtain such approvals.
SECTION 12.2 NECESSARY APPROVALS. Union shall have primary
responsibility for preparation of all applications for regulatory approval of
the transactions contemplated in this Agreement, including the preparation of
an application or any amendment thereto or any other required statements or
documents filed or to be filed by any party with: (a) the Federal Reserve
pursuant to the BHCA; (b) the Commissioner pursuant to the Illinois BHCA and
the Illinois Act; or (c) any other party or governmental authority pursuant to
any applicable law or regulation, for authority to consummate the transactions
contemplated by this Agreement. CBI agrees to cooperate with Union and use its
reasonable best efforts to assist Union in preparing such applications and in
pursuit of such approvals.
ARTICLE 13
TERMINATION AND ABANDONMENT
SECTION 13.1 REASONS FOR TERMINATION AND ABANDONMENT. This Agreement
may be terminated and abandoned upon prompt written notice to the other party
or parties before the Effective Time, notwithstanding authorization and
adoption of this Agreement by the shareholders of CBI or Acquisition Corp or
both:
(a) By mutual consent of the boards of directors of Union and
Acquisition Corp and the board of directors of CBI;
(b) By Union or Acquisition Corp at any time after December 31,
1996, or such later date as shall have been agreed to in writing by the parties
(the "Termination Date"), if any of the conditions provided for in Sections 8
and 10 of this Agreement have not been met and have not been waived in writing
by Union, provided, however, that if any condition set forth in Sections 8 or
10 is required to be satisfied prior to the Termination Date, Union may
terminate this Agreement if such condition has not been satisfied within 30
days following receipt by CBI of notice of such failed condition;
(c) By Union if CBI shall have breached one or more provisions of
this Agreement in any way which has, or would reasonably be expected to have a
material adverse effect on the rights of Union under this Agreement,
considering all such breaches in the aggregate, and where such breach has not
been cured within 30 days following receipt by CBI of notice of such breach;
25
<PAGE> 29
(d) By CBI at any time after the Termination Date if any of the
conditions provided for in Sections 9 or 10 of this Agreement have not been met
and have not been waived in writing by CBI, provided, however, that if any
condition set forth in Sections 9 or 10 is required to be satisfied prior to
the Termination Date, CBI may terminate this Agreement if such condition has
not been satisfied within 30 days following receipt by Union of notice of such
failed condition;
(e) By CBI if either Union or Acquisition Corp shall have breached
one or more provisions of this Agreement in any way which has, or would
reasonably be expected to have a material adverse effect on the rights of CBI
under this Agreement, considering all such breaches in the aggregate, and where
such breach has not been cured within 30 days following receipt by Union of
notice of such breach;
(f) By CBI or Union if CBI's shareholders fail to approve this
Agreement at the Special Meeting as contemplated by Section 6.4.
SECTION 13.2 EFFECT OF TERMINATION OR ABANDONMENT. Except where a
party has breached its covenants under this Agreement or as otherwise expressly
provided herein, in the event of the termination of this Agreement and the
abandonment of the Merger pursuant to Sections 1.3, 3.2 or 13.1, this Agreement
shall become null and void and there shall be no liability or restrictions on
the future activities on the part of any party hereto, or its directors,
officers or shareholders, except for Union's and Acquisition Corp's
obligations, and CBI's obligation, concerning confidentiality referred to in
Section 7.1 and Section 6.1, respectively.
SECTION 13.3 PAYMENT TO CBI. If the Merger contemplated herein is
not consummated because Union breaches its obligations under this Agreement,
unless such breach or failure is a result of the failure by CBI to perform and
comply in all material respects with any of its material obligations under this
Agreement which are to be performed or complied with by it prior to or on the
date required hereunder, then Union shall pay to CBI, upon its written demand,
an amount equal to CBI's costs and expenses incurred in connection with this
Agreement, provided, however, that such amount shall in no event be greater
than $100,000. Such sum shall constitute liquidated damages and the receipt
thereof shall be CBI's sole and exclusive remedy under this Agreement for such
breach by Union.
SECTION 13.4 PAYMENTS TO UNION. (a) If the Merger contemplated
herein is not consummated because CBI breaches its obligations under this
Agreement or the shareholders of CBI fail to approve this Agreement and the
Merger, unless such breach or failure is a result of the failure by Union or
Acquisition Corp to perform and comply in all material respects with any of
their material obligations under this Agreement which are to be performed or
complied with by them prior to or on the date required hereunder, then CBI
shall pay to Union, upon its written demand, an amount equal to Union's costs
and expenses incurred in connection with this Agreement, provided, however,
that such amount shall in no event be greater than $100,000. Such sum,
together with any payment which may be due pursuant to Section 13.4(b), shall
constitute liquidated damages and the receipt thereof shall be Union's sole and
exclusive remedy under this Agreement for such breach by CBI or such failure by
CBI's shareholders to approve this Agreement and the Merger.
(b) In addition to any payment due pursuant to Section 13.4(a), if
the Merger contemplated herein is not consummated because CBI breaches its
obligations under this Agreement or the shareholders fail to approve this
Agreement and the Merger, unless such breach or failure is a result of the
failure by Union or Acquisition Corp to perform and comply in all material
respects with any of their material obligations under this Agreement which are
to be performed or complied with by them prior to or on the date required
hereunder, and within one year after the termination of this Agreement CBI
enters into an agreement with any party other than Union providing for the
acquisition of control of CBI by such other party and the transaction
contemplated by such agreement is consummated at any time thereafter, then CBI
shall pay to Union, upon its written demand, the sum of $250,000. Such sum,
together with any payment which may be due pursuant to Section 13.4(a), shall
constitute liquidated damages under this Agreement and the receipt thereof
shall be Union's sole and exclusive remedy under this Agreement for such breach
by CBI, such failure by CBI's shareholders to approve this Agreement and the
Merger or as a result of such acquisition of control of CBI by a third party,
provided, further, however, that the provisions of this Section shall in no way
limit Union's rights against any such third party. For purposes of this
Section, the phrase "control of CBI" shall mean the acquisition by any such
third party of: (a) legal or beneficial ownership (as defined by Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of greater
than 33% of the then issued and outstanding voting stock of CBI or Omni Bank
through any transaction to which CBI or any
26
<PAGE> 30
Affiliate of CBI is a party; (b) all or substantially all of CBI's assets; or
(c) any of the capital stock or all or substantially all of the assets of Omni
Bank.
ARTICLE 14
MISCELLANEOUS
SECTION 14.1 GOVERNING LAW. All questions concerning the
construction, validity and interpretation of this Agreement, and the
performance of the obligations imposed by this Agreement shall be governed by
the internal laws of the State of Illinois applicable to contracts made and
wholly to be performed in such state without regard to conflicts of laws.
SECTION 14.2 ASSIGNMENT. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned, in whole or in part, by any of
the parties hereto without the prior written consent of the other parties
hereto and any purported assignment in violation hereof shall be void and of no
effect.
SECTION 14.3 AMENDMENT AND MODIFICATION. The parties may by written
agreement signed by all parties hereto: (a) extend the time for the performance
of any of the obligations or other acts of the parties hereto; (b) waive any
inaccuracies in the representations or warranties contained in this Agreement
or in any document delivered pursuant to this Agreement; and (c) waive
compliance with or modify, amend or supplement any of the conditions,
covenants, agreements, representations or warranties contained in this
Agreement or waive or modify performance of any of the obligations of any of
the parties hereto, which are for the benefit of the waiving party, provided,
however, that no such modification, amendment or supplement agreed to after
authorization of this Agreement by the shareholders of CBI shall affect the
rights of such shareholders in any manner which is materially adverse to such
shareholders. The failure of any party hereto to enforce at any time any
provision of this Agreement shall not be construed to be a waiver of such
provision, nor in any way affect the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
SECTION 14.4 NOTICES. All notices, requests and other communications
hereunder shall be in writing (which shall include telecopier communication)
and shall be deemed to have been duly given if delivered by hand or by
overnight express delivery service, mailed with first class postage prepaid or
telecopied if confirmed immediately thereafter by also mailing a copy of any
notice, request or other communication by mail with first class postage
prepaid:
(a) If to CBI to:
Country Bancshares, Inc.
R.R. #2, Box 205C
Camp Point, Illinois 62320
Attention: Mr. Ivan E. Wharton, President, and
Mrs. Betty Wharton
Telephone: (309) 837-6664
Telecopier: (309) 836-1410
with copies to:
Gerrish & McCreary, P.C.
Suite 200, 700 Colonial Road
P. O. Box 242120
Memphis, Tennessee 38124-2120
Attention: P. Thomas Parrish, Esq.
Telephone: (901) 767-0900
Telecopier: (901) 684-2339
or to such other Person and place as CBI shall furnish to Union in writing; or
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<PAGE> 31
(b) if to Union or Acquisition Corp to:
UnionBancorp, Inc.
122 W. Madison Street
Ottawa, Illinois 61350
Attention: Mr. R. Scott Grigsby
Chairman of the Board and President
Telephone: (815) 433-7010
Telecopier: (815) 434-3160
with copies to:
Barack, Ferrazzano, Kirschbaum & Perlman
333 West Wacker
Suite 2700
Chicago, Illinois 60606
Attention: John E. Freechack, Esq.
Telephone: (312) 984-3100
Telecopier: (312) 984-3150
or to such other Person or place as Union or Acquisition Corp shall furnish to
CBI or CBI shall furnish to Union and Acquisition Corp in writing. Except as
otherwise provided herein, all such notices, requests or other communications
shall be effective: (i) if delivered by hand, when delivered; (ii) if mailed in
the manner provided in this Section, five Business Days after deposit with the
United States Postal Service; (iii) if delivered by overnight express delivery
service, on the next Business Day after deposit with such service; (iv) if by
telecopier, on the next Business Day if also confirmed by mail in the manner
provided in this Section.
SECTION 14.5 HEADINGS. The table of contents and the captions and
headings of articles, sections, schedules and exhibits appearing in or attached
to this Agreement have been inserted solely for convenience of reference and
shall not be considered a part of this Agreement nor shall any of them affect
the meaning or interpretation of this Agreement or any of its provisions.
SECTION 14.6 ENTIRE AGREEMENT. This Agreement and any documents
executed by the parties pursuant to this Agreement and referred to herein
constitute the entire understanding and agreement of the parties hereto and
supersede all other prior agreements and understandings, written or oral,
relating to such subject matter between the parties. This Agreement and every
representation, warranty, covenant, agreement and provision hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
SECTION 14.7 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement unless the consummation of the transactions contemplated hereby
is adversely affected thereby.
SECTION 14.8 FURTHER INSTRUMENTS. The parties hereto will, at or
before the Effective Time, execute and deliver such further instruments as may
be reasonably requested by any other party which are necessary to or
appropriate with respect to the consummation of the transactions contemplated
by this Agreement.
SECTION 14.9 COUNTERPARTS. This Agreement and any amendments thereto
may be executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 14.10 BEST EFFORTS. Each party represents and warrants that
it will use its best efforts to bring about the transactions contemplated by
this Agreement as soon as practicable provided that this Section shall not
obligate CBI or Union to remedy any breach of any of its representations,
warranties and covenants herein. In the event that any party becomes aware of
the occurrence or impending occurrence of any event which would constitute or
cause a breach by it of any of the representations or warranties herein, or
would have constituted or caused a
28
<PAGE> 32
breach by it of any of the representations or warranties herein, had such an
event occurred or been known prior to the date hereof, said party shall
immediately give detailed and written notice thereof to the other party.
SECTION 14.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as
otherwise expressly provided herein and in the Indemnity Agreement, the
covenants, representations and warranties contained in this Agreement shall
survive only until the Effective Time.
SECTION 14.12 NO THIRD PARTY BENEFICIARIES. This Agreement is not
intended to and shall not create any rights in or confer any benefits upon any
Person or entity other than the parties hereto.
[THIS SPACE LEFT INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers as of the day and year first written
above.
<TABLE>
<S> <C>
ATTEST: UNIONBANCORP, INC.
By: /s/ Charles J. Grako By: /s/ R. Scott Grigsby
----------------------------------- -------------------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer Chairman of the Board and President
ATTEST: COUNTRY BANCSHARES, INC.
By: /s/ Michel McLennan By: /s/ Betty F. Wharton
----------------------------------- -------------------------------------------
Michel McLennan Betty F. Wharton
Secretary Chairman of the Board
ATTEST: COUNTRY BANCSHARES, INC.
By: /s/ Michel McLennan By: /s/ Ivan E. Wharton
----------------------------------- -------------------------------------------
Michel McLennan Ivan E. Wharton
Secretary President
ATTEST: CBI ACQUISITION CORPORATION
By: /s/ Charles J. Grako By: /s/ R. Scott Grigsby
----------------------------------- -------------------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer President
</TABLE>
29
<PAGE> 1
EXHIBIT 10.9
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT dated August 6, 1996 (this "Agreement"), is
entered into by and between UNIONBANCORP, INC., a Delaware corporation
("Union"), and WAYNE W. WHALEN ("Stockholder").
RECITALS
A. Union and Prairie Bancorp, Inc., an Illinois corporation ("Prairie"),
are parties to that certain Agreement and Plan of Merger dated January 22, 1996
(the "Merger Agreement"), providing for the merger (the "Merger") of Prairie
with and into a wholly-owned subsidiary of Union.
B. As a result of the Merger, Union will issue to Stockholder
approximately 118,430 shares of Union's common stock, $1.00 par value ("Union
Common Stock").
C. Union is unwilling to expend the substantial time, effort and expense
necessary to implement the proposed acquisition of Prairie, including applying
for and obtaining necessary approvals of federal and state banking authorities,
unless Stockholder enters into this Agreement with Union.
D. The obligation of Union under the Merger Agreement to consummate the
transactions contemplated therein is subject to the receipt by Union of a
standstill agreement in the form of this Agreement from Stockholder,
Stockholder is executing this Agreement for the purpose of inducing Union to
consummate the transactions contemplated by the Merger Agreement and
Stockholder believes it is in his best interest as well as the best interest of
Prairie for Union to consummate the Merger.
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained, the sufficiency of which is hereby acknowledged, and
as an inducement to Union to incur the expenses associated with the Merger, the
parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENTS
1. TERM. Except as otherwise expressly provided herein, the respective
covenants and agreements of Stockholder and Union contained in this Agreement
will continue in full force and effect until the fourth anniversary of the
consummation of the Merger (the "Termination Date").
2. COVENANTS OF STOCKHOLDER. Stockholder agrees that prior to the
Termination Date and subject to the further provisions hereof:
(a) Except as otherwise expressly provided in this Section 2(a) and
Section 7, neither Stockholder nor any "person" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), who is an affiliate (as defined below) of Stockholder (collectively,
the "Stockholder Group"), will, directly or indirectly, acquire any shares of
Union Common Stock in addition to those shares of Union Common Stock issued to
Stockholder in connection with the Merger if at the time of such proposed
acquisition the shares of Union Common Stock then owned by Stockholder
represent 12.5% or more of the then issued and outstanding shares of Union
Common Stock, or to the extent such proposed acquisition would increase the
percentage ownership of the Stockholder Group of the then issued and
outstanding shares of Union Common Stock to 12.5% or more. Notwithstanding
anything to the contrary in the preceding sentence, Stockholder shall not be
prohibited from: (i) acquiring any shares of Union Common Stock issuable to
Stockholder in connection with the conversion of the shares of Union's Series A
Preferred Stock issued to Stockholder in connection with the Merger; (ii)
receiving additional shares of Union Common Stock through stock dividends
declared by Union or through any other distributions or offerings made by Union
generally to all holders of Union Common Stock; or (iii) increasing his
percentage ownership of Union Common Stock solely as a result of actions
approved by Union's board of directors and affecting all holders of Union
Common Stock generally.
(b) Stockholder shall take such action as may be required so that all
shares of Union Common Stock owned by any member of the Stockholder Group are
voted for those persons who are serving as of the date of this
<PAGE> 2
Agreement on Union's board of directors and for any other person
nominated by Union's management to fill any vacancy on Union's board so long as
such person: (i) would not reasonably be expected to be unacceptable to any
regulatory authority with jurisdiction over Union; (ii) is of good character
and reputation; and (iii) possesses business experience. The good faith
determination by a majority of Union's directors that any person meets such
qualifications shall be dispositive of such issue. In addition to the
foregoing, Stockholder shall take such action as may be required so that all
shares of Union Common Stock owned by any member of the Stockholder Group are
voted for an amendment of the certificate of incorporation of Union to adopt
provisions substantially similar to those found in Section 203 of the General
Corporation Law of the State of Delaware. The members of the Stockholder
Group, as holders of Union Common Stock, agree to be present, in person or by
proxy, at all meetings of stockholders of Union so that all shares of Union
Common Stock beneficially owned by them may be counted for the purpose of
determining the presence of a quorum at any such meetings. To further
effectuate the provisions of this Section 2(b), Stockholder hereby grants to
the President of Union an irrevocable proxy coupled with an interest to: (i)
represent all of the shares of Union Common Stock now or hereafter owned by
Stockholder, or over which Stockholder now has or hereafter may have voting
control, at any stockholders' meeting called by Union's Chairman of the Board,
President or a majority of its directors for the purpose of establishing the
necessary quorum for the conduct of business; and (ii) to vote such shares of
Common Stock in favor of any matters presented at such meeting that Stockholder
has agreed by the terms of this Section 2(b) to support. Notwithstanding the
foregoing, nothing contained herein shall prevent Stockholder from
participating in any meeting of Union's stockholders and from voting the shares
of Union Common Stock owned by him on all matters for which he has not granted
the President of Union a proxy pursuant to this Section 2(c). Such proxy shall
expire on the Termination Date. Stockholder agrees to execute such further
proxies, instruments, agreements and other documents as may be reasonably
necessary to further evidence this grant of proxy.
(c) The proxy granted by the Stockholder pursuant to Section 2(b) and the
covenants contained in Section 2(f) and 2(g) of this Agreement shall terminate
on the earlier of the fourth anniversary of the date of this Agreement or at
such time, if ever, as any third party or any affiliated group (other than any
employee benefit plan sponsored by Union or any of its subsidiaries) acquires
25% or more of the issued and outstanding Union Common Stock, provided, that no
member of the Stockholder Group [nor Mr. Wayne W. Whalen] shall be part of a
partnership, limited partnership, syndicate or other group, or shall otherwise
be acting in concert with any other person which is a member of, or an
affiliate of any member of, such affiliated group or which is an affiliate of
such third party, for the purpose of acquiring, holding, voting or disposing of
shares of Union Common Stock.
(d) Stockholder acknowledges that he has been made aware that the board of
directors of Union has had under consideration, for a number of months, the
adoption of a stockholders' rights plan, that Union's board of directors
intends to continue such consideration and may, at some time before or after
the closing of the Merger, adopt and implement such a plan.
(e) No member of the Stockholder Group shall deposit any shares of Union
Common Stock in a voting trust or subject any shares of Union Common Stock to
any arrangement or agreement with respect to the voting of such shares.
(f) No member of the Stockholder Group shall solicit proxies or become a
"participant" in a "solicitation," as such terms are defined in the current
version of Regulation 14A under the Exchange Act in opposition to the
recommendation of the majority of the directors of Union with respect to any
matter.
(g) No member of the Stockholder Group shall join a partnership, limited
partnership, syndicate or other group, or otherwise act in concert with any
other person, for the purpose of acquiring, holding, voting or disposing of
shares of Union Common Stock, or otherwise become a "person" within the meaning
of Section 13(d)(3) of the Exchange Act (in each case other than solely with
members of the Stockholder Group).
(h) Except as otherwise expressly provided in this Agreement and for any
sales or transfers solely between: (i) Messrs. Wayne W. Whalen and Dennis J.
McDonnell; (ii) Mr. Whalen and his spouse or any child; (iii) Mr. McDonnell and
his spouse or any child; and (iv) Messrs. Whalen or McDonnell and any bidder
(as defined in Rule 14d-1 of the Exchange Act) which has commenced a tender
offer for Union Common Stock which Union
2
<PAGE> 3
has recommended to its stockholders, no member of the Stockholder Group
shall, directly or indirectly, offer, sell or transfer any shares of Union
Common Stock without offering Union a right of first refusal in the manner
provided in this Agreement.
3. RIGHT OF FIRST REFUSAL. Except for transfers described in Section
2(h), any member of the Stockholder Group, prior to making any offer to sell,
the sale or transfer of any shares of Union Common Stock to the extent such
shares represent 5% or more of the then issued and outstanding shares of Union
Common Stock, or to the extent that the current proposed transfer of shares,
when aggregated with all past transfers of shares of Union Common Stock from
the Stockholder Group to the same transferee or such transferee's affiliates
would equal or exceed such 5% limit, shall give Union the opportunity to
purchase such shares of Union Common Stock in the following manner:
(a) Any member of the Stockholder Group intending to make such an offer,
sale or transfer shall give notice (the "Transfer Notice") to Union in writing
of such intention, specifying the number of shares of Union Common Stock
proposed to be disposed of and the proposed price therefor, and any specific
offer to purchase such shares of Union Common Stock theretofore received and
then remaining open, identifying the offeror and setting forth all the terms of
such offer (including price). For purposes hereof, a bona fide third-party
tender or exchange offer to purchase shares of Union Common Stock shall be
deemed to be an offer at the price specified therein, without regard to any
provisions thereof with respect to proration or conditions to the offeror's
obligation to purchase.
(b) Union shall have the right, exercisable by written notice given by
Union to the party which gave the Transfer Notice within 15 Business Days (as
defined in the Merger Agreement) after receipt of such Notice (or in the case
of a tender or exchange offer, no later than 24 hours prior to the latest time
by which shares of Union Common Stock must be tendered in order to be accepted
pursuant to such offer or to qualify for any proration applicable to such
offer), to purchase (or to cause a corporation, entity, person or group
designated by Union to purchase) all, but not a part of, the shares of Union
Common Stock specified in such Notice for cash at the price set forth therein.
If the purchase price specified in the Transfer Notice includes any property
other than cash, such purchase price shall be deemed to be the amount of any
cash included in the purchase price plus the value (as jointly determined by a
nationally recognized investment banking firm selected by each party or, in the
event such firms are unable to agree, a third nationally recognized investment
banking firm to be selected by them) of such other property included in such
price. For this purpose:
(i) The parties shall use their best efforts to cause any
determination of the value of any securities included in the purchase
price to be made within seven Business Days after the date of delivery of
the Transfer Notice. If the firms selected by Stockholder and Union are
unable to agree upon the value of any such securities within such
seven-day period, the parties shall promptly select a third firm whose
determination shall be conclusive.
(ii) The parties shall use their best efforts to cause any
determination of the value of property other than securities to be made
within ten Business Days after the date of delivery of the Transfer
Notice. If the firms selected by Stockholder and Union are unable to
agree upon a value within such ten-day period, the parties shall promptly
select a third firm whose determination shall be conclusive.
(iii) The date on which Union must exercise its right of first
refusal shall be extended until three Business Days after the
determination of the value of property included in the purchase price if
such property consists solely of securities or five Business Days after
the determination of such value if other property is included.
(c) If Union exercises its right of first refusal hereunder, the closing
of the purchase of the shares of Union Common Stock with respect to which such
right has been exercised shall take place within 30 calendar days (or if
approval of such purchase by any bank regulatory authority is required by law,
within 90 calendar days) after Union gives notice of such exercise. Upon
exercise of its right of first refusal, Union shall be legally obligated to
consummate the purchase contemplated thereby and shall use its best effort to
secure all approvals required in connection therewith.
3
<PAGE> 4
(d) If Union does not exercise its right of first refusal hereunder within
the time specified for such exercise, the party giving the Transfer Notice
shall be free during the period of 90 calendar days following the expiration of
such time for exercise to sell the shares of Union Common Stock specified in
such Notice to the offeror identified therein at the price specified therein or
at any price in excess thereof. If sold in this manner, the shares of Union
Common Stock that were the subject of such sale shall thereafter be free of the
restrictions imposed by this Agreement.
4. LEGEND. (a) Stockholder acknowledges that all certificates
representing shares of Union Common Stock now owned or hereafter acquired by
members of the Stockholder Group shall bear the following legend which will
remain thereon as long as such shares of Union Common Stock are subject to the
restrictions contained in this Agreement:
The securities represented by this certificate
are subject to the provisions of a Standstill
Agreement dated August , 1996, between Wayne W.
Whalen and UnionBancorp, Inc., and may not be sold or
transferred except in accordance therewith. A copy of
said Standstill Agreement is on file at the office of
the corporate secretary of UnionBancorp, Inc.
(b) Union may enter a stop transfer order with the transfer agent or
agents of shares of Union Common Stock against the transfer of shares of Union
Common Stock except in compliance with the requirements of this Agreement.
Union agrees to remove promptly any stop transfer order with respect to, and
issue promptly certificates without such legend in substitution for,
certificates for any shares of Union Common Stock that are no longer subject to
the restrictions contained in this Agreement.
5. PLEDGE OF STOCK. Nothing herein shall be deemed to prevent Stockholder
from pledging the shares of Union Common Stock or any shares of Union's
preferred stock owned by him to secure any of Stockholder's obligations,
provided, however, that the terms of such pledge will grant to Union the right
to acquire any such pledged shares at their then current book value in the
event of a default by Stockholder immediately prior to the transfer of such
pledged shares to a third party through a sale made under the provisions of
Article 9 of the Uniform Commercial Code, as adopted in the State of Illinois,
or any other similar creditor's remedy.
6. CONSULTATION WITH STOCKHOLDER. If at any time during the term of this
Agreement the employment of Mr. R. Scott Grigsby as Union's Chief Executive
Officer shall be voluntarily or involuntarily terminated, Union agrees to
consult with Mr. Whalen and Mr. McDonnell within 90 days after such termination
and before Union's board of directors chooses a new Chief Executive Officer.
7. PRE-EMPTIVE RIGHTS OF STOCKHOLDER. If at any time during the term of
this Agreement Union shall issue any shares of Union Common Stock at a per
share price that is less than the then current per share book value of Union
Common Stock (a "Discount Issuance") to any person in exchange for cash or the
securities of any other entity (other than shares of Union Common Stock issued:
(a) upon conversion of shares of Union's Series A Preferred Stock; (b) to
employees, officers, directors, consultants or other persons performing
services for Union pursuant to any stock option plan, stock purchase plan or
other management incentive plan approved by Union's board of directors; or (c)
in connection with any stock dividends, stock splits or other stock
distribution made to all stockholders of Union generally), Union shall offer to
Stockholder on the same terms and conditions such number of shares of Union
Common Stock as would allow Stockholder to maintain the same percentage
ownership of the issued and outstanding Union Common Stock as he owned
immediately prior to such Discount Issuance.
8. REMEDIES. Stockholder, on the one hand, and Union, on the other,
acknowledge and agree that irreparable damage would occur in the event any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which they may be entitled at
law or equity.
4
<PAGE> 5
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, superseding all
prior oral or written agreements or understandings. Except as otherwise
expressly contemplated by this Agreement, and except for the Merger Agreement
and the other agreements between the parties hereto which are contemplated
therein, there have been and are no promises, restrictions, agreements or
understandings between the parties with respect to the subject matter hereof
except as set forth in this Agreement.
10. HEADINGS; COUNTERPARTS. The headings in this Agreement are for
convenience only and shall not be considered a part of or affect the meaning,
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts each of which shall be deemed
an original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
11. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed therein without regard to the conflicts of laws rules.
12. NOTICES. All notices, requests and other communications hereunder
shall be in writing (which shall include telecopier communication) and shall be
deemed to have been duly given if delivered by hand or by overnight express
delivery service, mailed with first class postage prepaid or telecopied if
confirmed immediately thereafter by also mailing a copy of any notice, request
or other communication by mail with first class postage prepaid:
<TABLE>
<S> <C>
(a) If to Union, to:
UnionBancorp, Inc. Barack, Ferrazzano, Kirschbaum & Perlman
122 West Madison Street 333 West Wacker Drive, Suite 2700
Ottawa, Illinois 61350 and Chicago, Illinois 60606
Attention: R. Scott Grigsby Attention: John E. Freechack, Esq.
Chairman and President Telephone: (312) 984-3223
Telephone: (815) 673-3333 Telecopier: (312) 984-3150
Telecopier: (815) 434-3160
</TABLE>
(b) If to Stockholder, to:
Wayne W. Whalen
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
Telephone: (312) 407-0700
Telecopier: (312) 407-0411
or to such other person or place as any of the parties shall furnish to the
other parties in writing; except that notices of a change of address shall be
effective: (i) if delivered by hand, when delivered; (ii) if mailed in the
manner provided in this Section, five Business Days after deposit
with the United States Postal Service; (iii) if delivered by overnight express
delivery service, on the next Business Day after deposit with such service; or
(iv) if by telecopier, on the next Business Day if also confirmed by mail in
the manner provided in this Section.
13. SEVERABILITY. If any provision of this Agreement shall be deemed
invalid or inoperative, or in the event a court of competent jurisdiction
determines that any of the provisions of this Agreement contravene public
policy in any way, this Agreement shall be construed so that the remaining
provisions shall not be affected, but shall remain in full force and effect,
and any such provisions which are invalid or inoperative or which contravene
public policy shall be deemed, without further action or deed on the part of
any person, to be modified, amended and/or limited, but only to the limited
extent necessary to render the same valid and enforceable.
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<PAGE> 6
14. AMENDMENT AND MODIFICATION. This Agreement may only be amended,
modified or supplemented by a written agreement executed by each of the parties
hereto.
15. AFFILIATE; PERSON. As used herein, the term "affiliate" shall have the
meaning set forth in Rule 12b-2 promulgated under the Exchange Act and, except
for those cases in this Agreement where it is expressly defined otherwise, the
term "person" shall mean any individual, partnership, corporation, trust or
other entity.
16. ASSIGNMENT; PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their respective
heirs, beneficiaries, legatees, personal representatives, successors and
assigns and any subsequent holders of shares of Union Common Stock that were
previously owned by Stockholder and subject to the terms of this Agreement, but
shall not be assigned by the parties hereto, by operation of law or otherwise,
without the prior written consent of the other party. Nothing in this
Agreement, expressed or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
17. WAIVER OF COMPLIANCE; CONSENTS. Any failure of Union on the one hand,
or Stockholder on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by the party entitled to
the performance of such obligation, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth above.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and Union.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ATTEST: UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- -----------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer Chairman of the Board and President
s\ Wayne W. Whalen
--------------------------
(Signature of Stockholder)
Wayne W. Whalen
-------------------------
(Printed Name of Stockholder)
7
<PAGE> 8
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT dated August 6, 1996 (this "Agreement"), is
entered into by and between UNIONBANCORP, INC., a Delaware corporation
("Union"), and DENNIS J. MCDONNELL ("Stockholder").
RECITALS
A) Union and Prairie Bancorp, Inc., an Illinois corporation ("Prairie"),
are parties to that certain Agreement and Plan of Merger dated January 22, 1996
(the "Merger Agreement"), providing for the merger (the "Merger") of Prairie
with and into a wholly-owned subsidiary of Union.
B) As a result of the Merger, Union will issue to Stockholder
approximately 118,430 shares of Union's common stock, $1.00 par value ("Union
Common Stock").
C) Union is unwilling to expend the substantial time, effort and expense
necessary to implement the proposed acquisition of Prairie, including applying
for and obtaining necessary approvals of federal and state banking authorities,
unless Stockholder enters into this Agreement with Union.
D) The obligation of Union under the Merger Agreement to consummate the
transactions contemplated therein is subject to the receipt by Union of a
standstill agreement in the form of this Agreement from Stockholder,
Stockholder is executing this Agreement for the purpose of inducing Union to
consummate the transactions contemplated by the Merger Agreement and
Stockholder believes it is in his best interest as well as the best interest of
Prairie for Union to consummate the Merger.
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained, the sufficiency of which is hereby acknowledged, and
as an inducement to Union to incur the expenses associated with the Merger, the
parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENTS
1. TERM. Except as otherwise expressly provided herein, the respective
covenants and agreements of Stockholder and Union contained in this Agreement
will continue in full force and effect until the fourth anniversary of the
consummation of the Merger (the "Termination Date").
2. COVENANTS OF STOCKHOLDER. Stockholder agrees that prior to the
Termination Date and subject to the further provisions hereof:
(a) Except as otherwise expressly provided in this Section 2(a) and
Section 7, neither Stockholder nor any "person" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), who is an affiliate (as defined below) of Stockholder (collectively,
the "Stockholder Group"), will, directly or indirectly, acquire any shares of
Union Common Stock in addition to those shares of Union Common Stock issued to
Stockholder in connection with the Merger if at the time of such proposed
acquisition the shares of Union Common Stock then owned by Stockholder
represent 12.5% or more of the then issued and outstanding shares of Union
Common Stock, or to the extent such proposed acquisition would increase the
percentage ownership of the Stockholder Group of the then issued and
outstanding shares of Union Common Stock to 12.5% or more. Notwithstanding
anything to the contrary in the preceding sentence, Stockholder shall not be
prohibited from: (i) acquiring any shares of Union Common Stock issuable to
Stockholder in connection with the conversion of the shares of Union's Series A
Preferred Stock issued to Stockholder in connection with the Merger; (ii)
receiving additional shares of Union Common Stock through stock dividends
declared by Union or through any other distributions or offerings made by Union
generally to all holders of Union Common Stock; or (iii) increasing his
percentage ownership of Union Common Stock solely as a result of actions
approved by Union's board of directors and affecting all holders of Union
Common Stock generally.
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<PAGE> 9
(b) Stockholder shall take such action as may be required so that all
shares of Union Common Stock owned by any member of the Stockholder Group are
voted for those persons who are serving as of the date of this Agreement on
Union's board of directors and for any other person nominated by Union's
management to fill any vacancy on Union's board so long as such person: (i)
would not reasonably be expected to be unacceptable to any regulatory authority
with jurisdiction over Union; (ii) is of good character and reputation; and
(iii) possesses business experience. The good faith determination by a
majority of Union's directors that any person meets such qualifications shall
be dispositive of such issue. In addition to the foregoing, Stockholder shall
take such action as may be required so that all shares of Union Common Stock
owned by any member of the Stockholder Group are voted for an amendment of the
certificate of incorporation of Union to adopt provisions substantially similar
to those found in Section 203 of the General Corporation Law of the State of
Delaware. The members of the Stockholder Group, as holders of Union Common
Stock, agree to be present, in person or by proxy, at all meetings of
stockholders of Union so that all shares of Union Common Stock beneficially
owned by them may be counted for the purpose of determining the presence of a
quorum at any such meetings. To further effectuate the provisions of this
Section 2(b), Stockholder hereby grants to the President of Union an
irrevocable proxy coupled with an interest to: (i) represent all of the shares
of Union Common Stock now or hereafter owned by Stockholder, or over which
Stockholder now has or hereafter may have voting control, at any stockholders'
meeting called by Union's Chairman of the Board, President or a majority of its
directors for the purpose of establishing the necessary quorum for the conduct
of business; and (ii) to vote such shares of Common Stock in favor of any
matters presented at such meeting that Stockholder has agreed by the terms of
this Section 2(b) to support. Notwithstanding the foregoing, nothing contained
herein shall prevent Stockholder from participating in any meeting of Union's
stockholders and from voting the shares of Union Common Stock owned by him on
all matters for which he has not granted the President of Union a proxy
pursuant to this Section 2(c). Such proxy shall expire on the Termination
Date. Stockholder agrees to execute such further proxies, instruments,
agreements and other documents as may be reasonably necessary to further
evidence this grant of proxy.
(c) The proxy granted by the Stockholder pursuant to Section 2(b) and the
covenants contained in Section 2(f) and 2(g) of this Agreement shall terminate
on the earlier of the fourth anniversary of the date of this Agreement or at
such time, if ever, as any third party or any affiliated group (other than any
employee benefit plan sponsored by Union or any of its subsidiaries) acquires
25% or more of the issued and outstanding Union Common Stock, provided, that no
member of the Stockholder Group [nor Mr. Dennis J. McDonnell] shall be part of
a partnership, limited partnership, syndicate or other group, or shall
otherwise be acting in concert with any other person which is a member of, or
an affiliate of any member of, such affiliated group or which is an affiliate
of such third party, for the purpose of acquiring, holding, voting or disposing
of shares of Union Common Stock.
(d) Stockholder acknowledges that he has been made aware that the board of
directors of Union has had under consideration, for a number of months, the
adoption of a stockholders' rights plan, that Union's board of directors
intends to continue such consideration and may, at some time before or after
the closing of the Merger, adopt and implement such a plan.
(e) No member of the Stockholder Group shall deposit any shares of Union
Common Stock in a voting trust or subject any shares of Union Common Stock to
any arrangement or agreement with respect to the voting of such shares.
(f) No member of the Stockholder Group shall solicit proxies or become a
"participant" in a "solicitation," as such terms are defined in the current
version of Regulation 14A under the Exchange Act in opposition to the
recommendation of the majority of the directors of Union with respect to any
matter.
(g) No member of the Stockholder Group shall join a partnership, limited
partnership, syndicate or other group, or otherwise act in concert with any
other person, for the purpose of acquiring, holding, voting or disposing of
shares of Union Common Stock, or otherwise become a "person" within the meaning
of Section 13(d)(3) of the Exchange Act (in each case other than solely with
members of the Stockholder Group).
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<PAGE> 10
(h) Except as otherwise expressly provided in this Agreement and for any
sales or transfers solely between: (i) Messrs. Wayne W. Whalen and Dennis J.
McDonnell; (ii) Mr. Whalen and his spouse or any child; (iii) Mr. McDonnell and
his spouse or any child; and (iv) Messrs. Whalen or McDonnell and any bidder
(as defined in Rule 14d-1 of the Exchange Act) which has commenced a tender
offer for Union Common Stock which Union has recommended to its stockholders,
no member of the Stockholder Group shall, directly or indirectly, offer, sell
or transfer any shares of Union Common Stock without offering Union a right of
first refusal in the manner provided in this Agreement.
3. RIGHT OF FIRST REFUSAL. Except for transfers described in Section
2(h), any member of the Stockholder Group, prior to making any offer to sell,
the sale or transfer of any shares of Union Common Stock to the extent such
shares represent 5% or more of the then issued and outstanding shares of Union
Common Stock, or to the extent that the current proposed transfer of shares,
when aggregated with all past transfers of shares of Union Common Stock from
the Stockholder Group to the same transferee or such transferee's affiliates
would equal or exceed such 5% limit, shall give Union the opportunity to
purchase such shares of Union Common Stock in the following manner:
(a) Any member of the Stockholder Group intending to make such an offer,
sale or transfer shall give notice (the "Transfer Notice") to Union in writing
of such intention, specifying the number of shares of Union Common Stock
proposed to be disposed of and the proposed price therefor, and any specific
offer to purchase such shares of Union Common Stock theretofore received and
then remaining open, identifying the offeror and setting forth all the terms of
such offer (including price). For purposes hereof, a bona fide third-party
tender or exchange offer to purchase shares of Union Common Stock shall be
deemed to be an offer at the price specified therein, without regard to any
provisions thereof with respect to proration or conditions to the offeror's
obligation to purchase.
(b) Union shall have the right, exercisable by written notice given by
Union to the party which gave the Transfer Notice within 15 Business Days (as
defined in the Merger Agreement) after receipt of such Notice (or in the case
of a tender or exchange offer, no later than 24 hours prior to the latest time
by which shares of Union Common Stock must be tendered in order to be accepted
pursuant to such offer or to qualify for any proration applicable to such
offer), to purchase (or to cause a corporation, entity, person or group
designated by Union to purchase) all, but not a part of, the shares of Union
Common Stock specified in such Notice for cash at the price set forth therein.
If the purchase price specified in the Transfer Notice includes any property
other than cash, such purchase price shall be deemed to be the amount of any
cash included in the purchase price plus the value (as jointly determined by a
nationally recognized investment banking firm selected by each party or, in the
event such firms are unable to agree, a third nationally recognized investment
banking firm to be selected by them) of such other property included in such
price. For this purpose:
(i) The parties shall use their best efforts to cause any
determination of the value of any securities included in the purchase price
to be made within seven Business Days after the date of delivery of the
Transfer Notice. If the firms selected by Stockholder and Union are unable
to agree upon the value of any such securities within such seven-day
period, the parties shall promptly select a third firm whose determination
shall be conclusive.
(ii) The parties shall use their best efforts to cause any
determination of the value of property other than securities to be made
within ten Business Days after the date of delivery of the Transfer Notice.
If the firms selected by Stockholder and Union are unable to agree upon a
value within such ten-day period, the parties shall promptly select a third
firm whose determination shall be conclusive.
(iii) The date on which Union must exercise its right of first refusal
shall be extended until three Business Days after the determination of the
value of property included in the purchase price if such property consists
solely of securities or five Business Days after the determination of such
value if other property is included.
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<PAGE> 11
(c) If Union exercises its right of first refusal hereunder, the closing
of the purchase of the shares of Union Common Stock with respect to which such
right has been exercised shall take place within 30 calendar days (or if
approval of such purchase by any bank regulatory authority is required by law,
within 90 calendar days) after Union gives notice of such exercise. Upon
exercise of its right of first refusal, Union shall be legally obligated to
consummate the purchase contemplated thereby and shall use its best effort to
secure all approvals required in connection therewith.
(d) If Union does not exercise its right of first refusal hereunder within
the time specified for such exercise, the party giving the Transfer Notice
shall be free during the period of 90 calendar days following the expiration of
such time for exercise to sell the shares of Union Common Stock specified in
such Notice to the offeror identified therein at the price specified therein or
at any price in excess thereof. If sold in this manner, the shares of Union
Common Stock that were the subject of such sale shall thereafter be free of the
restrictions imposed by this Agreement.
4. LEGEND. (a) Stockholder acknowledges that all certificates
representing shares of Union Common Stock now owned or hereafter acquired by
members of the Stockholder Group shall bear the following legend which will
remain thereon as long as such shares of Union Common Stock are subject to the
restrictions contained in this Agreement:
The securities represented by this certificate
are subject to the provisions of a Standstill
Agreement dated August , 1996, between Dennis J.
McDonnell and UnionBancorp, Inc., and may not be sold
or transferred except in accordance therewith. A copy
of said Standstill Agreement is on file at the office
of the corporate secretary of UnionBancorp, Inc.
(b) Union may enter a stop transfer order with the transfer agent or
agents of shares of Union Common Stock against the transfer of shares of Union
Common Stock except in compliance with the requirements of this Agreement.
Union agrees to remove promptly any stop transfer order with respect to, and
issue promptly certificates without such legend in substitution for,
certificates for any shares of Union Common Stock that are no longer subject to
the restrictions contained in this Agreement.
5. PLEDGE OF STOCK. Nothing herein shall be deemed to prevent Stockholder
from pledging the shares of Union Common Stock or any shares of Union's
preferred stock owned by him to secure any of Stockholder's obligations,
provided, however, that the terms of such pledge will grant to Union the right
to acquire any such pledged shares at their then current book value in the
event of a default by Stockholder immediately prior to the transfer of such
pledged shares to a third party through a sale made under the provisions of
Article 9 of the Uniform Commercial Code, as adopted in the State of Illinois,
or any other similar creditor's remedy.
6. CONSULTATION WITH STOCKHOLDER. If at any time during the term of this
Agreement the employment of Mr. R. Scott Grigsby as Union's Chief Executive
Officer shall be voluntarily or involuntarily terminated, Union agrees to
consult with Mr. Whalen and Mr. McDonnell within 90 days after such termination
and before Union's board of directors chooses a new Chief Executive Officer.
7. PRE-EMPTIVE RIGHTS OF STOCKHOLDER. If at any time during the term of
this Agreement Union shall issue any shares of Union Common Stock at a per
share price that is less than the then current per share book value of Union
Common Stock (a "Discount Issuance") to any person in exchange for cash or the
securities of any other entity (other than shares of Union Common Stock issued:
(a) upon conversion of shares of Union's Series A Preferred Stock; (b) to
employees, officers, directors, consultants or other persons performing
services for Union pursuant to any stock option plan, stock purchase plan or
other management incentive plan approved by Union's board of directors; or (c)
in connection with any stock dividends, stock splits or other stock
distribution made to all stockholders of Union generally), Union shall offer to
Stockholder on the same terms and conditions such number of shares of Union
Common Stock as would allow Stockholder
4
<PAGE> 12
to maintain the same percentage ownership of the issued and outstanding Union
Common Stock as he owned immediately prior to such Discount Issuance.
8. REMEDIES. Stockholder, on the one hand, and Union, on the other,
acknowledge and agree that irreparable damage would occur in the event any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which they may be entitled at
law or equity.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, superseding all
prior oral or written agreements or understandings. Except as otherwise
expressly contemplated by this Agreement, and except for the Merger Agreement
and the other agreements between the parties hereto which are contemplated
therein, there have been and are no promises, restrictions, agreements or
understandings between the parties with respect to the subject matter hereof
except as set forth in this Agreement.
10. HEADINGS; COUNTERPARTS. The headings in this Agreement are for
convenience only and shall not be considered a part of or affect the meaning,
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in several counterparts each of which shall be deemed
an original and shall bind the signatory, but all of which together shall
constitute but one and the same instrument.
11. GOVERNING LAW. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed therein without regard to the conflicts of laws rules.
12. NOTICES. All notices, requests and other communications hereunder
shall be in writing (which shall include telecopier communication) and shall be
deemed to have been duly given if delivered by hand or by overnight express
delivery service, mailed with first class postage prepaid or telecopied if
confirmed immediately thereafter by also mailing a copy of any notice, request
or other communication by mail with first class postage prepaid:
<TABLE>
<S> <C>
(a) If to Union, to:
UnionBancorp, Inc. Barack, Ferrazzano, Kirschbaum
& Perlman
122 West Madison Street 333 West Wacker Drive, Suite 2700
Ottawa, Illinois 61350 and Chicago, Illinois 60606
Attention: R. Scott Grigsby Attention: John E. Freechack, Esq.
Chairman and President Telephone: (312) 984-3223
Telephone: (815) 673-3333 Telecopier: (312) 984-3150
Telecopier: (815) 434-3160
</TABLE>
(b) If to Stockholder, to:
Dennis J. McDonnell
815 Jackson
River Forest, Illinois 60305
Telephone: (708) 771-5869
or to such other person or place as any of the parties shall furnish to the
other parties in writing, except that notices of a change shall be effective
only upon receipt. Except as otherwise provided herein, all such notices,
reqquests or other communications shall be effective: (i) if delivered by hand,
when delivered; (ii) if mailed in the manner provided in this Section, five
Business Days after deposit with the United States Postal
5
<PAGE> 13
Service; (iii) if delivered by overnight express delivery service, on
the next Business Day after deposit with such service; or (iv) if by
telecopier, on the next Business Day if also confirmed by mail in the manner
provided in this Section.
13. SEVERABILITY. If any provision of this Agreement shall be deemed
invalid or inoperative, or in the event a court of competent jurisdiction
determines that any of the provisions of this Agreement contravene public
policy in any way, this Agreement shall be construed so that the remaining
provisions shall not be affected, but shall remain in full force and effect,
and any such provisions which are invalid or inoperative or which contravene
public policy shall be deemed, without further action or deed on the part of
any person, to be modified, amended and/or limited, but only to the limited
extent necessary to render the same valid and enforceable.
14. AMENDMENT AND MODIFICATION. This Agreement may only be amended,
modified or supplemented by a written agreement executed by each of the parties
hereto.
15. AFFILIATE; PERSON. As used herein, the term "affiliate" shall have the
meaning set forth in Rule 12b-2 promulgated under the Exchange Act and, except
for those cases in this Agreement where it is expressly defined otherwise, the
term "person" shall mean any individual, partnership, corporation, trust or
other entity.
16. ASSIGNMENT; PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of the parties hereto and their respective
heirs, beneficiaries, legatees, personal representatives, successors and
assigns and any subsequent holders of shares of Union Common Stock that were
previously owned by Stockholder and subject to the terms of this Agreement, but
shall not be assigned by the parties hereto, by operation of law or otherwise,
without the prior written consent of the other party. Nothing in this
Agreement, expressed or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
17 .WAIVER OF COMPLIANCE; CONSENTS. Any failure of Union on the one hand,
or Stockholder on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived in writing by the party entitled to
the performance of such obligation, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth above.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and Union.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ATTEST: UNIONBANCORP, INC.
By: \s\ Charles J. Grako By: \s\ R. Scott Grigsby
-------------------- -----------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer Chairman of the Board and President
\s\ Dennis J. McDonnell
------------------------
(Signature of Stockholder)
Dennis J. McDonnell
--------------------
(Printed Name of Stockholder)
7
<PAGE> 1
EXHIBIT 10.10
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT dated August 6, 1996 (this "Agreement"), is
entered into by and between UNIONBANCORP, INC., a Delaware corporation
("Union"), WAYNE W. WHALEN and DENNIS J. MCDONNELL (collectively, the
"Stockholders," and individually, a "Stockholder").
RECITALS
A. Union and Prairie Bancorp, Inc., an Illinois corporation ("Prairie"),
are parties to that certain Agreement and Plan of Merger dated January 22, 1996
(the "Merger Agreement"), providing for the merger (the "Merger") of Prairie
with and into a wholly-owned subsidiary of Union.
B. As a result of the Merger, Union will issue to the Stockholders shares
of Union's common stock $1.00 par value (the "Common Stock") and shares of
Union's Series A Preferred Stock which is convertible into shares of Union
Common Stock (the "Preferred Stock").
C. As a condition to the Merger, Union is required to deliver this
Agreement to the Stockholders at the Closing (as defined in the Merger
Agreement).
D. The obligation of Prairie under the Merger Agreement to consummate the
transactions contemplated therein is subject to the receipt by the Stockholders
from Union of a registration agreement in the form of this Agreement, and Union
is executing this Agreement for the purpose of inducing Prairie to consummate
the transactions contemplated by the Merger Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained, the sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENTS
1. DEFINITIONS. As used in this Agreement:
(A) "COMMISSION" means the Securities and Exchange Commission.
(B) "COMMON STOCK" means the common stock of Union, $1.00 par value.
(C) "PERSON" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, an estate, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
(D) "REGISTRABLE SHARES" means at any time: (i) any shares of Common
Stock then outstanding which were issued to the Stockholders pursuant to the
provisions of the Merger Agreement; (ii) any shares of Common Stock then
outstanding which were issued upon conversion of Preferred Stock; (iii) any
shares of Common Stock then issuable upon conversion of then outstanding
Preferred Stock; (iv) any shares of Common Stock then outstanding which were
issued as, or were issued directly or indirectly upon the conversion or
exercise of other securities issued as, a dividend or other distribution with
respect to or in replacement of other Registrable Shares; and (v) any shares of
Common Stock then issuable directly or indirectly upon the conversion or
exercise of other securities which were issued as a dividend or other
distribution with respect to or in replacement of other Registrable Shares;
provided, that Registrable Shares shall not include any shares the sale of
which has been registered pursuant to the Securities Act or which have been
sold to the public pursuant to Rule 144 of the Commission under the Securities
Act. For purposes of this Agreement, a Person will be deemed to be a holder of
Registrable Shares whenever such Person has the then-existing right to acquire
such Registrable Shares (by conversion or otherwise), whether or not such
acquisition has actually been effected.
<PAGE> 2
(E) "REGISTRATION EXPENSES" has the meaning ascribed to it in Section
6 of this Agreement.
(F) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(G) "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
2. PIGGYBACK REGISTRATIONS.
(A) RIGHT TO PIGGYBACK. Whenever Union proposes to register any of its
securities under the Securities Act and the registration form to be used may be
used for the registration of Registrable Shares (a "Piggyback Registration"),
Union will give prompt written notice to all holders of Registrable Shares of
its intention to effect such a registration and will include in such
registration all Registrable Shares with respect to which Union has received
written requests for inclusion therein within 15 days after the receipt of
Union's notice.
(B) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of Union, and the
managing underwriters advise Union in writing (with a copy of such advice to be
supplied by Union to the holders of Registrable Shares) that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering, Union will include in such
registration: (i) first, the securities Union proposes to sell; (ii) second,
the Registrable Shares requested to be included in such registration which in
such opinion of such underwriters can be sold, pro rata among the holders of
such Registrable Shares on the basis of the number of Registrable Shares owned
by such holders, with further successive pro rata allocations among the holders
of Registrable Shares if any such holder of Registrable Shares has requested
the registration of less than all such Registrable Shares it is entitled to
register; and (iii) third, other securities requested to be included in such
registration.
(C) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of Union's
securities, and the managing underwriters advise Union in writing (with a copy
of such advice to be supplied by Union to the holders of Registrable Shares)
that in their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering, Union will
include in such registration: (i) first, the securities requested to be
included therein by the holders requesting such registration, (ii) second, the
Registrable Shares requested to be included in such registration which
in such opinion of such underwriters can be sold, pro rata among the holders of
such Registrable Shares on the basis of the number of Registrable Shares owned
or deemed to be owned by such holders, with further successive pro rata
allocations among the holders of Registrable Shares if any such holder of
Registrable Shares has requested the registration of less than all such
Registrable Shares it is entitled to register; and (iii) third, other
securities requested to be included in such registration.
(D) OTHER REGISTRATIONS. If Union has previously filed a registration
statement with respect to Registrable Shares pursuant to this paragraph 2, and
if such previous registration has not been withdrawn or abandoned, Union will
not file or cause to be effected any other registration of any of its equity
securities or securities convertible or exchangeable into or exercisable for
its equity securities under the Securities Act (except on Form S-4 or Form S-8
or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of 6 months has elapsed
from the effective date of such previous registration.
3. HOLDBACK AGREEMENTS.
(A) Each of the holders of Registrable Shares agrees not to effect any
public sale or distribution of equity securities of Union, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 90-day period beginning on the effective date of
any underwritten
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<PAGE> 3
Piggyback Registration (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(B) Union agrees: (i) not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-4, Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree; and (ii)
to use its best efforts to cause each holder of at least 5% (on a fully-diluted
basis) of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, purchased from Union at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable Shares
have requested that any Registrable Shares be registered in a Piggyback
Registration pursuant to this Agreement, Union will use its best efforts to
effect the registration and the sale of such Registrable Shares in accordance
with the intended method of disposition thereof, and pursuant thereto Union
will as expeditiously as possible:
(A) prepare and file with the Commission a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed nine
months;
(B) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than nine months and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(C) furnish to each seller of Registrable Shares and the underwriters of
the securities being registered such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) or
filed under Rule 424 promulgated under the Securities Act and each amendment or
supplement thereto and such other documents as such seller or underwriters may
reasonably request to facilitate the disposition of the Registrable Shares
owned by such seller or the sale of such securities by such underwriters;
(D) use its best efforts to register or qualify such Registrable Shares
under such other securities or blue sky laws of such jurisdictions as any
seller or underwriter of the sale of the Registrable Shares reasonably requests
and do any and all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such seller (provided,
however, that Union will not be required to: (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph; (ii) subject itself to taxation in any such
jurisdiction; or (iii) consent to general service of process in any such
jurisdiction);
(E) cause all such Registrable Shares to be listed on each securities
exchange on which similar securities issued by Union are then listed;
(F) provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
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<PAGE> 4
(G) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares (including, without limitation, effecting a stock split or a
combination of shares);
(H) make available for inspection by each seller of Registrable Shares,
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of Union, and cause Union's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(I) notify each seller of such Registrable Shares, promptly after it
shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(J) notify each seller of such Registrable Shares of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
(K) prepare and file with the Commission, promptly upon the request of
any seller of such Registrable Shares, any amendments or supplements to
such registration statement or prospectus which, in the opinion of counsel
selected by the holders of a majority of the Registrable Shares being
registered, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of Registrable Shares by such
seller;
(L) prepare and promptly file with the Commission and promptly notify
each seller of such Registrable Shares of the occurrence of an event
requiring the filing, and of the actual filing, of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event
shall have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading;
(M) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued;
(N) at least 48 hours prior to the filing of any registration
statement or prospectus or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each seller of
such Registrable Shares and refrain from filing any such registration
statement, prospectus, amendment or supplement to which counsel selected by the
holders of a majority of the Registrable Shares being registered shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, unless, in the case of an amendment or
supplement, in the opinion of counsel for Union, the filing of such amendment
or supplement is reasonably necessary to protect Union from any liabilities
under any applicable federal or state law and such filing will not violate
applicable laws; and
(O) at the request of any seller of such Registrable Shares in
connection with an underwritten offering, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion of counsel,
4
<PAGE> 5
addressed to the underwriters and the sellers of Registrable Shares, covering
such matters as such underwriters and sellers may reasonably request,
including, without limiting the generality of the foregoing, opinions to the
effect that: (A) such registration statement has become effective under the
Securities Act; (B) to the best of such counsel's knowledge, no stop order
suspending the effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act; (C) the registration statement, the prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Securities Act and the applicable rules and regulations
of the Commission thereunder (except that such counsel need express no opinion
as to financial statements or other financial or statistical data contained
therein); (D) while such counsel has not verified the accuracy, completeness or
fairness of the statements contained in any registration statement or
prospectus, as either may be amended or supplemented, such counsel has no
reason to believe that the registration statement, the prospectus or any
amendment or supplement thereto contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except that such
counsel need express no opinion as to financial statements or other financial
or statistical data contained therein); (E) the descriptions in the
registration statement, the prospectus or any amendment or supplement thereto
of all legal and governmental proceedings and all contracts and other legal
documents or instruments are accurate in all material respects; and (F) while
such counsel has not verified the accuracy, completeness or fairness of the
statements contained in any registration statement or prospectus, as either may
be amended or supplemented, such counsel does not know of any legal or
governmental proceedings, pending or threatened, required to be described in
the registration statement, the prospectus or any amendment or supplement
thereto which are not described as required nor of any contracts or documents
or instruments of the character required to be described in the registration
statement, the prospectus or any amendment or supplement thereto or to be filed
as described or filed as required; and (ii) a letter or letters from the
independent certified public accountants of Union addressed to the underwriters
and the sellers of Registrable Shares, covering such matters as such
underwriters and sellers may reasonably request, in which letters such
accountants shall state, without limiting the generality of the foregoing, that
they are independent certified public accountants within the meaning of the
Securities Act and that in the opinion of such accountants the financial
statements and other financial data of Union included in the registration
statement, the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the Securities
Act.
5. REGISTRATION EXPENSES. All expenses incident to Union's performance of
or compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for Union and its independent
certified public accountants, underwriters (excluding discounts and commissions
attributable to the Registrable Shares included in such registration) and other
Persons retained by Union (all such expenses being herein called "Registration
Expenses"), will be borne by Union. In addition, Union will pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance
obtained by Union and the expenses and fees for listing the securities to be
registered on each securities exchange on which any shares of common stock are
then listed. Notwithstanding anything contained herein to the contrary,
however, the holders of Registrable Shares covered by such registration shall
be responsible for the expenses and fees of counsel, if any, representing
holders of such Registrable Shares.
6. INDEMNIFICATION.
(A) Union agrees to indemnify, to the fullest extent permitted by law,
each seller of Registrable Shares, its officers, directors, agents, employees
and representatives and each Person who controls such seller (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities
and expenses (including, without limitation, attorneys' fees except as limited
by paragraph 7(c)) caused by any untrue or alleged untrue statement of a
material fact contained in any registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are caused
5
<PAGE> 6
by or contained in any information furnished in writing to Union by
such seller expressly for use therein or by such seller's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after Union has furnished such seller with a sufficient
number of copies of the same. In connection with an underwritten offering,
Union will indemnify such underwriters, their officers, directors, agents,
employees and representatives and each Person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided above
with respect to the indemnification of the sellers of Registrable Shares. The
reimbursements required by this paragraph 7(a) will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
(B) In connection with any registration statement in which a seller of
Registrable Shares is participating, each such seller will furnish to Union in
writing such information and affidavits as Union reasonably requests with
respect to such holder of Registrable Shares for use in connection with any
such registration statement or prospectus and, to the fullest extent permitted
by law, will indemnify Union, its directors and officers and each Person who
controls Union (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses (including, without limitation,
attorneys' fees except as limited by paragraph 7(c)) resulting from any untrue
statement of a material fact contained in the registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by such seller; provided that the obligation
to indemnify will be several, not joint and several, among such sellers of
Registrable Shares, and the liability of each such seller of Registrable Shares
will be in proportion to, and provided further that such liability will be
limited to, the net amount received by such seller from the sale of Registrable
Shares pursuant to such registration statement.
(C) Any Person entitled to indemnification hereunder will: (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification; and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not
be unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof, the granting by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.
(D) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. Union
also agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to such party in the event Union's
indemnification is unavailable for any reason.
7. COMPLIANCE WITH RULE 144. At the request of any holder of Registrable
Shares who proposes to sell securities in compliance with Rule 144 of the
Commission, Union will: (i) forthwith furnish to such holder a written
statement of compliance with the filing requirements of the Commission as set
forth in Rule 144 as such rule may be amended from time to time; and (ii) make
available to the public and such holders such information as will enable the
holders to make sales pursuant to Rule 144.
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<PAGE> 7
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate
in any registration hereunder which is underwritten unless such Person: (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements; and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
The holders of a majority of the Registrable Shares requested to be registered
will have the right to select the managing underwriters to administer any
offering of Union's securities in which Union does not participate, and Union
will have such right in any offering in which it participates, provided that in
either case such managing underwriters shall be qualified, nationally
recognized underwriters.
9. NO INCONSISTENT AGREEMENTS. Union will not hereafter enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Shares in this Agreement.
10. ADJUSTMENTS AFFECTING REGISTRABLE SHARES. Union will not take any
action, or permit any change to occur, with respect to its securities which
would adversely affect the ability of the holders of Registrable Shares to
include such Registrable Shares in a registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Shares in any such registration (including, without limitation, effecting a
stock split or a combination of shares).
11. REMEDIES. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
12. AMENDMENTS AND WAIVERS. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived at any time
only by the written agreement of Union and the holders of a majority of the
Registrable Shares. Any waiver, permit, consent or approval of any kind or
character on the part of any such holders of any provision or condition of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in writing.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns, but shall not be assigned
by the parties hereto, by operation of law or otherwise, without the prior
written consent of the other party. Nothing in this Agreement, expressed or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
14. OTHER REGISTRATION RIGHTS. Except for the registration rights granted
hereunder, Union will not grant to any Persons the right to request Union to
register any equity securities of Union, or any securities convertible or
exchangeable into or exercisable for such securities, without the written
consent of the holders of at least a majority of the Registrable Shares.
15. FINAL AGREEMENT. This Agreement constitutes the final agreement of
the parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
16. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
17. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
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<PAGE> 8
18. NOTICES. All notices, requests and other communications hereunder
shall be in writing (which shall include telecopier communication) and shall be
deemed to have been duly given if delivered by hand or by overnight express
delivery service, mailed with first class postage prepaid or telecopied if
confirmed immediately thereafter by also mailing a copy of any notice, request
or other communication by mail with first class postage prepaid:
(A) If to Union, to:
<TABLE>
<S> <C>
UnionBancorp, Inc. Barack, Ferrazzano, Kirschbaum & Perlman
122 West Madison Street 333 West Wacker Drive, Suite 2700
Ottawa, Illinois 61350 and Suite 2700
Attention: R. Scott Grigsby Chicago, Illinois 60606
Chairman and President Attention: John E. Freechack, Esq.
Telephone: (815) 673-3333 Telephone: (312) 984-3223
Telecopier: (815) 434-3160 Telecopier: (312) 984-3150
</TABLE>
(B) If to the holders of Registrable Shares, to the addresses set forth on
the stock record books of Union.
19. GOVERNING LAW. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in that state.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and Union.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ATTEST: UNIONBANCORP, INC.
By:\s\ Charles J. Grako By:\s\ R. Scott Grigsby
----------------------- ---------------------------------
Charles J. Grako R. Scott Grigsby
Secretary/Treasurer Chairman of the Board and President
STOCKHOLDERS:
\s\ Wayne H. Whalen \s\ Dennis J. McDonnell
- ---------------------------- ----------------------------------------
WAYNE W. WHALEN DENNIS J. MCDONNELL
9
<PAGE> 1
EXHIBIT 10.11
LOAN AGREEMENT
This LOAN AGREEMENT (the "Agreement"), dated as of August 2, 1996, is
entered into between UNIONBANCORP, INC., a Delaware corporation (the
"Borrower"), and LASALLE NATIONAL BANK, a national banking association (the
"Bank").
RECITALS:
WHEREAS, the Borrower has entered into agreements pursuant to which it has
agreed to enter into the following transactions, (i) Agreement of Merger dated
January 23, 1996, pursuant to which the Borrower will merge with PRAIRIE
BANCORP, an Illinois corporation ("Prairie"), with the Borrower being the
corporation which survives the merger, and (ii) Stock Purchase Agreement dated
March 21, 1996, pursuant to which the Borrower purchased all of the issued and
outstanding shares of the capital stock of COUNTRY BANCSHARES, an Illinois
corporation (the "Country Shares");
WHEREAS, the Borrower desires to borrow from the Bank and the Bank is
willing to lend to the Borrower up to an amount not to exceed TWENTY SIX
MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($26,500,000) in accordance
with the terms, subject to the conditions and in reliance on the
representations, warranties and covenants set forth herein and in the other
documents and instruments entered into or delivered in connection with or
relating to the loans contemplated in this Agreement; and
WHEREAS, as collateral security for such extension of credit, the Borrower
and its direct subsidiaries, Prairie Acquisition Corp. ("PAC") and CBI
Acquisition Corp. ("CBI"), have agreed to grant to the Bank a security interest
in the capital stock of their respective subsidiaries (the "Subsidiaries", and
the capital stock issued thereby shall be referred to as the "Subsidiary
Shares").
AGREEMENT:
1. COMMITMENTS OF THE BANK.
The Bank agrees to extend certain loan facilities (each a "Loan" and
collectively, the "Loans") to the Borrower, as follows:
(a) Line of Credit Loan in a principal amount not to exceed TWENTY SIX
MILLION and 00/100 DOLLARS ($26,000,000); and
(b) Revolving Credit Loan in a principal amount not to exceed FIVE
HUNDRED THOUSAND and 00/100 DOLLARS ($500,000).
The Loans shall be evidenced by the Notes (as such term is defined below),
and secured by the Pledge Agreements (as such term is defined below) in
accordance with terms and subject to the conditions set forth in this
Agreement, the Notes and the Pledge Agreements.
<PAGE> 2
2. CONDITIONS OF BORROWING.
Notwithstanding any other provision of this Agreement, the Bank shall not
be required to extend the Loans:
(a) if, since the date of this Agreement and up to the agreed upon
date of the Loans, there has occurred, in the Bank's sole and complete
discretion, a material adverse change in the financial condition or affairs of
the Borrower or the Subsidiaries;
(b) if any Default (as such term is defined below) or any event which,
with the giving of notice or lapse of time, or both, would constitute such a
Default, has occurred;
(c) if any litigation or governmental proceeding has been instituted or
threatened against the Borrower, the Subsidiaries or any of their respective
officers or shareholders which in the sole discretion of the Bank will
adversely affect the financial condition or operations of the Borrower or any
such Subsidiary;
(d) if all necessary or appropriate actions and proceedings shall not
have been taken in connection with, or relating to the transactions
contemplated hereby and all documents incident thereto shall not have been
completed and tendered for delivery, in substance and form satisfactory to the
Bank, including, but not limited to, the Bank's failure to have received
evidence that: (i) the Borrower has received all necessary regulatory approvals
to acquire the Country Shares and to merge with Prairie; and (ii) the Borrower
has provided such notices to all appropriate federal banking agencies as to
satisfy the requirements of 12 U.S.C. Section 1817(j)(9)(E);
(e) (i) if the Borrower shall not have tendered for delivery the Notes
and that certain Pledge and Security Agreement dated of even date
herewith and executed by Borrower for the benefit of Bank (the "Borrower Pledge
Agreement"); (ii) PAC shall not have tendered a Pledge and Security Agreement
dated of even date herewith and executed by PAC for the benefit of the Bank
(the "PAC Pledge Agreement"); and (iii) CBI shall not have tendered a Pledge
and Security Agreement of even date herewith and executed by CBI for the
benefit of the Bank (the "CBI Pledge Agreement"; and collectively with the
Borrower Pledge Agreement and the PAC Pledge Agreement, the "Pledge
Agreements") together with all of the Pledged Security (as such term is defined
in the Pledge Agreements), or if the Borrower, PAC or CBI has not executed and
delivered an agreement to pledge with respect to any Subsidiary Shares which
cannot be immediately pledged pursuant to the Pledge Agreements, all in form
and content satisfactory to the Bank;
(f) if the Borrower shall not have tendered for delivery a legal opinion
from the Borrower's counsel in form and substance satisfactory to the Bank and
Bank's legal counsel; or
(g) if the Bank shall not have received in substance and form
satisfactory to the Bank, all certificates, affidavits, schedules,
resolutions, opinions, notes, and/or other documents which are provided for
hereunder, or which it may reasonably request.
3. NOTES EVIDENCING BORROWING.
(a) The Loans shall be evidenced by the following promissory notes:
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(i) a Line of Credit Note in the principal amount of TWENTY SIX MILLION
AND 00/100 DOLLARS ($26,000,000) (the "Line of Credit Note"), in the form of
Exhibit A hereto; and
(ii) a Revolving Note in the principal amount of FIVE HUNDRED THOUSAND and
00/100 DOLLARS ($500,000) (the "Revolving Note"), in the form of Exhibit B
hereto (the Revolving Note and the Line of Credit Note are each referred to
individually as the "Note" and collectively as the "Notes").
Without in any way limiting the terms or conditions of the Notes:
(b) Interest on both Notes shall be payable the earlier of quarterly or at
the end of a LIBOR Interest Period (as defined below), in arrears, commencing
on January 1, 1997 and continuing on the first day of each April, July, October
and January thereafter, with a final payment of all outstanding amounts due
under the Notes, including, but not limited to principal, interest and any
amounts owing under Subsection 10(k) of this Agreement, if not sooner paid, on
August 2, 1997.
The amounts outstanding from time to time under the Line of Credit Note
shall bear interest calculated on the actual number of days elapsed on the
basis of a 360 day year, at a rate equal, at the Borrower's option of:
(i) the London Inter-Bank Offered Rate ("LIBOR") plus 125 basis
points;
(ii) the Prime Rate; or
(iii) the fixed rate of 150 basis points in excess of the rate of
treasury bills with the same maturity as the remaining term of the
Line of Credit Note (the "Fixed Rate"; whichever rate is so selected
or applicable to a Note from time to time, the "Interest Rate").
The amounts outstanding from time to time under the Revolving Note shall
bear interest calculated on the actual number of days elapsed on the basis of a
360 day year at the Prime Rate.
For purposes of this Agreement, the term "Prime Rate" shall mean the
floating prime rate in effect from time to time as set by the Bank, and
referred to by the Bank as its Prime Rate. The Borrower acknowledges that the
Prime Rate is not necessarily the Bank's lowest or most favorable rate of
interest at any one time. The effective date of any change in the Prime Rate
shall for purposes hereof be the date the rate change is publicly announced by
the Bank.
LIBOR borrowings hereunder shall be for a period of one, two, three, six
or twelve months (each an "Interest Period"). Payments of LIBOR borrowings
shall be permitted only at the conclusion of an Interest Period.
The Bank's determination of LIBOR as provided above shall be conclusive,
absent manifest error. Furthermore, if the Bank determines, in good faith
(which determination shall be conclusive, absent manifest error), prior to the
commencement of any Interest Period that (a) U.S. dollar deposits of sufficient
amount and maturity for funding any LIBOR Loan are not available to the Bank in
the London Interbank Eurodollar market in the ordinary course of business, or
(b) by reason of circumstances affecting the London Interbank Eurodollar
market, adequate and fair means do not exist
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for ascertaining the rate of interest to be applicable to the relevant LIBOR
Loan, the Bank shall promptly notify the Borrower and such LIBOR Loan shall be
immediately due and payable on the last banking day of the then existing
Interest Period, without further demand, presentment, protest or notice of any
kind, all of which are hereby waived by the Borrower.
If, after the date hereof, the introduction of, or any change in any
applicable law, treaty, rule, regulation or guideline or in the interpretation
or administration thereof by any governmental authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over the Bank or
its lending office (a "Regulatory Change"), shall, in the opinion of counsel to
the Bank, makes it unlawful for the Bank to make or maintain any LIBOR Loan
evidenced hereby, then the Bank shall promptly notify the Borrower and such
LIBOR Loan shall be immediately due and payable on the last banking day of the
then existing Interest Period or on such earlier date as required by law, all
without further demand, presentment, protest or notice of any kind, all of
which are hereby waived by the Borrower.
If, for any reason, any LIBOR Loan is paid prior to the last banking day
of its then-current Interest Period, the Borrower agrees to indemnify the Bank
against any loss (including any loss on redeployment of the funds repaid), cost
or expense incurred by the Bank as a result of such prepayment.
If any Regulatory Change (whether or not having the force of law) shall
(a) impose, modify or deem applicable any assessment, reserve, special deposit
or similar requirement against assets held by, or deposits in or for the
account of or loans by, or any other acquisition of funds or disbursements by,
the Bank; (b) subject the Bank or any LIBOR Loan to any tax, duty, charge,
stamp tax or fee or change the basis of taxation of payments to the Bank of
principal or interest due from the Borrower to the Bank hereunder (other than a
change in the taxation of the overall net income of the Bank); or (c) impose on
the Bank any other condition regarding such LIBOR Loan or the Bank's funding
thereof, and the Bank shall determine (which determination shall be conclusive,
absent manifest error) that the result of the foregoing is to increase the cost
to the Bank of making or maintaining such LIBOR Loan or to reduce the amount of
principal or interest received by the bank hereunder, then the Borrower shall
pay to the Bank, on demand, such additional amounts as the Bank shall, from
time to time, determine are sufficient to compensate and indemnify the Bank for
such increased cost or reduced amount.
Each request by Borrower for a LIBOR Loan must be received by Bank no
later than 11:00 a.m. Chicago, Illinois time, on the day which is two days
prior to the day it is to be funded. Requests for all other Loans must be
received by Bank no later than 11:00 a.m. Chicago, Illinois time, on the same
day it is to be funded.
(c) No amount of principal repaid under the Line of Credit Note may be
borrowed again. One principal payment in the amount of $10,000,000 shall be
due and payable under the Line of Credit Note on or before November 1, 1996.
(d) Any amount of principal or interest on the Notes which is not paid
when due, whether at stated maturity, by acceleration or otherwise shall bear
interest payable on demand at an interest rate equal at all times to two
percent (2%) above the Interest Rate.
(e) If any payment to be made by the Borrower hereunder shall become
due on a Saturday, Sunday or Bank holiday under the laws of the State
of Illinois, such payment shall be made
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on the next succeeding business day and such extension of time shall be
included in computing any interest in respect of such payment.
4. PRINCIPAL PREPAYMENTS.
Prepayments of principal amounts of Prime Rate Loans are permitted without
premium or penalty at any time, and shall be applied to the next succeeding
principal payment due. Prepayments of principal amounts of LIBOR Loans shall be
subject to Section 3(b), above.
The Borrower may prepay the principal balance of Fixed Rate Loans, in
whole, subject to the following conditions:
(a) Not less than thirty (30) days prior to the date upon which the
Borrower desires to make such prepayment, the Borrower shall deliver to the
Bank written notice of its intention to prepay, which notice shall be
irrevocable and state the prepayment amount and the prepayment date (the
"Prepayment Date");
(b) The Borrower shall pay to the Bank, concurrently with such prepayment,
a prepayment premium (the "Prepayment Premium") equal to the greater of (1) the
Yield Amount (as hereinafter defined) or (2) the Fixed Amount (as hereinafter
defined); and
(c) The Borrower shall pay to the Bank all accrued and unpaid interest on
such Fixed Rate Loan through the date of such prepayment on the principal
balance being prepaid.
The Borrower shall, in addition to the outstanding principal balance,
accrued interest and other sums due hereunder, pay the amount representing the
Prepayment Premium. For purposes hereof, the "Fixed Amount" shall mean one
percent (1.00%) of the amount prepaid and the "Yield Amount" shall be the
amount calculated as follows:
(A) There shall first be determined, as of the Prepayment Date,
the amount, if any, by which the Fixed Rate exceeds the yield to
maturity percentage (the "Current Yield") for the United States
Treasury Note closest in maturity to the maturity of such Fixed Rate
Loan (the "Treasury Note") as published in The Wall Street Journal on
the fifth business day preceding the Prepayment Date. If publication
of (1) The Wall Street Journal or (2) the Current Yield of the Treasury
Note in The Wall Street Journal is discontinued, the Bank, in its sole
discretion, shall designate another daily financial or governmental
publication of national circulation to be used to determine the Current
Yield;
(B) The difference calculated pursuant to clause (A) above shall
be multiplied by the outstanding principal balance of the Fixed Rate
Loan as of the Prepayment Date;
(C) The product calculated pursuant to clause (B) above shall be
multiplied by the quotient, rounded to the nearest one-hundredth of one
percent, obtained by dividing (1) the number of days from and including
the Prepayment Date to and including the maturity of the Fixed Rate
Loan, by (2) 365; and
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(D) The sum calculated pursuant to clause (C) above shall be
discounted at the annual rate of the Current Yield to the present value
thereof as of the Prepayment Date, on the assumption that said sum
would be received in equal monthly installments on each monthly
anniversary of the Prepayment Date prior to the maturity date of the
Fixed Rate Loan, with the final such installment to be deemed received
on the maturity date of the Fixed Loan; provided, that the Borrower
shall not be entitled in any event to a credit against, or a reduction
of, the indebtedness being prepaid if the Current Yield exceeds the
Fixed Rate or for any other reason.
5. REPRESENTATIONS AND WARRANTIES.
To induce the Bank to make the Loans provided for herein, the Borrower
represents and warrants as follows:
(a) The Borrower: (i) is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware; (ii) is
duly qualified as a foreign corporation and in good standing in all states in
which it is doing business except where the failure to so qualify would not have
a material adverse effect on the Borrower or its business; and (iii) has all
requisite power and authority, corporate or otherwise, to own, operate and lease
its properties and to carry on its business as now being conducted. Each of the
Subsidiaries is an Illinois banking corporation, and has all requisite power and
authority, corporate or otherwise, to own, operate and lease its property and to
carry on its business as now being conducted. The Borrower and each Subsidiary
have made payment of all franchise and similar taxes in all of the respective
jurisdictions in which they are incorporated or qualified, so far as such taxes
are due and payable at the date of the Agreement, except for any such taxes the
validity of which is being contested in good faith and for which proper reserves
have been set aside on the books of the Borrower or the Subsidiaries, as the
case may be.
(b) The proceeds of the Line of Credit Loan shall be used to acquire the
Country Shares and to consummate the merger with Prairie and upon acquisition
of the Country Shares, the Borrower shall be the owner of 100% of the issued
and outstanding capital stock of Country. Attached hereto as Exhibit C is a
true, correct and complete list of the owners of the shares of capital stock of
the Subsidiaries.
(c) The Country Shares have been duly authorized, legally and validly
issued, are fully paid and nonassessable, and are owned by the Borrower free
and clear of all pledges, liens, security interests, charges or encumbrances,
except, upon consummation of the transactions contemplated herein, for the
security interest granted by the Borrower to the Bank. There are, as of the
date hereof, no outstanding options, rights or warrants obligating the Borrower
or the Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of the Subsidiaries or
obligating the Borrower or the Subsidiaries to grant, extend or enter into any
such agreement or commitment.
(d) The financial statements of:
(i) the Borrower, all of which have heretofore been furnished to the
Bank, have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP") and maintained by the
Borrower throughout the periods involved, and fairly present the financial
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<PAGE> 7
condition of the Borrower individually and on a consolidated basis at such
dates specified therein and the results of its operations for the periods then
ended; and
(ii) each Subsidiary, all of which have heretofore been furnished to the
Bank, to the best knowledge of the Borrower have been prepared in accordance
with GAAP and maintained by each Subsidiary throughout the periods involved,
and fairly present the financial condition of such Subsidiary at such dates
specified therein and the results of its operation for the periods then
entered.
(e) To the best knowledge of the Borrower, since the latest date of the
financial statements referred to in Section 5(d) above, there have been no
material changes in the assets, liabilities, or condition, financial or
otherwise, of the Borrower or the Subsidiaries other than changes arising from
transactions in the ordinary course of business, and none of such changes has
been materially adverse, whether in the ordinary course of business or
otherwise. To the best knowledge of the Borrower, neither the business nor the
properties of the Borrower nor any Subsidiary have been materially and
adversely affected in any way, including, without limitation, as a result of
any fire, explosion, accident, strike, lockout, labor disputes, food, drought,
embargo, imposition of governmental restrictions, confiscation by a
governmental agency or acts of God.
(f) There are no actions, suits, proceedings or written agreements
pending, or to the best of the knowledge of the Borrower threatened or
proposed, against the Borrower or, to the best knowledge of the Borrower, any
Subsidiary at law or in equity or before or by any federal, state, municipal,
or other governmental department, commission, board, or other administrative
agency, domestic or foreign, of a material nature; and neither of the Borrower
nor, to the best knowledge of the Borrower, any Subsidiary is in default with
respect to any order, writ, injunction, or decree of, or any written agreement
with, any court, commission, board or agency, domestic or foreign.
(g) all tax returns and reports of the Borrower and, to the best knowledge
of the Borrower, each Subsidiary, required by law to be filed have been duly
filed, and all taxes, assessments, fees and other governmental charges upon the
Borrower and each Subsidiary or upon any of their properties or assets which
are due and payable have been paid, and the Borrower knows of no additional
assessment of a material nature against the Borrower or either Subsidiary for
taxes, or except as disclosed on the financial statements referred to in
Section 5(d) above, of any basis for any such additional assessment.
(h) The Borrower's primary business is that of a bank holding company, and
all necessary regulatory approvals have been obtained for it to conduct its
business.
(i) The deposit accounts of the Subsidiaries which are banks or savings
and loan entities are insured by the Federal Deposit Insurance Corporation
("FDIC").
(j) None of the Pledged Security constitutes margin stock, as defined in
Regulation U of the Board of Governors of the Federal Reserve System ("FRS").
The foregoing representations and warranties shall survive the making of
this Agreement, and execution and delivery of the Notes and the Pledge
Agreements, and shall be deemed to be continuing representations and warranties
until such time as the Borrower has satisfied all of its
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obligations to the Bank, including, but not limited to the obligation to pay in
full all principal, interest and other amounts in accordance with the terms of
this Agreement or the Notes.
6. NEGATIVE COVENANTS
The Borrower agrees that until the Borrower satisfies all of its
obligations to the Bank, including, but not limited to its obligations to pay
in full all principal, interest and other amounts owing in accordance with the
terms of this Agreement or the Notes, the Borrower shall not itself, nor shall
Borrower cause, permit or allow the Subsidiaries to:
(a) create, assume, incur, have outstanding, or in any manner become
liable in respect of any indebtedness for borrowed money, except in the case of
Borrower, secured indebtedness under Section 6(b)(vi), and, in the case of the
Subsidiaries, indebtedness incurred in the ordinary course of the business of
banking and in accordance with applicable laws and regulations and safe and
sound banking practices. For purposes of this Agreement, the phrase
"indebtedness" shall mean and include:
(i) all items arising from the borrowing of money, which according to
generally accepted accounting principles now in effect, would be included in
determining total liabilities as shown on the balance sheet;
(ii) all indebtedness secured by any lien in property owned by the
Borrower whether or not such indebtedness shall have been assumed;
(iii) all guarantees and similar contingent liabilities in respect to
indebtedness of others; and
(iv) all other interest-bearing obligations evidencing indebtedness in
others;
(b) create, assume, incur, suffer or permit to exist any mortgage,
pledge, deed of trust, encumbrance (including the lien or retained
security title of a conditional vendor) security interest, assignment, lien or
charge of any kind or character upon or with respect to any of their properties
whether owned at the date hereof or hereafter acquired, or assigned or
otherwise convey any right to receive income excepting only:
(i) liens for taxes, assessments or other governmental charges for the
then current year or which are not yet due or delinquent;
(ii) liens for taxes, assessments or other governmental charges already
due, but the validity of which is being contested at the time in good faith in
such a manner as not to make the property forfeitable;
(iii) liens and charges incidental to current operation which are not
due or delinquent;
(iv) liens for workmen's compensation awards not due or delinquent;
(v) pledges or deposits to secure obligations under workmen's
compensation laws or similar legislation;
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(vi) purchase money mortgages or other liens on real property including
those incurred for the construction of a banking facility, and bank furniture
and fixtures acquired or held in the ordinary course of business to secure the
purchase price of such property or to secure the indebtedness incurred solely
for the purpose of financing the acquisition, construction or improvement of
any such property to be subject to such mortgages or other liens, or mortgages
or other liens existing on any such property at the time of acquisition, or
extensions, renewals, or replacements of any of the foregoing for the same or a
lesser amount, provided that no such mortgage or other liens shall extend to or
cover any property other than the property being acquired, constructed or
improved, and no such extension, renewal or replacement shall extend to or
cover any property not theretofore subject to the mortgage or lien being
extended, renewed or replaced, and provided further that no such mortgage or
lien shall exceed 75% of the price of acquisition, construction or improvement
at the time of acquisition, construction or improvement, and provided, further
that the aggregate principal amount of consolidated indebtedness at any one
time outstanding and secured by mortgages, liens, conditional sale agreements
and other security interests permitted by this clause (vi) shall not exceed 10%
of the consolidated capital of the Borrower or any Subsidiary, as the case may
be;
(vii) liens existing on the date hereof as shown on their financial
statements; and
(viii) in the case of the Subsidiaries, liens incurred in the ordinary
course of the business of banking and in accordance with applicable laws and
regulations and safe and sound banking practices;
(c) dispose by sale, assignment, lease or otherwise property or assets
now owned or hereafter acquired, outside the ordinary course of business in
excess of 10% of its consolidated assets in any fiscal year;
(d) merge into or consolidate with or into any other person, firm or
corporation;
(e) make any loans or advances whether secured or unsecured to any
person, firm or corporation, other than loans or advances made by the
Subsidiaries in the ordinary course of their banking business and in accordance
with applicable laws and regulations and safe and sound banking practices;
(f) engage in any business or activity not permitted by all applicable
laws and regulations, including without limitation, the Bank Holding Company
Act of 1954, the Illinois Banking Act, the Federal Deposit Insurance Act and
any regulations promulgated thereunder;
(g) make any loan or advance secured by the capital stock of another
bank or depository institution (except for loans made in the ordinary
course of business), or acquire the capital stock, assets or obligations of or
any interest in another bank or depository institution, without prior written
approval of the Bank;
(h) directly or indirectly create, assume, incur, suffer or permit to
exist any pledge, encumbrance, security interest, assignment, lien or charge of
any kind or character on the Subsidiary Shares or any other stock owned by the
Borrower;
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(i) permit the value of the Subsidiary Shares to be less than
$45,000,000 at any time;
(j) sell, transfer, issue, reissue, exchange or grant any option with
respect to the Subsidiary Shares;
(k) redeem any of its capital stock, declare a stock dividend or split
or otherwise change the capital structure of Borrower or any Subsidiary without
prior written approval of the Bank;
(l) breach or fail to perform or observe any of the terms and conditions
of the Notes, the Pledge Agreements or any other document or agreement entered
into or delivered in connection with, or relating to, the Loans;
(m) engage in any unsafe or unsound banking practices; or
(n) violate any law or regulation, or any condition imposed by or
undertaking provided to the FRS, the FDIC or the Illinois Commissioner of Banks
and Trust Companies in connection with the Borrower's acquisition of the
Subsidiary Shares.
7. AFFIRMATIVE COVENANTS.
The Borrower agrees that until the Borrower satisfies all of its
obligations to the Bank, including, but not limited to its obligations to pay
in full all principal, interest and other amounts in accordance with the terms
of the Agreement, the Notes and the Pledge Agreements, it shall:
(a) furnish and deliver to the Bank:
(i) as soon as practicable, and in no event later than forty-five (45)
days after the end of each of the first three calendar quarterly periods of the
Borrower and the Subsidiaries, a copy of: (1) the balance sheet, profit and
loss statement, surplus statement and any supporting schedules prepared in
accordance with generally accepted accounting principles consistently applied
and signed by the presidents and chief financial officers of the Borrower and
the Subsidiaries; and (2) all financial statements, including, but not limited
to, all call reports, filed with any state or federal bank regulatory
authority;
(ii) as soon as practicable, and in no event later than one hundred
twenty (120) days after the end of each calendar year, a copy of: (1)
the consolidated balance sheets as of the end of such year and of the
consolidated profit and loss and surplus statements for the Borrower and the
Subsidiaries for such year audited by independent certified public accountants
satisfactory to the Bank and accompanied by an unqualified opinion; and (2) all
financial statements and reports, including, but not limited to call reports
and annual reports, filed annually with state or federal regulatory
authorities;
(iii) at the Bank's request, copies of the then current loan/asset watch
list, the substandard loan/asset list, the nonperforming loan/asset list and
other real estate owned list of each Subsidiary;
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(iv) immediately after receiving knowledge thereof, notice in writing of
all charges, assessment, actions, suits and proceeding that are proposed or
initiated by, or brought before, any court or governmental department,
commission, board or other administrative agency, in connection with the
Borrower or any Subsidiary, other than ordinary course of business litigation
not involving the FRS, the FDIC or the Illinois Commissioner of Banks and Trust
Companies, which, if adversely decided, would not have a material effect on the
financial condition or operations of the Borrower or any such Subsidiary; and
(v) promptly after the occurrence thereof, notice of any other matter
which has resulted in a materially adverse change in the financial condition or
operations of the Borrower or any Subsidiary;
(b) at the Bank's request, deliver to Bank a certificate signed by the
President and the Treasurer of the Borrower, containing a computation of the
then current financial ratios specified in Subsections 7(c) through (h) of this
Agreement, and stating that no Default or unmatured Default has occurred or is
continuing, or, if there is any such event, describing such event, the steps,
if any, that are being taken to cure it, and the time within which such cure
will occur;
(c) maintain such capital as is necessary to cause the Borrower to have
adequate capital in accordance with the regulations of the FRS and any
requirements or conditions that the FRS has or may impose on the Borrower;
(d) as of June 30, 1996 maintain such capital as is necessary to cause
each Subsidiary to be classified as an "adequately capitalized" institution in
accordance with the regulations of the FDIC, currently measured on the basis of
information filed by Borrower in its quarterly Consolidated Report of Income
and Condition (the "Call Report") as follows:
(i) Total Capital to Risk-Weighted
Assets of not less than 8%;
(ii) Tier 1 Capital to Risk-Weighted
Assets of not less than 4%; and
(iii) Tier 1 Capital to average Total
Assets of not less than 4% (For the purposes of this
subsection (d)(iii) the average Total Assets shall be
determined on the basis of information contain in the
preceding four (4) Call Reports);
(e) cause the Borrower to maintain tangible equity capital of no less than
that required at any time by any governmental or regulatory agency having
jurisdiction over the Borrower. For the purposes of this Section 7(e),
"tangible equity capital" shall mean the sum of the common stock, surplus and
retained earning accounts reduced by the amount of any goodwill;
(f) cause the ratio of nonperforming loans to the primary capital of each
Subsidiary to be not more than twenty five percent (25%) at all times. For
purposes of this Section 7(f), "primary capital" shall mean the sum of the
common stock, surplus and retained earning accounts plus the reserve for loan
and lease losses and "nonperforming loans" shall mean the sum of all
non-accrual loans and loans on which any payment is ninety (90) or more days
past due;
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(g) cause the ratios of the loan and lease loss reserve to the total
loans of each Subsidiary to be not less than three-quarters of one
percent (.75%) at all times;
(h) cause the Borrower's Return on Assets determined on the basis of
information filed in the Borrower's Call Report to be at least seven-tenths of
one percent (.70%);
(i) promptly pay and discharge all taxes, assessments and other
governmental charges imposed upon the Borrower or the Subsidiaries or upon the
income, profits, or property of the Borrower or the Subsidiaries and all claims
for labor, material or supplies which, if unpaid, might by law become a lien or
charge upon the property of the Borrower or the Subsidiaries. Neither the
Borrower nor any Subsidiary shall be required to pay any such tax, assessment,
charge or claim, so long as the validity thereof shall be contested in good
faith by appropriate proceedings, and reserves therefor shall be maintained on
the books of the Borrower or the Subsidiaries as are deemed reasonably adequate
by the Bank;
(j) maintain bonds and insurance and cause the Subsidiaries to maintain
bonds and insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risk as is usually carried by
owners of similar businesses and properties in the same general area in which
the Borrower or the Subsidiaries respectively operate, and such additional
bonds and insurance as may be reasonably required by the Bank;
(k) permit and cause the Subsidiaries to permit the Bank through its
employees, attorneys, accountants or other agents, to inspect any of the
properties, corporate books and financial books and records of the Borrower and
the Subsidiaries at such times and as often as the Bank reasonably may request;
and
(l) provide and cause the Subsidiaries promptly to provide the Bank with
such other information concerning the business, operations, financial condition
and regulatory status of the Borrower and the Subsidiaries as the Bank may from
time to time reasonably request.
8. COLLATERAL.
Pursuant to the Pledge Agreements, the Borrower, PAC and CBI have
concurrently herewith assigned, transferred, pledged and delivered to the Bank
as collateral for all of the Borrower's obligations from time to time to the
Bank the Subsidiary Shares and any other Pledged Security (as defined in the
Pledge Agreements) whether now or hereafter pledged.
9. EVENTS OF DEFAULT; DEFAULT; RIGHTS UPON DEFAULT.
The happening or occurrence of any of the following events or acts shall
each constitute a Default hereunder, and any such Default shall also constitute
a Default under the Notes, the Pledge Agreements and any other loan document,
without right to notice or time to cure in favor of the Borrower except as
indicated below:
(a) if the Borrower fails to make payment when due or fails to make any
payments as provided for herein and such payment remains unpaid for ten (10)
days;
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(b) if there continues to exist any breach under any obligation of any
other documents executed pursuant to this Agreement including, without
limitation, the Notes and the Pledge Agreements and such breach remains uncured
for thirty (30) days;
(c) if any representation or warranty made in this Agreement shall be
false when made or at any time during the term of this Agreement or any
extension thereof, or if the Borrower fails to perform or observe any covenant
or agreement contained in this Agreement thirty (30) days after notice by Bank;
(d) if the Borrower fails to perform or observe any covenant or
agreement contained in any other agreement between the Borrower or any
Subsidiary and the Bank, or if any condition contained in any agreement between
the Borrower or any Subsidiary and the Bank is not fulfilled and such failure
remains uncured for thirty (30) days;
(e) if the Borrower shall continue to fail to perform and observe, or
cause or permit any Subsidiary to fail to perform and observe any covenants
under this Agreement, including, without limitation, all affirmative and
negative covenants set forth in Sections 6 and 7 of this Agreement and the same
remains uncured for thirty (30) days;
(f) if the FRS, the FDIC, the Illinois Commissioner of Banks and Trust
Companies or other governmental agency charged with the regulation of bank
holding companies or depository institutions: (i) issues to the Borrower or
any Subsidiary, or initiates any action, suit or proceeding to obtain against,
impose on or require from the Borrower or any Subsidiary, a cease and desist
order or similar regulatory order, the assessment of civil monetary penalties,
articles of agreement, a memorandum of understanding, a capital directive, a
capital restoration plan, restrictions that prevent or as a practical matter
impair the payment of dividends by such Subsidiary or the payments of any debt
by the Borrower, restrictions that make the payment of dividends by such
Subsidiary or the payment of debt by the Borrower subject to prior regulatory
approval, a notice or finding under Section 51 or Section 52 of the Illinois
Banking Act or Section 8(a) of the Federal Deposit Insurance Act, or any
similar enforcement action, measure or proceeding; or (ii) issues to any
officer or director of the Borrower or any Subsidiary, or initiates any action,
suit or proceeding to obtain against, impose on or require from any such
officer or director, a cease and desist order or similar regulatory order, a
removal order or suspension order, or the assessment of civil monetary
penalties;
(g) if any Subsidiary is notified that it is considered an institution
in "troubled condition" within the meaning of 12 U.S.C. Section 1831i
and the regulations promulgated thereunder, or if a conservator or receiver is
appointed for any Subsidiary;
(h) if the Borrower or any Subsidiary becomes insolvent or is unable to
pay its debts as they mature; or makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts as they mature;
or suspends transaction of its usual business, or if a trustee of any
substantial part of the assets of the Borrower or any Subsidiary is applied for
or appointed, and if appointed in a proceeding brought against the Borrower,
the Borrower by any action or failure to act indicates its approval of, consent
to, or acquiescence in such appointment, or within thirty (30) days such
appointment is not vacated or stayed on appeal or otherwise, or shall not
otherwise have ceased to continue in effect;
13
<PAGE> 14
(i) if any proceedings involving the Borrower or any Subsidiary are
commenced by or against the Borrower or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law or statute of the federal government or any state government
and if such proceedings are instituted against the Borrower, the Borrower by
any action or failure to act indicates its approval of, consent to our
acquiescence therein, or an order shall be entered approving the petition in
such proceedings and within thirty (30) days after the entry thereof such order
is not vacated or stayed on appeal or otherwise, or shall not otherwise have
ceased to continue in effect; or
(j) if the Borrower or any Subsidiary continue to be in default in any
payment of principal or interest for any other obligation which exceeds
$100,000 in the aggregate, or in the performance of any other term, condition
or covenant contained in any agreement (including but not limited to an
agreement in connection with the acquisition of capital equipment on a title
retention or net lease basis), under which any such obligation is created, the
effect of which default is to cause or permit the holder of such obligation to
cause such obligation to become due prior to its stated maturity.
Upon the occurrence of a Default, the Bank shall have all rights and
remedies provided by applicable law and, without limiting the generality of the
foregoing, may, at its option, declare its commitments to be terminated
hereunder and under the Notes shall thereupon be and become forthwith, due and
payable, without any presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower, anything contained
herein or in the Notes or the Pledge Agreements to the contrary
notwithstanding, and may, also without limitation, appropriate and apply toward
the payment of the Notes any indebtedness of the Bank to the Borrower however
created or arising, and may, also without limitation exercise any and all
rights in and to the collateral security referred to in Section 8 above and
under the Pledge Agreements. There shall be no obligation to liquidate any
collateral pledge hereunder in any order or with any priority or to exercise
any remedy available to the Bank in any order.
10. MISCELLANEOUS.
(a) No failure or delay on the part of the Bank in exercising any right,
power or remedy hereunder shall operate as a waiver thereof. No single or
partial exercise of any such right, power or remedy shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law. Time is of the essence in the performance of the
covenants, agreements and obligations of the Borrower and the Subsidiaries.
(b) This Agreement constitutes the entire agreement between the parties
and supersedes all prior agreements between the Bank and the Borrower with
respect to the subject matter hereof. No amendment, modification, termination
or waiver of any provision of this Agreement, the Pledge Agreements or the
Notes, or consent to any departure by the Borrower therefrom, shall be
effective except for the specific purpose for which given. No notice to or
demand on the Borrower in any case shall entitle the Borrower to any other or
further notice or demand in similar or other circumstances.
(c) All notices, requests, demands and other communications provided for
hereunder shall be: (i) in writing, (ii) made in one of the following manners,
and (iii) deemed given (a)
14
<PAGE> 15
if and when personally delivered, (b) on the next business day if sent by
nationally recognized overnight courier addressed to the appropriate party as
set forth below, or (c) on the second business day after being deposited in
United States certified or registered mail, and addressed as follows:
If to Borrower: UnionBancorp, Inc.
122 W. Madison St.
Ottawa, Illinois 61350
Attention: Scott R. Grigbsy
If to the Bank: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60674
Attention: Delmar Rogers, Jr.
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party complying as to delivery with the
terms of this subsection.
(d) This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
(e) This Agreement shall become effective when it shall have been executed
by the Borrower and the Bank and thereafter shall be binding upon and inure to
the benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein.
(f) This Agreement and the Notes shall be governed by the internal laws of
the State of Illinois, and for all purposes shall be construed in accordance
with the laws of said State.
(g) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or lack of enforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction; wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law.
(h) All covenants, agreements, representations and warranties made by the
Borrower herein shall, notwithstanding any investigation by or knowledge on the
part of the Bank, be deemed material and relied on by the Bank and shall
survive the execution and delivery to the Bank of this Agreement and the Notes.
(i) This Agreement shall govern the terms of any extensions or renewals of
the Notes, subject to any additional terms and conditions imposed by the Bank
in connection with any such extension or renewal.
(j) The Borrower hereby represents that the indebtedness evidenced hereby
constitutes loans made by Bank to enable the Borrower to carry on a commercial
enterprise for the
15
<PAGE> 16
purpose of investment or profit and that such loan is a loan for business
purposes under the intent and purview of Ill. Rev. Stat. Ch. 17, Section
6404(c).
(k) The Borrower will pay all reasonable costs and expenses (including,
without limitation, reasonable attorneys' fees) in connection with the
preparation, negotiations, documentation, execution, delivery, administration,
amendment, modification, collection and enforcement of this Agreement, the
Notes, the Pledge Agreements and the other instruments and documents to be
delivered hereunder. In addition, the Borrower shall pay, and save Bank
harmless from any liability for, any and all stamp and other taxes determined
to be payable in connection with the execution and delivery of this Agreement,
the borrowings hereunder, or the Notes and the other instruments and documents
to be delivered hereunder, and agrees to save the Bank harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying or omitting to pay such taxes. The foregoing obligations shall survive
any termination of this Agreement, the Notes of the Pledge Agreements;
provided, that the indemnification of the Bank by the Borrower in connection
with any stamp or other taxes shall apply only to those taxes which arise
during the term of this Agreement or any extension hereof. Any of the
foregoing amounts incurred by Bank and not paid by the Borrower upon demand
shall bear interest from the date incurred at the Prime Rate plus two percent
(2%) per annum and shall be deemed part of the indebtedness hereunder.
(l) Any accounting term not specifically defined herein shall be construed
in accordance with generally accepted accounting principles which are applied
in the preparation of the financial statements referred to in Section 5, and
all financial data submitted pursuant to this Agreement shall be prepared in
accordance with such principles.
(m) The Bank reserves the right to sell participations in the Loans or
otherwise assign, transfer or hypothecate all or any part of the Loans. The
Bank will not sell the Loans to a non-affiliate without the Borrower's consent,
which shall not be unreasonably withheld.
(n) All covenants, agreements, warranties, and representations of the
Borrower herein shall be deemed to have been made jointly and severally by the
Borrower and the Subsidiaries.
(o) The Borrower agrees to do such further acts and things and to execute
and deliver to Bank such additional assignments, agreements, powers and
instruments, as Bank may reasonably require or deem advisable to carry into
effect the purpose of this Agreement, the Notes, the Pledge Agreements or any
agreement or instrument in connection herewith, or to better assure and confirm
unto Bank its rights, powers and remedies hereunder or under such other loan
documents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
UNIONBANCORP, INC.
By: \s\ R. Scott Grigsby
--------------------
Its: President
--------------------
16
<PAGE> 17
LASALLE NATIONAL BANK
By: \s\ Wayne A. Veselsky
---------------------
Its: Senior Vice President
---------------------
17
<PAGE> 18
Exhibit C
<TABLE>
<CAPTION>
Subsidiary Owner of Stock Number of Shares
---------- -------------- ----------------
<S> <C> <C>
Union Bank-Streator UnionBancorp, Inc. 6100
Union Bank-Sandwich UnionBancorp, Inc. 75,000
Hanover State Bank Prairie Acquisition Corp.* 1800
FNB Manlius Prairie Acquisition Corp.* 5910
Bank of Ladd Prairie Acquisition Corp.* 2800
Tampico National Bank Prairie Acquisition Corp.* 884.9
Tiskilwa State Bank Prairie Acquisition Corp.* 14,250
Farmers State Bank Prairie Acquisition Corp.* 2675
Ferris
Omni Bank Macomb CBI Acquisition Corp.* 1800
Prairie Acquisition Corp. UnionBancorp, Inc. 1000
CBI Acquisition Corp. UnionBancorp, Inc. 1000
</TABLE>
* Wholly owned subsidiary of UnionBancorp, Inc.
18
<PAGE> 1
EXHIBIT 10.12
UNIONBANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE> 2
UNIONBANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT- hereby made and entered into this 28th day of October,
1994, by and between UnionBancorp, Inc. (herein referred to as the "Employer")
and UnionBank/Streator (herein referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established an Employee Stock Ownership
Plan and Trust effective January 1, 1986 (hereinafter called the "Effective
Date"), known as First Union Bancorporation, Inc. Employee Stock Ownership
Plan and which Plan shall hereinafter be known as UnionBancorp, Inc. Employee
Stock Ownership Plan (herein referred to as the "Plan") in recognition of the
contribution made to its successful operation by its employees and for the
exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability to
amend the Plan, provided the Trustee joins in such amendment if the provisions
of the Plan affecting the Trustee are amended; and
WHEREAS, contributions to the Plan will be made by the Employer and such
contributions made to the trust will be invested primarily in the capital stock
of the Employer;
NOW, THEREFORE, effective January 1, 1989, except as otherwise provided,
the Employer and the Trustee in accordance with the provisions of the Plan
pertaining to amendments thereof, hereby amend the Plan in its entirety and
restate the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated)
which is under common control (as defined in Code Section 414(c)) with the
Employer; any organization (whether or not incorporated) which is a member of
an affiliated service group (as defined in Code Section 414(m)) which includes
the Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1
<PAGE> 3
1.4 "Aggregate Account" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions
of Section 2.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a
deceased Participant's total account is payable, subject to the
restrictions of Sections 7.2 and 7.5.
1.7 "Code" means the Internal Revenue Code of 1986, as
amended or replaced from time to time.
1.8 "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradeable on an established
securities market. If there is no common stock which meets the foregoing
requirement, the term "Company' Stock" means common stock issued by the
Employer (or by a corporation which is a member of the same controlled group)
having a combination of voting power and dividend rights equal to or in excess
of: (A) that class of common stock of the Employer (or of any other such
corporation) having the greatest voting power, and (B) that class of common
stock of the Employer (or of any other such corporation) having the greatest
dividend rights. Noncallable preferred stock shall be deemed to be "Company
Stock" if such stock is convertible at any time into stock which constitutes
"Company Stock" hereunder and if such conversion is at a conversion price which
(as of the date of the acquisition by the Trust) is reasonable. For purposes
of the preceding sentence, pursuant to Regulations, preferred stock shall be
treated as noncallable if after the call there will be a reasonable opportunity
for a conversion which meets the requirements of the preceding sentence.
1.9 "Company Stock Account" means the account of a Participant which is
credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund. A separate accounting shall be
maintained for purposes of Section 4.7(a), Section 7.4(a) and Section 7.5(b)
with respect to that portion of the Company Stock Account acquired by the Plan
after December 31, 1986.
1.10 "Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052.
Compensation must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
2
<PAGE> 4
For purposes of this Section, the determination of Compensation shall
be made by:
(a) including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402
(e) (3) , 402 (h) , 403 (b) or 457, and Employee contributions
described in Code Section 414 (h) (2) that are treated as Employer
contributions.
For a Participant's initial year of participation, Compensation shall
be recognized as of such Employee's effective date of participation pursuant to
Section 3.3.
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414 (q) (6)
because such Participant is either a "five percent owner" of the Employer or one
of the ten (10) Highly Compensated Employees paid the greatest 11415
Compensation" during the year, shall be treated as a single Participant, except
that for this purpose Family Members shall include only the affected
Participant's spouse and any lineal descendants who have not attained age
nineteen (19) before the close of the year. If, as a result of the application
of such rules the adjusted $200,000 limitation is exceeded, then the limitation
shall be prorated among the affected Family Members in proportion to each such
Family Member's Compensation prior to the application of this limitation, or the
limitation shall be adjusted in accordance with any other method permitted by
Regulation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA 193 annual
compensation limit. The OBRA 193 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA 193
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan
3
<PAGE> 5
to the limitation under Code Section 401(a)(17) shall mean the OBRA 193 annual
compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA 193
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA 193 annual
compensation limit is $150,000.
If, as a result of such rules, the maximum "annual addition" limit of
Section 4.4(a) would be exceeded for one or more of the affected Family Members,
the prorated Compensation of all affected Family Members shall be adjusted to
avoid or reduce any excess. The prorated compensation of any affected Family
Member whose allocation would exceed the limit shall be adjusted downward to the
level needed to provide an allocation equal to such limit. The prorated
Compensation of affected Family Members not affected by such limit shall then be
adjusted upward on a pro rata basis not to exceed each such affected Family
Member's Compensation as determined prior to application of the Family Member
rule. The resulting allocation shall not exceed such individual's maximum
"annual addition" limit. If, after these adjustments, an "excess amount" still
results, such "excess amount" shall be disposed of in the manner described in
Section 4.5(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
$200,000 limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
If, in connection with the adoption of this amendment and restatement,
the definition of Compensation has been modified, then, for Plan Years prior to
the Plan Year which includes the adoption date of this amendment and
restatement, compensation means compensation determined pursuant to the Plan
then in effect.
For Plan Years beginning prior to January 1, 1989, the $200,000 limit
(without regard to Family Member aggregation) shall apply only for Top Heavy
Plan Years and shall not be adjusted.
1.11 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.12 "Current Obligations" means Trust obligations arising from extension
of credit to the Trust and payable in cash within (1) year from the date an
Employer contribution is due. With respect to the estates of decedents who
died prior to July 13, 1989, Trust obligations shall include the liability for
payment of taxes imposed by Code Section 2001, which liability is incurred
pursuant to Code Section 2210(b).
4
<PAGE> 6
1.13 "Early Retirement Date" means the first day of the month (prior to
the Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 55 and has completed at least 10
Years of service with the Employer (Early Retirement Age). A Participant shall
become fully Vested upon satisfying this requirement-if still employed at his
Early Retirement Age.
A Former Participant who terminates employment after satisfying the
service requirement for Early Retirement and who thereafter reaches the age
requirement contained herein shall be entitled to receive his benefits under
this Plan.
1.14 "Eligible Employee" means any Employee.
Employees of Affiliated Employers shall not be eligible to participate
in this Plan unless such Affiliated Employers have specifically adopted this
Plan in writing.
1.15 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.16 "Employer" means UnionBancorp, Inc. and any Participating Employer
(as defined in Section 11.1) which shall adopt this Plan; any successor which
shall maintain this Plan; and any predecessor which has maintained this Plan.
The Employer is a corporation with principal offices in the State of Illinois.
1.17 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.
1.18 "Exempt Loan" means a loan made to the Plan by a disqualified person
or a loan to the Plan which is guaranteed by a disqualified person and which
satisfies the requirements of Section 2550.408b-3 of the Department of Labor
Regulations, Section 54.4975-7(b) of the Treasury Regulations and Section 5.4
hereof.
1.19 "Family Member" means, with respect to an affected Participant, such
Participant's spouse and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.20 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct
or indirect, with respect to any monies or other property of the Plan or has
any authority or responsibility to do so, or (c) has any discretionary
authority or
5
<PAGE> 7
discretionary responsibility in the administration of the Plan,
including, but not limited to, the Trustee, the Employer and its representative
body, and the Administrator.
1.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Terminated
Participant's Account, or
(b) the last day of the Plan Year in which the Participant incurs
five (5) consecutive 1-Year Breaks in service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 7.4(g)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
1.23 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3) and 6052. 11415
Compensation" must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
If, in connection with the adoption of this amendment and restatement,
the definition of 11415 Compensation" has been modified, then, for Plan Years
prior to the Plan Year which includes the adoption date of this amendment and
restatement, 11415 Compensation" means compensation determined pursuant to the
Plan then in effect.
1.25 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
6
<PAGE> 8
(a) Employees who at any time during the "determination year" or
"look-back 'year" were "five percent owners" as defined in Section
1.30(c).
(b) Employees who received 11415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received 11415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of
the Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received 11415 Compensation"
during the "look-back year" from the Employer greater than 50 percent
of the limit in effect under Code Section 415(b)(1)(A) for any such
Plan Year. The number of officers shall be limited to the lesser of
(i) 50 employees; or (ii) the greater of 3 employees or 10 percent of
all employees. For the purpose of determining the number of officers,
Employees described in Section 1.50(a), (b), (c) and (d) shall be
excluded, but such Employees shall still be considered for the purpose
of identifying the particular Employees who are officers. If the
Employer does not have at least one officer whose annual 11415
Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will
be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above
when these paragraphs are modified to substitute "determination year"
for "look-back year."
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period.
For purposes of this Section, the determination of 11415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3), 402(h),
403(b) or 457, and Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions. Additionally, the dollar threshold
amounts specified in (b) and (c) above shall be adjusted at such time and in
such manner as is provided in Regulations. In the case of such an adjustment,
the dollar limits which shall be applied are those for the calendar year in
which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section
7
<PAGE> 9
911(d)(2)) from the Employer constituting United States source income within the
meaning of Code Section 861(a)(3) shall not be treated as Employees.
Additionally, all Affiliated Employers shall be taken into account as a single
employer and Leased Employees within the meaning of Code Sections 414(n)(2) and
414(o)(2) shall be considered Employees unless such Leased Employees are covered
by a plan described in Code Section 414(n)(5) and are not covered in any
qualified plan maintained by the Employer. The exclusion of Leased Employees
for this purpose shall be applied on a uniform and consistent basis for all of
the Employer's retirement plans. Highly Compensated Former Employees shall be
treated as Highly Compensated Employees without regard to whether they performed
services during the "determination year."
1.26 "Highly Compensated Former Employee" means a former Employee who had
a separation year prior to the "determination year" and was a Highly
Compensated Employee in the year of separation from service or in any
"determination year" after attaining age 55. Notwithstanding the foregoing, an
Employee who separated from service prior to 1987 will be treated as a Highly
Compensated Former Employee only if during the separation year (or year
preceding the separation year) or any year after the Employee attains age 55
(or the last year ending before the Employee's 55th birthday), the Employee
either received 11415 Compensation" in excess of $50,000 or was a "five percent
owner." For purposes of this Section, "determination year," 11415 Compensation"
and "five percent owner" shall be determined in accordance with Section 1.25.
Highly Compensated Former Employees shall be treated as Highly Compensated
Employees. The method set forth in this Section for determining who is a
"Highly Compensated Former Employee" shall be applied on a uniform and
consistent basis for all purposes for which the Code Section 414(q) definition
is applicable.
1.27 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.28 "Hour of Service" means (1) each hour for which an Employee is
directly or' indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2)
each hour for which an Employee is directly or indirectly compensated or
entitled to compensation by the Employer (irrespective of whether the
employment relationship has terminated) for reasons other than performance of
duties (such as vacation, holidays, sickness, jury duty, disability, lay-off,
military duty or leave of absence) during the applicable computation period;
(3) each hour for which back pay is awarded or agreed to by the Employer
without regard to mitigation of damages. These hours will be credited to the
Employee for the computation period or periods to which the award or agreement
pertains rather than the computation period in which the award, agreement or
payment is made. The same Hours of Service shall not be credited both under
(1) or (2), as the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or- not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment,
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<PAGE> 10
on account of a period during which no duties are performed is not required to
be credited to the Employee if such payment is made or due under a plan
maintained solely for the purpose of complying with applicable worker's
compensation, or unemployment compensation or disability insurance laws; and
(iii) Hours of Service are not required to be credited for a Payment which
solely reimburses an Employee for medical or medically related expenses incurred
by the Employee.
For purposes of this Section, a payment shall be deemed to be made by
or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust fund,
or insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in service, and employment commencement date (or reemployment
commencement date) .
In addition, Hours of Service will be credited for employment with other
Affiliated Employers. The provisions of Department of Labor regulations
2530.200b-2 (b) and (c) are incorporated herein by reference.
1.29 "Investment Manager" means an entity that (a) has the power to
manage.- acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.30 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
11415 Compensation" greater than 50 percent of the amount in effect
under Code Section 415 (b) (1) (A) for any such Plan Year.'
(b) one of the ten employees having annual 11415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation
in effect under Code Section 415(c) (1) (A) for the calendar year in
which such Plan Year ends and owning (or considered as owning within
the meaning of Code Section 318) both more than one-half percent
interest and the largest interests in the Employer.
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<PAGE> 11
(c) a "five percent owner" of - the Employer. "Five percent
owner" means any person who owns (or is considered as owning within
the meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than five percent (5%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections 414
(b), (c), (m) and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual 11415
Compensation" from the Employer of more than $150,000. "One percent
owner" means any person who owns (or is considered as owning within
the meaning of Code Section 318) more than one percent (1%) of the
outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than one percent (1%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections 414
(b), (c), (m) and (o) shall be treated as separate employers. However,
in determining whether an individual has 11415 Compensation" of more
than $150,000, 11415 Compensation" from each employer required to be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken
into account.
For purposes of this Section, the determination of 11415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3), 402(h),
403(b) or 457, and Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
1.31 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.32 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or
for the recipient and related persons determined in accordance with Code
Section 414(n)(6)) on a substantially full time basis for a period of at least
one year, and such services are of a type historically performed by employees
in the business field of the recipient employer. Contributions or benefits
provided a Leased Employee by the leasing organization which are attributable
to services performed for the recipient employer shall be treated as provided
by the recipient employer. A Leased Employee shall not be considered an
Employee of the recipient:
(a) if such employee is covered by a money purchase pension
plan
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<PAGE> 12
providing:
(1) a non-integrated employer contribution rate of at least 10% of
compensation, as defined in Code Section 415(c)(3), but including
amounts which are contributed by the Employer pursuant to a salary
reduction agreement and which are not includible in the gross income
of the Participant under Code Sections 125, 402(e)(3), 402(h), 403(b)
or 457, and Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees . do not constitute more than 20% of the
recipient's non-highly compensated work force.
1.33 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.34 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.35 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.36 "Normal Retirement ' Date" means the first day of the month
coinciding with or next following the Participant's Normal Retirement Age.
1.37 11 1-Year Break in service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized f or "authorized leaves of absence" and "maternity and paternity
leaves of absence. 11 Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a
11
<PAGE> 13
period immediately following such birth or placement. For this purpose, Hours
of Service shall be credited for the computation period in which the absence
from work begins, only if credit therefore is necessary to prevent the Employee
from incurring a 1-Year Break in service, or, in any other case, in the
immediately following computation period. The Hours of Service credited for a
"maternity or paternity leave of absence" shall be those which would normally
have been credited but for such absence, or, in any case in which the
Administrator is unable to determine such hours normally credited, eight (8)
Hours of Service per day. The total Hours of Service required to be credited
for a "maternity or paternity leave of absence" shall not exceed 501.
1.38 "Other Investments Account" means the account of a Participant which
is credited with his share of the net gain (or loss) of the Plan, Forfeitures
and Employer contributions in other than Company Stock and which is debited
with payments made to pay for Company Stock.
1.39 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.40 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan and Trust resulting from the Employer's contributions.
1.41 "Plan" means this instrument, including all amendments thereto.
1.42 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each 'year and ending the following December 31st.
1.43 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.44 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.45 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 7.1).
1.46 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.47 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.48 "Top Heavy Plan" means a plan described in Section 2.2(a).
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<PAGE> 14
1.49 "Top Heavy Plan Year" means a Plan Year during which the Plan is a
Top Heavy Plan.
1.50 "Top Paid Group" means the top 20 percent of Employees who performed
services for -the Employer during the applicable year, ranked according to the
amount of 11415 Compensation" (determined for this purpose in accordance with
Section 1.25) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this section shall be applied on
a uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.
1.51 "Total and Permanent Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental disorder
which renders him incapable of continuing any gainful occupation and which
condition constitutes total disability under the federal Social Security Acts.
1.52 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
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1.53 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.54 "Unallocated Company Stock Suspense Account" means an account
containing Company Stock acquired with the proceeds of an Exempt Loan and which
has not been released from such account and allocated to the Participants'
Company Stock Accounts.
1.55 "Vested" means the nonforfeitable portion of any account maintained
on behalf of a Participant.
1.56 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least
1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service. The participation computation period beginning after a 1-Year Break in
Service shall be measured from the date on which an Employee again performs an
Hour of Service. The participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of service. An Employee who is credited with the required
Hours of Service in -both the initial computation period (or the computation
period beginning after a I-Year Break in Service) and the Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service, shall be credited with two (2) Years of Service for purposes of
eligibility to participate.
For vesting purposes, the computation period shall be the Plan Year,
including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the Plan Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting
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<PAGE> 16
requirements of Code Section 416(b) pursuant to Section 7.4 of the Plan and the
special minimum allocation requirements of Code Section 416(c) pursuant to
Section 4.3 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in
which, as of the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate Accounts of
Key Employees under this Plan and all plans of an Aggregation Group,
exceeds sixty percent (60%) of the Present Value of Accrued Benefits
and the Aggregate Accounts of all Key and Non-Key Employees under this
Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, if a Participant or Former Participant has
not performed any services for any Employer maintaining the Plan at
any time during the five year period ending on the Determination Date,
any accrued benefit for such Participant or Former Participant shall
not be taken into account for the purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
in which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under- this Plan and all plans of an
Aggregation Group, exceeds ninety percent (90%) of the Present Value
of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of
the Determination Date is the sum of:
(1) his Participant's Account balance as of the most recent
valuation occurring within a twelve (12) month period ending on
the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but due on
or before the Determination Date, except for the first Plan Year
when such adjustment shall also reflect the amount of any
contributions made after the Determination Date
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<PAGE> 17
that are allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4) preceding
Plan Years. However, in the case of distributions made after the
valuation date and prior to the Determination Date, such
distributions are not included as distributions for top heavy
purposes to the extent that such distributions are already
included in the Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein to the contrary,
all distributions, including distributions made prior to January
1, 1984, and distributions under a terminated plan which if it
had not been terminated would have been required to be included
in an Aggregation Group, will be counted. Further, distributions
from the Plan (including the cash value of life insurance
policies) of a Participant's account balance because of death
shall be treated as a distribution for the purposes of this
paragraph.
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
voluntary employee contributions shall not be considered to be a
part of the Participant's Aggregate Account balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such rollovers
or plan-to-plan transfers as a distribution for the purposes of
this Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider such rollovers
or plan-to-plan transfers as part of the Participant's Aggregate
Account balance.
(6) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the
rollover or plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan is the
plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective of the date
on which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to
be treated as the same employer in (5) and (6) above, all
employers aggregated under Code Section 414(b), (c), (m) and (o)
are treated as the same employer.
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(d) "Aggregation Group" means either a Required Aggregation Group
or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which a
Key Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and
each other plan of the Employer which enables any plan in which a
Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in the Required
Aggregation Group will be considered a Top Heavy Plan if the
Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include
any other plan not required to be included in the Required
Aggregation Group, provided the resulting group, taken as a
whole, would continue to satisfy the provisions of Code Sections
401(a)(4) and 410. Such group shall be known . as a Permissive
Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be considered a
Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy
Group. No plan in the Permissive Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation Group
is not a Top Heavy Group.
(3) only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated in
order to determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of the
Employer if it was maintained within the last five (5) years
ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding
Plan Year, or (b) in the case of the first Plan Year, the last day of
such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a Participant
other than a Key Employee, shall be as determined using the single
accrual method used for all
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<PAGE> 19
plans of the Employer and Affiliated Employers, or if no such single
method exists, using a method which results in benefits accruing not
more rapidly than the slowest accrual rate permitted under Code
section 411(b)(1)(C). The determination of the Present Value of
Accrued Benefit shall be determined as of the most recent valuation
date that falls within or ends with the 12-month period ending on the
Determination Date except as provided in Code Section 416 and the
Regulations thereunder for the first and second plan years of a
defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as of
the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under
all defined included in the group, and benefit plans
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for
all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems necessary
for the proper administration of the Plan to assure that the Plan is
being operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(b) The Employer shall establish a "funding policy and method,"
i.e., it shall determine whether the Plan has a short run need for
liquidity (e.g., to pay benefits) or whether liquidity is a long run
goal and investment growth (and stability of same) is a more current
need, or shall appoint a qualified person to do SO. The Employer or
its delegate shall communicate such needs and goals to the Trustee,
who shall coordinate such Plan needs with its investment policy. The
communication of such a "funding policy and method" shall not,
however, constitute a directive to the Trustee as to investment of the
Trust Funds. Such "funding policy and method" shall be consistent
with the objectives of this Plan and with the requirements of Title I
of the Act.
(c) The Employer shall periodically review the performance of any
Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied
by formal periodic review by the Employer or
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<PAGE> 20
by a qualified person specifically designated by the Employer, through
day-to-day conduct and evaluation, or through other appropriate ways.
(d) The Employer will furnish Plan Fiduciaries and Participants
with notices and information statements when voting rights must be
exercised pursuant to Section 8.4.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Employer will function as the
Administrator.,
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.6 POWERS AND DUTIES OF THE-ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue
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<PAGE> 21
to be deemed a qualified plan under the terms of Code Section 401(a), and shall
comply with the terms of the Act and all regulations issued pursuant thereto.
The Administrator shall have all powers necessary or appropriate to accomplish
his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect
to the amount and the kind of benefits to which any Participant
shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the
Trust;
(d) to maintain all necessary records for the administration
of the Plan;
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent
with the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from which
such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee
from time to time the sums of money necessary or desirable to be
contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the
short and long-term liquidity needs of the Plan in order that the
Trustee can exercise any investment discretion in a manner designed
to accomplish specific objectives;
(i) to establish and communicate to Participants a procedure
for allowing each Participant to direct the Trustee as to the
distribution of his Company Stock Account pursuant to Section 4.7;
(j) to establish and communicate to Participants a procedure
and method to insure that each Participant will vote Company Stock
allocated to such Participant's Company Stock Account pursuant to
Section 8.4;
(k) to enter into a written agreement with regard to the
payment of
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federal estate tax pursuant to Code Section 2210(b);
(l) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability
of the Trust Fund.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
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2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a
court reporter to attend the hearing and record the proceedings. In such event,
a complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter -and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed six (6) Months of Service and
has attained age twenty and one-half shall be eligible to participate hereunder
as of the date he has satisfied such requirements. However, any Employee who
was a Participant in the Plan prior
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<PAGE> 24
to the effective date of this amendment and restatement shall continue to
participate in the Plan. The Employer shall give each prospective Eligible
Employee written notice of his eligibility to participate in the Plan prior to
the close of the Plan Year in- which he first becomes an Eligible Employee.
Effective January 1, 1995, for purposes of this Section, an Eligible
Employee will be deemed to have completed six (6) Months of Service if he
completes 500 Hours of Service in any six (6) consecutive month period after his
employment commencement date. Employment commencement date shall be the 'first
day that he is entitled to be credited with an Hour of Service for the
performance of duty.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
first day of the Plan Year in which such Employee met the eligibility
requirements of Section 3.1 if such eligibility requirements were met during the
first six months of that Plan Year, or, if such Employee met the eligibility
requirements of Section 3.1 during the last six months of a Plan Year, then the
Employee shall become a Participant effective as of the first day of the next
succeeding Plan Year if still employed or the date of rehire if a 1-Year Break
in Service has not occurred.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee -
for participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of
an Eligible Employee to an ineligible Employee, such Former
Participant shall continue to vest in his interest in the Plan for
each Year of Service completed while a noneligible Employee, until
such time as his Participant's Account shall be forfeited or
distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the
Trust Fund.
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<PAGE> 25
(b) in the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate but
has not incurred a 1-Year Break in Service, such Employee will
participate immediately upon returning to an eligible class of
Employees. If such Participant incurs a 1-Year Break in service,
eligibility will be determined under the break in service rules of the
Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as
a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
for the Plan Year in which the discovery is made.-
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate
must be communicated to the Employer, in writing, at least thirty (30) days
before the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) For each Plan Year, the Employer shall contribute to the
Plan such amount as shall be determined by the Employer.
(b) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash,
Company Stock or in such
24
<PAGE> 26
property as is acceptable to the Trustee.
(c) Except, however, to the extent necessary to provide the top
heavy minimum allocations, the Employer shall make a contribution even
if it exceeds the amount which is deductible under Code Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
Employer contributions will be paid in cash; Company Stock or other property as
the Employer may from time to time determine. Company Stock and other property
will be valued at their then fair market value. The Employer shall pay to the
Trustee its contribution to the Plan for each Plan Year within the time
prescribed by law, including extensions of time, for the filing of the
Employer's federal income tax return for the Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in
the name of each Participant to which the Administrator shall credit
as of each Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation
of the Employer's contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the
Administrator of such information, the Administrator shall allocate
such contribution to each Participant's Account in the same proportion
that each such Participant's Compensation for the year bears to the
total Compensation of all Participants for such year.
Only Participants who have completed a Year of Service
during the Plan Year and are actively employed on the last day of the
Plan Year shall be eligible to share in the discretionary contribution
for the year.
(c) The Company Stock Account of each Participant shall be
credited as of each Anniversary Date with Forfeitures of Company Stock
and his allocable share of Company Stock (including fractional shares)
purchased and paid for by the Plan or contributed in kind by the
Employer. Stock dividends on Company Stock held in his Company Stock
Account shall be credited to his Company Stock Account when paid.
Cash dividends on Company Stock held in his Company Stock Account
shall, in the sole discretion of the Administrator, either be credited
to his Other Investments Account when paid or be used to repay an
Exempt Loan; provided, however, that when cash dividends are used to
repay an Exempt Loan, Company Stock shall be released from the
Unallocated Company Stock Suspense Account and allocated to the
Participant's Company Stock Account pursuant to
25
<PAGE> 27
Section 4.3(f) and, provided further, that Company Stock allocated to
the Participant's Company Stock Account shall have a fair market value
not less than the amount of cash dividends which would have been
allocated to such Participant's Other Investments Account for the
year.
Company Stock acquired by the Plan with the proceeds of an
Exempt Loan shall only be allocated to each Participant's Company
Stock Account upon release from the Unallocated Company Stock Suspense
Account as provided in Section 4.3(f) herein. Company Stock acquired
with the proceeds of an Exempt Loan shall be an asset of the Trust
Fund and maintained in the Unallocated Company Stock Suspense Account.
(d) As of each Anniversary Date or other valuation date, before
the current valuation period allocation of Employer contributions and
Forfeitures, any earnings or losses (net appreciation or net
depreciation) of the Trust Fund shall be allocated in the same
proportion that each Participant's and Former Participant's
nonsegregated accounts (other than each Participant's Company Stock
Account) bear to the total of all Participants' and Former
Participants' nonsegregated accounts (other than Participants' Company
Stock Accounts) as of such date.
Earnings or losses do not include the interest paid under
any installment contract for the purchase of Company Stock by the
Trust Fund or on any loan used by the Trust Fund to purchase Company
Stock, nor does it include income received by the Trust Fund with
respect to Company Stock acquired with the proceeds of an Exempt Loan;
all income received by the Trust Fund from Company Stock acquired with
the proceeds of an Exempt Loan may, at the discretion of the
Administrator, be used to repay such loan.
Participants' transfers from other qualified plans deposited
in the general Trust Fund shall share in any earnings and losses (net
appreciation or net depreciation) of the Trust Fund in the same manner
provided above. Each segregated account maintained on behalf of a
Participant shall be credited or charged with its separate earnings
and losses.
(e) Participants' accounts shall be debited for any insurance or
annuity premiums 'paid, if any, and credited with any dividends
received on insurance contracts.
(f) All Company Stock acquired by the Plan with the proceeds of
an Exempt Loan must be added to and maintained in the Unallocated
Company Stock Suspense Account. Such Company Stock shall be released
and withdrawn from that account as if all Company Stock in that
account were encumbered. For each Plan Year during the duration of
the loan, the number of shares of Company
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<PAGE> 28
Stock released shall equal the number of encumbered shares held
immediately before release for the current Plan Year multiplied by a
fraction, the numerator of which is the amount of principal and
interest paid for the Plan Year and the denominator of which is the
sum of the numerator plus the principal and interest to be paid for
all future Plan Years. As of each Anniversary Date, the Plan must
consistently allocate to each Participant's Account, in the same
manner as Employer discretionary contributions pursuant to Section
4.1(a) are allocated, non-monetary units (shares and fractional shares
of Company Stock) representing each Participant's interest in Company
Stock withdrawn from the Unallocated Company Stock Suspense Account.
However, Company Stock released from the Unallocated Company Stock
Suspense Account with cash dividends pursuant to Section 4.3(c) shall
be allocated to each Participant's Company Stock Account in the same
proportion that each such Participant's number of shares of Company
Stock sharing in such cash dividends bears to the total number of
shares of all Participants' Company Stock sharing in such cash
dividends. Income earned with respect to Company Stock in the
Unallocated Company Stock Suspense Account shall be used, at the
discretion of the Administrator, to repay the Exempt Loan used to
purchase such Company Stock. Company Stock released from the
Unallocated Company Stock Suspense Account with such income, and any
income which is not so used, shall be allocated as of each Anniversary
Date or other valuation date in the same proportion that each
Participant's and Former Participant's nonsegregated accounts after
the allocation of any earnings or losses pursuant to Section 4.3(d)
bear to the total of all Participants' and Former Participants'
nonsegregated accounts after the allocation of any earnings or losses
pursuant to Section 4.3(d).
(g) As of each Anniversary 'Date any amounts which became
Forfeitures since the last Anniversary Date shall f4rst be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 7.4(g)(2). The
remaining Forfeitures, if any, shall be allocated among the
Participants' Accounts of Participants otherwise eligible to share in
the allocation of discretionary contributions in the same proportion
that each such Participant's Compensation for the year bears to the
total Compensation of all such Participants for the year.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.4) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.5.
(h) For any Top Heavy Plan Year, Non-Key Employees not otherwise
eligible to share in the allocation of contributions and Forfeitures
as provided above, shall receive the minimum allocation provided. for
in Section 4.3(j) if eligible pursuant to the provisions of section
4.3(l).
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<PAGE> 29
(i) Notwithstanding the foregoing, Participants who are not
actively employed on the last day of the Plan Year due to Retirement
(Early, Normal or Late), Total and Permanent Disability or death shall
share in the allocation of contributions and Forfeitures for that Plan
Year.
(j) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer's contributions and Forfeitures allocated to the
Participant's Account of each Non-Key Employee shall be equal to at
least three percent (3%) of such Non-Key Employee's "415 Compensation"
(reduced by contributions and forfeitures, if any, allocated to each
Non-Key Employee in any defined contribution plan included with this
plan in a Required Aggregation Group). However, if (1) the sum of the
Employer's contributions and Forfeitures allocated to the
Participant's Account of each Key Employee for such Top Heavy Plan
Year is less than three percent (3%) of each Key Employee's "415
Compensation" and (2) this Plan is not required to be included in an
Aggregation Group to enable a defined benefit plan to meet the
requirements of Code Section 401(a)(4) or 410, the sum of the
Employer's contributions and Forfeitures allocated to the
Participant's Account of each Non-Key Employee shall be equal to the
largest percentage allocated to the Participant's Account of any Key
Employee.
However, no such minimum allocation shall be required in
this Plan for any Non-Key Employee who participates in another defined
contribution plan subject to Code Section 412 providing such benefits
included with this Plan in a Required Aggregation Group.
(k) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Account of any Key Employee
shall be equal to the ratio of the sum of the Employer's contributions
and Forfeitures allocated on behalf of such Key Employee divided by
the "415 Compensation" for such Key Employee.
(l) For any Top Heavy Plan Year, the minimum allocations set
forth above shall be allocated to the Participant's Account of all
Non-Key Employees who are Participants and who are employed by the
Employer on the last day of the Plan Year, including Non-Key Employees
who have (1) failed to complete a Year of service; and (2) declined to
make mandatory contributions (if required) to the Plan.
(m) In lieu of the above, if a Non-Key Employee participates in
this Plan and a defined benefit pension plan included in a Required
Aggregation Group which is top heavy, a minimum allocation of five
percent (5%) of 11415 Compensation" shall be provided under this Plan.
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<PAGE> 30
The extra minimum allocation (required by Section 4.4 (n) to
provide higher limitations) will not be provided.
(n) For the purposes of this Section, "415 Compensation" shall be
limited to $200,000. Such amount shall be adjusted at the same time
and in the same manner as permitted under Code Section 415(d), except
that the dollar increase in effect on January 1 of any calendar year
shall be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation
shall be effective on January 1, 1990. For any short Plan Year the
11415 Compensation" limit shall be an amount equal to the 11415
Compensation" limit for the calendar year in which the Plan Year
begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12). However, for Plan Years
beginning prior to January 1, 1989, the $200,000 limit shall apply
only for Top Heavy Plan Years and shall not be adjusted.
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994, the
annual Compensation of each Employee taken into account under the Plan
shall not exceed the OBRA '93 annual compensation limit. The OBRA '93
annual compensation limit is $150,000, as adjusted by the Commissioner
for increases in the cost of living in accordance with Code Section
401(a)(17)(B). The cost of living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401(a)(17)
shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the
current Plan Year, the Compensation for that prior determination
period is subject to the OBRA '93 annual compensation limit in effect
f or that prior determination period.'- For this purpose, for
determination periods beginning before the first day of the first Plan
Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
(o) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
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<PAGE> 31
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his status in the Plan attributable
to post-break service.
(p) Notwithstanding anything to the contrary, for Plan Years
beginning after December 31, 1989, if this is a Plan that would
otherwise fail to meet the requirements of Code Sections 401(a)(26),
410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because
Employer contributions would not be allocated to a sufficient number
or percentage of Participants for a Plan Year, then the following
rules shall apply:
(1) The group of Participants eligible to share in the Employer's
contribution and Forfeitures for the Plan Year shall be expanded
to include the minimum number of Participants who would not
otherwise be eligible as are necessary to satisfy the applicable
test specified above. The specific Participants who shall become
eligible under the terms of this paragraph shall be those who are
actively employed on the last day of the Plan Year and, when
compared to similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's contribution and Forfeitures
for the Plan Year shall be further expanded to include the
minimum number of Participants who are not actively employed on
the last day of the Plan Year as are necessary to satisfy the
applicable test. The specific Participants who shall become
eligible to share shall be those Participants, when compared to
similarly situated Participants, who have completed the
'-greatest number of Hours of Service in the Plan Year before
terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be reallocated
to satisfy these requirements. In such event, the Employer shall
make an additional contribution equal to the amount such affected
Participants would have received had they been included in the
allocations, even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to the
allocations pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
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<PAGE> 32
beginning after December 31, 1992, if the plan would fail to
satisfy Code Section 410(b) if the coverage tests were applied by
treating those Participants whose only allocation would otherwise
be provided under the top heavy formula as if they were not
currently benefiting under the Plan, then, for purposes of this
Section 4.3(p), such Participants shall be treated as not
benefiting and shall therefore be eligible to be included in the
expanded class of Participants who will share in the allocation
provided under the Plan's non top heavy formula.
(q) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two or more cash or deferred
arrangements of the Employer or an Affiliated Employer, all such cash
or deferred arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the actual deferral ratio
with respect to such Highly Compensated - Participant. However, for
Plan Years beginning after December 31, 1988, no such aggregation of
cash or deferred arrangements is required.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual additions"
credited to a Participant's accounts for any "limitation year" shall
equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under Code Section 415(b)(1)(A)) or (2)
twenty-five percent (25%) of the Participant's "415 Compensation" for
such "limitation year." For any short "limitation year," the dollar
limitation in (1) above shall be reduced by a fraction, the numerator
of which is the number of full months in the short "limitation year"
and the denominator of which is twelve (12).
(b) For "limitation years" beginning prior to July 13, 1989, the
dollar amount provided for in paragraph (a)(1) above shall be
increased by the lesser of the dollar amount determined under
paragraph (a)(1) above or the amount of Company Stock contributed, or
purchased with cash contributed. The dollar amount shall be increased
provided no more than one-third of the Employer's contributions for
the year are allocated to Highly Compensated Participants. In
applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of
Code Section 414(q)(6) shall be determined pursuant to Regulations.
(c) For purposes of applying the limitations of Code Section 415,
"annual additions" means the sum credited to a Participant's accounts
for any "limitation year" of (1) Employer contributions, (2) Employee
contributions for "limitation years" beginning after December 31,
1986, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to
an individual medical account, as defined in Code Section 415(l)(2)
which is part of a pension or annuity plan
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<PAGE> 33
maintained by the Employer and (5) amounts derived from contributions
paid or accrued after December 31, 1985, in taxable years ending after
such date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in
Code Section 419A(d)(3)) under a welfare benefit plan (as defined in
Code Section 419(e)) maintained by the Employer. Except, however, the
"415 Compensation" percentage limitation referred to in paragraph
(a)(2) above shall not apply to: (1) any contribution for medical
benefits (within the meaning of Code Section 419A(f)(2)) after
separation from service which is otherwise treated as an "annual
addition," or (2) any amount otherwise treated as an "annual addition"
under Code Section 415(l)(1).
(d) For purposes of applying the limitations of Code section 415,
the following are not "annual additions": (1) the transfer of funds
from one qualified plan to another; (2) provided no more than
one-third of the Employer contributions for the year are allocated to
Highly Compensated Participants, Forfeitures of Company Stock
purchased with the proceeds of an Exempt Loan and Employer
contributions applied to the payment of interest on an Exempt Loan. In
addition, the following are not Employee contributions for the
purposes of Section 4.4(c)(2): (1) rollover contributions (as defined
in code sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2)
repayments of loans made to a Participant from the Plan; (3)
repayments of distributions received by an Employee pursuant to Code
Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions
received by an Employee pursuant to Code Section 411(a)(3)(D)
(mandatory contributions); and (5) Employee contributions to a
simplified employee pension excludable from gross income under Code
Section 408(k)(6).
(e) For purposes of applying the limitations of Code Section 415,
the "limitation year" shall be the Plan Year.
(f) The dollar limitation under Code Section 415(b)(1)(A) stated
in paragraph (a)(1) above shall be adjusted annually as provided in
Code Section 415(d) pursuant to the Regulations. The adjusted
limitation is effective as of January 1st of each calendar year and
is applicable to "limitation years" ending with or within that
calendar year.
(g) For the purpose of this Section, all qualified defined
benefit plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined benefit plan, and all
qualified defined contribution plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
contribution plan.
(h) For the purpose of this Section, if the Employer is a member
of a controlled group of corporations, trades or businesses under
common control (as
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<PAGE> 34
defined by Code Section 1563(a) or Code Section 414(b) and (c) as
modified by Code Section 415(h)), is a member of an affiliated service
group (as defined by Code Section 414(m)), or is a member of a group
of entities required to be aggregated pursuant to Regulations under
Code Section 414(o), all Employees of such Employers shall be
considered to be employed by a single Employer.
(i) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain this
Plan will be considered to be a single Employer.
(j) (1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan
shall equal the maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited to such Participant's
accounts during the "limitation year."
(2) If a Participant participates in both a defined contribution
plan subject to Code Section 412 and a defined contribution plan
not subject to Code Section 412 maintained by the Employer which
have the same Anniversary Date, "annual additions" will be
credited to the Participant's accounts under the defined
contribution plan subject to Code Section 412 prior to crediting
"annual additions" to the Participant's accounts under the
defined contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have the same Anniversary Date, the maximum
"annual additions" under this Plan shall equal the product of (A)
the maximum "annual additions" for the "limitation year" minus
any "annual additions" previously credited under subparagraphs
(1) or (2) above, multiplied by (B) a fraction (i) the numerator
of which is the "annual additions" which would be credited to
such Participant's accounts under this Plan without regard to the
limitations of Code Section 415 and (ii) the denominator of which
is such "annual additions" for all plans described in this
subparagraph.
(k) If an Employee is (or has -been) a Participant in one or more
defined benefit plans and one or more defined contribution plans
maintained by the Employer, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0
(l) The defined benefit plan fraction for any "limitation year"
is a fraction, the numerator of which is the sum of the Participant's
projected annual benefits under all the defined benefit plans (whether
or not terminated) maintained by the Employer, and the denominator of
which is the lesser of 125 percent of
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<PAGE> 35
the dollar limitation determined for the "limitation year" under Code
Sections 415(b) and (d) or 140 percent of the highest average
compensation, including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last "limitation year"
beginning before January 1, 1987, disregarding any changes in the
terms and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans individually and in
the aggregate satisfied the requirements of Code Section 415 for all
"limitation years" beginning before January 1, 1987.
(m) The defined contribution plan fraction for any "limitation
year" is a fraction , the numerator of which is the sum of the annual
additions to the Participant's Account under all the defined
contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior "limitation years" (including
the annual additions attributable to the Participant's nondeductible
Employee contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Code Section
419(e), and individual medical accounts, as defined in Code Section
415(l)(2), maintained by the Employer), and the denominator of which
is the sum of the maximum aggregate amounts for the current and all
prior "limitation years" of service with the Employer (regardless of
whether a defined contribution plan was maintained by the Employer).
The maximum aggregate amount in any "limitation year" is the lesser of
125 percent of the dollar limitation determined under Code Sections
415(b) and (d) in effect under Code Section 4 15 (c) (1) (A) or 35
percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first
day of the first "limitation year,, beginning after December 31, 1986,
in one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they
would be computed as of the end of the last "limitation year"
beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 5, 1986, but using the
Code Section 415 limitation applicable to the first
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<PAGE> 36
"limitation year" beginning on or after January 1, 1987. The annual
addition for any "limitation year" beginning before January 1, 1987
shall not be recomputed to treat all Employee contributions as annual
additions.
(n) Notwithstanding the foregoing, for any "limitation year" in
which the Plan is a Top Heavy Plan, 100 percent shall be substituted
for 125 percent in Sections 4.4(l) and 4.4(m) unless the extra minimum
allocation is being provided pursuant to Section 4.3. However, for any
"limitation year" in which the Plan is a Super Top Heavy Plan, 100
percent shall be substituted for 125 percent in any event.
(o) If the sum of the defined benefit plan fraction and the
defined contribution plan fraction shall exceed 1.0 in any "limitation
year" for any Participant in this Plan, the Administrator shall limit,
to the extent necessary, the "annual additions" to such Participant's
accounts for such "limitation year." If, after limiting the "annual
additions" to such Participant's accounts for the "limitation year,"
the sum of the defined benefit plan fraction and the defined
contribution plan fraction still exceed 1.0, the Administrator shall
then adjust the numerator of the defined benefit plan fraction so that
the sum of both fractions shall not exceed 1.0 in any "limitation
year" for such Participant.
(p) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder, the
terms of which are specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 4 02 (g) (3) ) that may be made
with respect to any Participant under the limits of Section 4.4 or
other facts and circumstances to which Regulation 1.415-6 (b) (6)
shall be applicable, the "annual additions" -under this Plan would
cause the maximum "annual additions" to be exceeded for any
Participant, the Administrator shall (1) distribute any elective
deferrals (within the meaning of Code Section 402(g)(3)) or return any
voluntary Employee contributions credited for the "limitation year" to
the extent that the return would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining after
the return of any elective deferrals or voluntary Employee
contributions in a "Section 415 suspense account" (3) allocate and
reallocate the "Section 415 suspense account" in the next "limitation
year" (and succeeding "limitation years "if necessary) to all
Participants in the Plan before any Employer or Employee contributions
which would constitute "annual additions" are made to the Plan for
such "limitation
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<PAGE> 37
year" (4) reduce Employer contributions to the Plan for such
"limitation year" by the amount of the "Section 415 suspense account"
allocated and reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual additions" which would be credited to his account
under the terms of the Plan without regard to the limitations of Code
Section 415 over (2) the maximum "annual additions" determined
pursuant to Section 4.4.
(c) For purposes of this Section, "Section 415 suspense account"
shall mean an unallocated account equal to the sum of "excess amounts"
for all Participants in the Plan during the "limitation year." The
"Section 415 suspense account" shall not share in any earnings or
losses of the Trust Fund.
(d) The Plan may not distribute "excess amounts," other than
voluntary Employee contributions, to Participants or Former
Participants.
4.6 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Employees, provided that the
trust from which such funds are transferred permits the transfer to be
made and the transfer will not jeopardize the tax exempt status of the
Plan or Trust or create adverse tax consequences for the Employer.
The amounts transferred shall be set up in-a separate account herein
referred to as a "Participant's Rollover Account." Such account shall
be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by
the Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), amounts attributable to elective contributions (as
defined in Regulation 1.401(k)-l(g)(3)), including amounts treated as
elective contributions, which are transferred from another qualified
plan in a plan-to-plan transfer shall be subject to the distribution
limitations provided for in Regulation 1.401(k)-l(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits,
the fair market'-Value of the Participant's Rollover Account shall be
used to provide additional benefits to the Participant or his
Beneficiary. Any distributions of
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<PAGE> 38
amounts held in a Participant's Rollover Account shall be made in a
manner which is consistent with and satisfies the provisions of
Section 7.5, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(11) and the Regulations
thereunder. Furthermore, such amounts shall be considered as part of
a Participant's benefit in determining whether an involuntary cash-out
of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made
after a valuation date be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
Trustee until such time as the allocations pursuant to this Plan have
been made, at which time they may remain segregated or be invested as
part of the general Trust Fund, to be determined by the Administrator.
(f) For purposes of this Section, the term "qualified plan" shall
mean any tax qualified plan under Code Section 401(a). The term
"amounts transferred from other qualified plans" shall mean: (i)
amounts transferred to this Plan directly from another qualified plan;
(ii) distributions from another qualified plan which are eligible
rollover distributions and which are either transferred by the
Employee to this Plan within sixty (60) days following his receipt
thereof or are transferred pursuant to a direct rollover; (iii)
amounts transferred to this Plan from a conduit individual retirement
account provided that the conduit individual retirement account has no
assets other than assets which (A) were previously distributed to the
Employee by another qualified plan as a lump-sum distribution (B) were
eligible for tax-free rollover to a qualified plan and (C) were
deposited in such conduit individual retirement account within sixty
(60) days of receipt thereof and other than earnings on said assets;
and (iv) amounts distributed to the Employee from a conduit individual
retirement account meeting the requirements of clause (iii) above, and
transferred by the Employee to this Plan within sixty (60) days of his
receipt thereof from such conduit individual retirement account.
(g) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that
the amounts to be transferred to this Plan meet the requirements of
this Section and may also require the Employee to provide an opinion
of counsel satisfactory to the Employer that the amounts to be
transferred meet the requirements of this Section.
(h) This Plan shall not accept any direct or indirect transfers
(as that term is defined and interpreted under Code Section 401(a)(11)
and the Regulations thereunder) from a defined benefit plan, money
purchase plan (including a target benefit plan), stock bonus or profit
sharing plan which would otherwise have provided for a life annuity
form of payment to the Participant.
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(i) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction
having the effect of such a transfer) shall only be permitted if it
will not result in the elimination or reduction of any "Section
411(d)(6) protected benefit" as described in Section 9.1.
4.7 DIRECTED INVESTMENT ACCOUNT
(a) Each "Qualified Participant", for Plan Years beginning after
December 31, 1986, may elect within ninety (90) days after the close
of each Plan Year during the "Qualified Election Period" to direct the
Trustee in writing as to the distribution in cash of 25 percent of the
total number of shares of Company Stock acquired by or contributed to
the Plan after December 31, 1986 that have ever been allocated to such
"Qualified Participant's" Company Stock Account (reduced by the number
of shares of Company Stock previously distributed in cash pursuant to
a prior election). In the case of the election year in which the
Participant can make his last election, the preceding sentence shall
be applied by substituting 1150 percent" for 1025 percent" if the
"Qualified Participant" elects to direct the Trustee as to the
distribution of his Company Stock Account, such direction shall be
effective no later than 180 days after the close of the Plan Year to
which such direction applies.
Notwithstanding the above, if the fair market value
(determined pursuant to Section 6.1 at the Plan valuation date
immediately preceding the first day on which a "Qualified Participant"
is eligible to make an election) of Company Stock acquired by or
contributed to the Plan after December 31, 1986 and allocated to a
"Qualified Participant's" Company Stock Account is $500 or less, then
such Company Stock shall not be subject to this paragraph. For
purposes of determining whether the fair market value exceeds $500,
Company Stock held in accounts of all employee stock ownership plans
(as defined in Code Section 4975(e)(7)) and tax credit employee stock
ownership plans (as defined in Code Section 409(a)) maintained by the
Employer or any Affiliated Employer shall be considered as held by the
Plan.
(b) For the purposes of this Section the following definitions
shall apply:
(1) "Qualified Participant" means any Participant or Former
Participant who has completed ten (10) Plan Years of Service as a
Participant and has attained age 55.
(2) "Qualified Election Period" means the six (6) Plan Year
period beginning with the later of (i) the first Plan Year in
which the Participant first became a "Qualified Participant", or
(ii) the first Plan Year beginning after December 31, 1986.
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ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) The Plan is designed to invest primarily in Company Stock.
(b) With due regard to subparagraph (a) above, the Administrator
may also direct the Trustee to invest funds under the Plan in other
property described in the Trust or in life insurance policies to the
extent permitted by subparagraph (c) below, or the Trustee may hold
such funds in cash or cash equivalents.
(c) With due regard to subparagraph (a) above, the Administrator
may also direct the Trustee to invest funds under the Plan in
insurance policies on the life of any "keyman" Employee. The proceeds
of a "keyman" insurance policy may not be used for the repayment of
any indebtedness owed by the Plan which is secured by Company Stock.
In the event any "keyman" insurance is purchased by the Trustee, the
premiums paid thereon during any Plan Year, net of any policy
dividends and increases in cash surrender values, shall be treated as
the cost of Plan investment and any death benefit or cash surrender
value received shall be treated as proceeds from an investment of the
Plan.
(d) The Plan may not obligate itself to acquire Company Stock
from a particular holder thereof at an indefinite time determined upon
the happening of an event such as the death of the holder.
(e) The Plan may not obligate itself to acquire Company Stock
under a put option binding upon the Plan. However, at the time a put
option is exercised, the Plan may be given an option to assume the
rights and obligations of the Employer under a put option binding upon
the Employer.
(f) All purchases of Company Stock shall be made at a price
which, in the judgment of the Administrator, does not exceed the fair
market value thereof. All sales of Company Stock shall be made at a
price which, in the judgment of the Administrator, is not less than
the fair market value thereof. The valuation rules set forth in
Article VI shall be applicable.
5.2 APPLICATION OF CASH
Employer contributions in cash and other cash received by the Trust
Fund shall first be applied to pay any Current Obligations of the Trust Fund.
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5.3 TRANSACTIONS INVOLVING COMPANY STOCK
(a) No portion of the Trust Fund attributable to (or allocable in
lieu of) Company Stock acquired by the Plan after October 22, 1986 in
a sale to which Code Section 1042 or, for estates of decedents who
died prior to December 20, 1989, Code Section 2057 applies may accrue
or be allocated directly or indirectly under any plan maintained by
the Employer meeting the requirements of Code Section 401(a):
(1) during the "Nonallocation Period", for the benefit of
(i) any taxpayer who makes an election under Code Section 1042
(a) with respect to Company Stock or any decedent if the executor
of the estate of the decedent makes a qualified sale to which
Code Section 2057 applies,
(ii) any individual who is related to the taxpayer or the
decedent (within the meaning of Code Section 267(b)), or
(2) for the benefit of any other person who owns (after
application of Code Section 318(a) applied without regard to the
employee trust exception in Code Section 3 18 (a) (2) (B) (i) )
more than 25 percent of
(i) any class of outstanding stock of the Employer or Affiliated
Employer which issued such Company Stock, or
(ii) the total value of any class of outstanding stock of the
Employer or Affiliated Employer.
(b) Except, however, subparagraph (a)(1)(ii) above shall not
apply to lineal descendants of the taxpayer, provided that the
aggregate amount allocated to the benefit of all such lineal
descendants during the "Nonallocation Period" does not exceed more
than five (5) percent of the Company Stock (or amounts allocated in
lieu thereof) held by the Plan which are attributable to a sale to the
Plan by any person related to such descendants (within the meaning of
Code Section 267(c) (4)) in a transaction to which Code Section 1042
or Code Section 2057 is applied.
(c) A person shall be treated as failing to meet the stock
ownership limitation under paragraph (a) (2) above if such person
fails such limitation:
(1) at any time during the one (1) year period ending on the date
of sale of Company Stock to the Plan, or
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(2) on the date as of which Company Stock is allocated to
Participants in the Plan.
(d) For purposes of this Section, "Nonallocation Period" for Plan
Years beginning after December 31, 1986, means the period beginning on
the date of the sale of the Company Stock and ending on the later of:
(1) the date which is ten (10) years after the date of sale, or
(2) the date of the Plan allocation attributable to the final
payment of the Exempt Loan incurred in connection with such sale.
5.4 LOANS TO THE TRUST
(a) The Plan may borrow money for any lawful purpose, provided
the proceeds of an Exempt Loan are used within a reasonable time after
receipt only for any or all of the following purposes:
(1) To acquire Company Stock.
(2) To repay such loan.
(3) To repay a prior Exempt Loan.
(b) All loans to the Trust which are made or guaranteed by a
disqualified person must satisfy all requirements applicable to Exempt
Loans including but not limited to the following:
(1) The loan must be at a reasonable rate of interest;
(2) The amount of interest paid shall not exceed the amount of
each payment which would be treated as interest under standard
loan amortization tables;
(3) Any collateral pledged to the creditor by the Plan shall
consist only of the Company Stock purchased with the borrowed
funds;
(4) Under the terms of the loan, any pledge of Company Stock
shall provide for the release of shares so pledged on a pro-rata
basis pursuant to Section 4.3(f);
(5) Under the terms of the loan, the creditor shall have no
recourse against the Plan except with respect to such collateral,
earnings attributable to such collateral, Employer contributions
(other than
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contributions of Company Stock) that are made to meet Current
Obligations and earnings attributable to such contributions;
(6) The loan must be for a specific term and may not be payable
at the demand of any person, except in the case of default;
(7) The term of the loan (including the sum of the expired
duration of the loan, any renewal period, any extension period,
and the duration of any new loan) shall not exceed ten (10)
years;
(8) The loan must provide for annual payments of principal and
interest at a cumulative rate that is not less rapid at any time
than level annual payments of such amounts for ten (10) years;
(9) In the event of default upon an Exempt Loan, the value of the
Trust Fund transferred in satisfaction of the Exempt Loan shall
not exceed the amount of default. If the lender is a
disqualified person, an Exempt Loan shall provide for a transfer
of Trust Funds upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Exempt
Loan;
(10) Exempt Loan payments during a Plan Year must not exceed an
amount equal to: (A) the sum, over all Plan Years, of all
contributions and cash dividends paid by the Employer to the Plan
with respect to such Exempt Loan and earnings on such Employer
contributions and cash dividends, less (B) the sum of the Exempt
Loan payments in all preceding Plan Years. A separate accounting
shall be maintained for such Employer contributions, cash
dividends and earnings until the Exempt Loan is repaid.
(c) For purposes of this Section, the term "disqualified person"
means a person who is a Fiduciary, a person providing services to the
Plan, an Employer any of whose Employees are covered by the Plan, an
employee organization any of whose members are covered by the Plan, an
owner, direct or indirect, of 50% or more of the total combined voting
power of all classes of voting stock or of the total value of all
classes of the stock, or an officer, director, 10% or more
shareholder, or a highly compensated Employee.
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary
Date, and at
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such other date or dates deemed necessary by the Administrator, herein called
"valuation date," to determine the net worth of the assets comprising the Trust
Fund as it exists on the "valuation date." In determining such net worth, the
Trustee shall value the assets comprising the Trust Fund at their fair market
value as of the "valuation date" and shall deduct all expenses for which the
Trustee has not yet obtained reimbursement from the Employer or the Trust Fund.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant
factors for determining the fair market value of securities. In the case of a
transaction between a Plan and a disqualified person, value must be determined
as of the date of the transaction. For all other Plan purposes, value must be
determined as of the most recent "valuation date" under the Plan. An
independent appraisal will not in itself be a good faith determination of value
in the case of a transaction between the Plan and a disqualified person.
However, in other cases, a determination of fair market value based on at least
an annual appraisal independently arrived at BY a person who customarily makes
such appraisals and who is independent of any party to the transaction will be
deemed to be a good faith determination of value. Company Stock not readily
tradeable on an established securities market shall be valued by an independent
appraiser meeting requirements similar to the requirements of the Regulations
prescribed under code Section 170(a)(1).
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date or Early Retirement
Date. However, a Participant may postpone the termination of his employment
with the Employer to a later date, in which event the participation of such
Participant in the Plan, including the right to receive allocations pursuant to
Section 4.3, shall continue until his Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Trustee shall distribute all amounts credited to such Participant's Account in
accordance with Sections 7.5 and 7.6.
7.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date or
other termination of his employment, all amounts credited to such
Participant's Account shall become fully Vested. If elected,
distribution of the Participant's Account shall commence not later
than one (1) year after the close of the Plan Year in which such
Participant's death occurs. The Administrator shall direct the
Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to
distribute the value of the deceased Participant's accounts to the
Participant's Beneficiary.
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(b) Upon the death of a Former Participant, the Administrator
shall direct the Trustee, in accordance with the provisions of
Sections 7.5 and 7.6, to distribute any remaining Vested amounts
credited to the accounts of a deceased Former Participant to such
Former Participant's Beneficiary.
(c) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the
value of the account of a deceased Participant or Former Participant
as the Administrator may deem desirable. The Administrator's
determination of death and of the right of any person to receive
payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant to this
Section shall be the Participant's spouse. Except, however, the
Participant may designate a-Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court
order to such effect (and there is no "qualified domestic
relations order" as defined 'in Code Section 414(p) which
provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator. A Participant may
at any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change with
the Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily elected
to relinquish such right. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the death
benefit shall be payable to his estate.
(e) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge the
effect of such waiver, and be witnessed by a Plan representative or a
notary public. Further, the spouse's consent must be irrevocable and
must acknowledge the specific nonspouse Beneficiary.
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7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior
to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Account shall become fully Vested. In the event
of a Participant's Total and Permanent Disability, the Trustee, in accordance
with the provisions of Sections 7.5 and 7.6, shall distribute to such
Participant all amounts credited to such Participant's Account as though he had
retired. If such Participant elects, distribution shall commence not later than
one (1) year after the close of the Plan Year in which Total and Permanent
Disability occurs.
7.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death, Total and Permanent Disability or retirement,
the Administrator may direct the Trustee to segregate the amount of
the Vested portion of such Terminated Participant's Account and invest
the aggregate amount thereof in a separate, federally insured savings
account, certificate of deposit, common or collective trust fund of a
bank or a deferred annuity. In the event the Vested portion of a
Participant's Account is not segregated, the amount shall remain in a
separate account for the Terminated Participant and share in
allocations pursuant to Section 4.3 until such time as a distribution
is made to the Terminated Participant.
If a portion of a Participant's Account is forfeited,
Company Stock allocated to the Participant's Company Stock Account
must be forfeited only after the Participant's Other Investments
Account has been depleted. If interest in more than one class of
Company Stock has been allocated to a Participant's Account, the
Participant must be treated as forfeiting the same proportion of each
such class.
In the event that the amount of the Vested portion of the
Terminated Participant's Account equals or exceeds the fair market
value of any insurance Contracts, the Trustee, when so directed by the
Administrator and agreed to by the Terminated Participant, shall
assign, transfer, and set over to such Terminated Participant all
contracts on his life in such form or with such endorsements so that
the settlement options and forms of payment are consistent with the
provisions of Section 7.5. In the event that the Terminated
Participant's Vested portion does not at least equal the fair market
value of the Contracts, if any, the Terminated Participant may pay
over to the Trustee the sum needed to make the distribution equal to
the value of the Contracts being assigned or transferred, or the
Trustee, pursuant to the Participant's election, may borrow the cash
value of the contracts from the insurer so that the value of the
Contracts is equal to the Vested portion of the Terminated
Participant's Account and then
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assign the Contracts to the Terminated Participant.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in
the distribution had the Terminated Participant remained in the
employ of the Employer (upon the Participant's death, Total and
Permanent Disability, Early or Normal Retirement). However, at the
election of the Participant, the Administrator shall direct the
Trustee to cause the entire Vested portion of the Terminated
Participant's Account to be payable to such Terminated Participant
on or after the fifth Anniversary Date coinciding with or next
following termination of employment. Distribution to a Participant
shall not include any Company Stock acquired after December 31,
1986 with the proceeds of an Exempt Loan until the close of the
Plan Year in which such loan is repaid in full. Any distribution
under this paragraph shall be made in a manner which is consistent
with and satisfies the provisions of Sections 7.5 and 7.6,
including, but not limited to, all notice and consent requirements
of Code Section 411(a)(11) and the Regulations thereunder.
If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause
the entire Vested benefit to be paid to such Participant in a
single lump sum.
For purposes of this Section 7.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant
shall be deemed to have received a distribution of such Vested
benefit.
(b) The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's
Account determined on the basis of the Participant's number of
Years of Service according to the following schedule:
Vesting Schedule
Years of Service Percentage
Less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 100%
(c) Notwithstanding the vesting schedule provided for in
paragraph (b) above, for any Top Heavy Plan Year, the Vested
portion of the Participant's
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<PAGE> 48
Account of any Participant who has an Hour of Service after the
Plan becomes top heavy shall be a percentage of the total amount
credited to his Participant's Account determined on the basis of
the Participant's number of Years of Service according to the
following schedule:
Vesting Schedule
Years of Service Percentage
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
If in any subsequent Plan Year, the Plan ceases to be a Top
Heavy Plan, the Administrator shall revert to the vesting schedule
in effect before this Plan became a Top Heavy Plan. Any such
reversion shall be treated as a Plan amendment pursuant to the
terms of the Plan.
(d) Notwithstanding the vesting schedule above, the Vested
percentage of a Participant's Account shall not be less than the
Vested percentage attained as of the later of the effective date or
adoption date of this amendment and restatement.
(e) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the Plan
or upon any full or partial termination of the Plan, all amounts
credited to the account of any affected Participant shall become
100% Vested and shall not thereafter be subject to Forfeiture.
(f) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the
result of any direct or indirect amendment to this Plan. For this
purpose, the Plan shall be treated as having been amended if the
Plan provides for an automatic change in vesting due to a change in
top heavy status. In the event that the Plan is amended to change
or modify any vesting schedule, a Participant with at least three
(3) Years of Service as of the expiration date of the election
period may elect to have his nonforfeitable percentage computed
under the Plan without regard to such amendment. If a Participant
fails to make such election, then such Participant shall be subject
to the new vesting schedule. The Participant's election period
shall commence on the adoption date of the amendment and shall end
60 days after the latest of:
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<PAGE> 49
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g) (1) If any Former Participant shall be reemployed by the
Employer before a I-Year Break in Service occurs, he shall continue
to participate in the Plan in the same manner as if such
termination had not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in
Service, and such Former Participant had received, or was
deemed to have received, a distribution of his entire Vested
interest prior to his reemployment, his forfeited account
shall be reinstated only if he repays the full amount
distributed to him before the earlier of five (5) years after
the first date on which the Participant is subsequently
reemployed by the Employer or the close of the first period
of five (5) consecutive 1-Year Breaks in Service commencing
after the distribution, or in the event of a deemed
distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay
the full amount distributed to him, or in the event of a
deemed distribution, the undistributed portion of the
Participant's Account must be restored in full, unadjusted by
any gains or losses occurring subsequent to the Anniversary
Date or other valuation date coinciding with or
preceding his termination. The source for such reinstatement
shall first be any Forfeitures occurring during the year. If
such source is insufficient, then the Employer shall
contribute an amount which is sufficient to restore any such
forfeited Accounts provided, however, that if a discretionary
contribution is made for such year, such contribution shall
first be 'applied to restore any such Accounts and the
remainder shall be allocated in accordance with Section 4.3.
(3) If any Former Participant is reemployed after a I-Year
Break in Service has occurred, Years of Service shall include
Years of service prior to his 1-Year Break in Service subject
to the following rules:
(i) If a Former Participant has a 1-Year Break in
Service, his pre-break and post-break service shall be
used for computing Years of Service for eligibility and
for vesting purposes only after he has been employed
for one (1) Year of Service following the date of his
reemployment with the Employer;
(ii) Any Former Participant who under the Plan does not
have
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<PAGE> 50
a nonforfeitable right to any interest in the Plan
resulting from Employer contributions shall lose
credits otherwise allowable under (i) above if his
consecutive I-Year Breaks in service equal or exceed
the greater of (A) five (5) or (B) the aggregate number
of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be
increased as a result of post-break service;
(iv) If a Former Participant who has not had his Years
of Service before a 1-Year Break in Service disregarded
pursuant to (ii) above completes one (1) Year of
Service for eligibility purposes following his
reemployment with the Employer, '-he shall participate
in the Plan retroactively from his date of
reemployment;
(v) If a Former Participant who has not had his Years
of Service before a I-Year Break in Service disregarded
pursuant to (ii) above completes a Year of Service (a
1-Year Break in Service previously occurred, but
employment had not terminated), he shall
participate in the Plan retroactively from the first
day of the Plan Year during which he completes one (1)
Year of Service.
(h) In determining Years of Service for purposes of vesting
under the Plan, Years of Service prior to the vesting computation
period in which an Employee attained his eighteenth birthday shall
be excluded.
7.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant (or if no election has been made prior to the
Participant's death, by his Beneficiary), shall direct the Trustee
to distribute to a Participant or his Beneficiary any amount to
which he is entitled under the Plan in one or more of the following
methods:
(1) one lump-sum payment;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual installments. The period over which
such payment is to be made shall not extend beyond the
earlier of the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary)
or the limited distribution period provided for in Section
7.5(b).
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<PAGE> 51
(b) Unless the Participant elects in writing a longer
distribution period, distributions to a Participant or his
Beneficiary attributable to Company Stock acquired by the Plan
after December 31, 1986 shall be in substantially equal monthly,
quarterly, semiannual, or annual installments over a period not
longer than five (5) years. In the case of a Participant with an
account balance attributable to Company Stock acquired by the Plan
after December 31, 1986 in excess of $500,000, the five (5) year
period shall be extended one (1) additional year (but not more than
five (5) additional years) for each $100,000 or fraction thereof by
which such balance,- exceeds $500,000. The dollar limits shall be
adjusted at the same time and in the same manner as provided in
Code Section 415(d).
(c) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent if such
distribution commences prior to the later of his Normal Retirement
Age or age 62. With regard to this required consent:
(1) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any election
to defer the receipt of benefits shall not apply with respect
to distributions which are required under Section 7. 5 (f ).
(2) Notice of the rights specified under this paragraph shall
be provided no less than 30 days and no more than 90 days
before the first day on which all events have occurred which
entitle the Participant to such benefit.
(3) Written consent of the Participant to the distribution
must not be made before the Participant receives the notice
and must not be made more than 90 days before the first day
on which all events have occurred which entitle the
Participant to such benefit.
(4) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not
consent to the distribution.
If a distribution is one to which Code Sections
401(a)(11) and 417 do not apply, such distribution may
commence less than 30 days after the notice required under
Regulation 1.411(a)-11(c) is given, provided that: (1) the
Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
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<PAGE> 52
(d) Notwithstanding anything herein to the contrary, the
Administrator, in his sole discretion, may direct that cash
dividends on shares of Company Stock allocable to Participants' or
Former Participants' Company Stock Accounts be distributed to such
Participants or Former Participants within 90 days after the close
of the Plan Year in which the dividends are paid.
(e) Any part of a Participant's benefit which is retained in
the Plan after the Anniversary Date on which his participation ends
will continue to be treated as a Company Stock Account or as an
Other Investments Account (subject to Section 7.4(a)) as provided
in Article IV. However, neither account will be credited with any
further Employer contributions or Forfeitures.
(f) Notwithstanding any provision in the Plan to the contrary,
the distribution of a Participant's benefits shall be made in
accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder
(including Regulation 1.401(a)(9)-2), the provisions of which are
incorporated herein by reference:
(1) A Participant's benefits shall be distributed to him not
later than April 1st of the calendar year following the later
of (i) the calendar year in which the Participant attains age
70 1/2 or (ii) the calendar year in which the Participant
retires, provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period
ending in the calendar year in which he attains age 70 1/2
or, in the case of a Participant who becomes a "five (5)
percent owner" during any subsequent Plan Year, clause (ii)
shall no longer apply and the required beginning date shall
be the April 1st of the calendar year following the calendar
year in which such subsequent Plan Year ends. Alternatively,
distributions to a Participant must begin no later than the
applicable April 1st as determined under the preceding
sentence and must be made over a period certain measured by
the life expectancy of the Participant (or the life
expectancies' of the Participant and his designated
Beneficiary) in accordance with Regulations. Notwithstanding
the foregoing, clause (ii) above shall not apply to any
Participant unless the Participant had attained age 70 1/2
before January 1, 1988 and was not a "five (5) percent owner"
at any time during the Plan Year ending with or within the
calendar year in which the Participant attained age 66 1/2 or
any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries
shall only be made in accordance with the incidental death
benefit requirements of Code Section 401(a)(9)(G) and the
Regulations thereunder.
Additionally, for calendar years beginning before 1989,
distributions may
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<PAGE> 53
also be made under an alternative method which provides that
the then present value of the payments to be made over
the period of the Participant's life expectancy exceeds fifty
percent (50%) of the then present value of the total payments
to be made to the Participant and his Beneficiaries.
(g) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in
accordance with the following requirements and shall otherwise
comply with Code Section 401(a)(9) and the Regulations thereunder.
If it is determined pursuant to Regulations that the distribution
of a Participant's interest has begun and the Participant dies
before his entire interest has been distributed to him, the
remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected pursuant to
Section 7.5 as of his date of death. If a Participant dies before
he has begun to receive any distributions of his interest under the
Plan or before distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to his
Beneficiaries by December 31st of the calendar year in which the
fifth anniversary of his date of death occurs.
However, in the event that the Participant's spouse
(determined as of the date of the Participant's death) is his
Beneficiary, then in lieu of the preceding rules, distributions
must be made over a period not extending beyond the life expectancy
of the spouse and must commence on or before the later of: (1)
December 31st of the calendar year immediately following the
calendar year in which the Participant died; or (2) December 31st
of the calendar year in which the Participant would have attained
age 70 1/2. If the surviving spouse dies before distributions to
such spouse begin, then the 5-year distribution requirement of this
Section shall apply as if the spouse was the Participant.
(h) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse shall not be redetermined in
accordance with Code Section 401(a)(9)(D). Life expectancy and
joint and last survivor expectancy shall be computed using the
return multiples in Tables V and VI of Regulation 1.72-9.
(i) Except as limited by Sections 7.5 and 7.6, whenever the
Trustee is to make a distribution or to commence a series of
payments on or as of an Anniversary Date, the distribution or
series of payments may be made or begun on such date or as soon
thereafter as is practicable. However, unless a Former Participant
elects in writing to defer the receipt of benefits (such election
may not result in a death benefit that is more than incidental),
the payment of benefits shall begin not later than the 60th day
after the close of the Plan Year in which the latest of the
following events occurs:
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<PAGE> 54
(1) the date on which the Participant attains the earlier of
age 65 or the Normal Retirement Age specified herein;
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or
(3) date the Participant terminates his service with the
Employer.
(j) If a distribution is made at a time when a Participant is
not fully Vested in his Participant's Account (employment has not
terminated) and the Participant may increase the Vested percentage
in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested portion of
the separate account shall be equal to an amount ("XI")
determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED
(a) Distribution of a Participant's benefit may be made in
cash or Company Stock or both, provided, however, that if a
Participant or Beneficiary so demands, such benefit shall be
distributed only in the form of Company Stock. Prior to making a
distribution of benefits, the Administrator shall advise the
Participant or his Beneficiary, in writing, of the right to demand
that benefits be distributed solely in Company Stock.
(b) If a Participant or Beneficiary demands that benefits be
distributed solely in Company Stock, distribution of a
Participant's benefit will be made entirely in whole shares or
other units of Company Stock. Any balance in a Participant's Other
Investments Account will be applied to acquire for distribution the
maximum number of whole shares or other units of Company Stock at
the then fair market value. Any fractional unit value unexpended
will be distributed in cash. If Company Stock is not available for
purchase by the Trustee, then the Trustee shall hold such balance
until Company Stock is acquired and then make such distribution,
subject to Sections 7.5(i) and 7.5(f).
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<PAGE> 55
(c) The Trustee will make distribution from the Trust only on
instructions from the Administrator.
(d) Notwithstanding anything contained herein to the contrary,
if the Employer's charter or by-laws restrict ownership of
substantially all shares of Company Stock to Employees and the
Trust Fund, as described in Code Section 4 09 (h) (2), the
Administrator shall distribute a Participant's Account entirely in
cash without granting the Participant the right to demand
distribution in shares of Company Stock.
(e) Except as otherwise provided herein, Company Stock
distributed by the Trustee may be restricted as to sale or transfer
by the by-laws or articles of incorporation of the Employer,
provided restrictions are applicable to all Company Stock of the
same class. If a Participant is required to offer the sale of his
Company Stock to the Employer before offering to sell his Company
Stock to a third party, in no event may the Employer pay a price
less than that offered to the distributes by another potential
buyer making a bona fide offer and in no event shall the Trustee
pay a price less than the fair market value of the Company Stock.
(f) If Company Stock acquired with the proceeds of an Exempt
Loan (described in Section 5.4 hereof) is available for
distribution and consists of more than one class, a Participant or
his Beneficiary must receive substantially the same proportion of
each such class.
7.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom
the Beneficiary maintains his residence, or to the custodian for such
Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such
is permitted by the laws of the state in which said Beneficiary resides. Such
a payment to the legal guardian, custodian or parent of a minor Beneficiary
shall fully discharge the Trustee, Employer, and Plan from further liability on
account thereof.
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable
to a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the Amount so distributable shall be treated as a
Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is
located subsequent to his benefit being reallocated, such benefit
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<PAGE> 56
shall be restored.
7.9 RIGHT OF FIRST REFUSALS
(a) If any Participant, his Beneficiary or any other person to
whom shares of Company Stock are distributed from the Plan (the
"Selling Participant") shall, at any time, desire to sell some or
all of such shares (the "Offered Shares") to a third party (the
"Third Party"), the Selling Participant shall give written notice
of such desire to the Employer and the Administrator, which notice
shall contain the number of shares offered for sale, the proposed
terms of the sale and the names and addresses of both the Selling
Participant and Third Party. Both the Trust Fund and the Employer
shall each have the right of first refusal for a period of fourteen
(14) days from the date the Selling Participant gives such written
notice to the Employer and the Administrator (such fourteen (14)
day period to run concurrently against the Trust Fund and the
Employer) to acquire the Offered Shares. As between the Trust Fund
and the Employer, the Trust Fund shall have priority to acquire the
shares pursuant to the right of first refusal. The selling, price
and terms shall be the same as offered by the Third Party.
(b) If the Trust Fund and the Employer do not exercise their
right of first refusal within the required fourteen (14) day period
provided above, the Selling Participant shall have the right, at
any time following the expiration of such fourteen (14) day period,
to dispose of the Offered Shares to the Third Party; provided,
however, that (i) no disposition shall be made to the Third Party
on terms more favorable to the Third Party than those set forth in
the written notice delivered by the Selling Participant above, and
(ii) if such disposition shall not be made to a third party on the
terms offered to the Employer and the Trust Fund, the offered
Shares shall again be subject to the right of first refusal set
forth above.
(c) The closing pursuant to the exercise of the right of first
refusal under Section 7.9(a) above shall take place at such place
agreed upon between the Administrator and the Selling Participant,
but not later than ten (10) days after the Employer or the Trust
Fund shall have notified the Selling Participant of the exercise of
the right of first refusal. At such closing, the Selling
Participant shall deliver certificates representing the Offered
Shares duly endorsed in blank for transfer, or with stock powers
attached duly executed in blank with all required transfer tax
stamps attached or provided for, and the Employer or the Trust Fund
shall deliver the purchase price, or an appropriate portion
thereof, to the Selling Participant.
(d) Except as provided in this paragraph (d), no Company Stock
acquired with the proceeds of an Exempt Loan complying with the
requirements of Section 5.4, hereof shall be subject to a right of
first refusal. Company Stock
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<PAGE> 57
acquired with the proceeds of an Exempt Loan, which is distributed
to a Participant or Beneficiary, shall be subject to the right of
first refusal provided for in paragraph (a) of this Section only so
long as the Company Stock is not publicly traded. The term
"publicly traded" refers to a securities exchange registered under
Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or
that is quoted on a system sponsored by a national securities
association registered under Section 15A(b) of the Securities
Exchange Act (15 U.S.C. 780). In addition, in the case of Company
Stock which was acquired with the proceeds of a loan described in
Section 5.4, the selling price and other terms under the right must
not be less favorable to the seller than the greater of the value
of the security determined under Section 6.2, or the purchase price
and other terms offered by a buyer (other than the Employer or the
Trust Fund), making a good faith offer to purchase the security.
The right of first refusal must lapse no later than fourteen (14)
days after the security holder gives notice to the holder of the
right that an offer by a third party to purchase the security has
been made. The right of first refusal shall comply with the
provisions of paragraphs (a), (b) and (c) of this Section, except
to the extent those provisions may conflict with the provisions of
this paragraph.
7.10 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan shall contain the
following legend:
"The shares represented by this certificate are transferable only upon
compliance with the terms of UNIONBANCORP, INC. EMPLOYEE STOCK OWNERSHIP PLAN
effective as of January 1, 1989, which grants to UnionBancorp, Inc. a right of
first refusal, a copy of said Plan being on file in the office of the Company."
7.11 PUT OPTION
(a) If Company Stock which was not acquired with the proceeds of an
Exempt Loan is distributed to a Participant and such Company Stock is not
readily tradeable on an established securities market, a Participant has
a right to require the Employer to repurchase the Company Stock
distributed to such Participant under a fair valuation formula. Such
Stock shall be subject to the provisions of Section 7.11(c).
(b) Company Stock which is acquired with the proceeds of an Exempt
Loan and which is not publicly traded when distributed, or if it is
subject to a trading limitation when distributed, must be subject to a
put option. For purposes of this paragraph, a "trading limitation" on a
Company Stock is a restriction under any Federal or State securities law
or any regulation thereunder, or an agreement (not prohibited by Section
7.12) affecting the Company Stock which would make the Company Stock not
as freely tradeable as stock not subject to such restriction.
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(c) The put option must be exercisable only by a Participant,
by the Participant's donees, or by a person (including an estate or
its distributes) to whom the Company Stock passes by reason of a
Participant's death. (Under this paragraph Participant or Former
Participant means a Participant or Former Participant and the
beneficiaries of the Participant or Former Participant under the
Plan.) The put option must permit a Participant to put the Company
Stock to the Employer. Under no circumstances may the put option
bind the Plan. However, it shall grant the Plan an option to assume
the rights and obligations of the Employer at the time that the put
option is exercised. If it is known at the time a loan is made
that Federal or State law will be violated by the Employer's
honoring such put option, the put option must permit the Company
Stock to be put, in a manner consistent with such law, to a third
party (e.g., an affiliate of the Employer or a shareholder other
than the Plan) that has substantial net worth at the time the loan
is made and whose net worth is reasonably expected to remain
substantial.
The put option shall commence as of the day following the
date the Company Stock is distributed to the Former Participant
and end 60 days thereafter and if not exercised within such 60-day
period, an additional 60-day option shall commence on the first day
of the fifth month of the Plan Year next following the date the
stock was distributed to the Former Participant (or such other
60-day period as provided in regulations promulgated by the
Secretary of the Treasury). However, in the case of Company Stock
that is publicly traded without restrictions when distributed but
ceases to be so traded within either of the 60-day periods
described herein after distribution, the Employer must notify each
holder of such Company Stock in writing on or before the tenth day
after the date the Company Stock ceases to be so traded that for
the remainder of the applicable 60-day period the Company Stock is
subject to the put option. The number of days between the tenth
day and the date on which notice is actually given, if later than
the tenth day, must be added to the duration of the put option.
The notice must inform distributees of the term of the put options
that they are to hold. The terms must satisfy the requirements of
this paragraph.
The put option is exercised by the holder notifying the
Employer in writing that the put option is being exercised; the notice
shall state the name and address of the holder and the number of shares to
be sold. The period during which a put option is exercisable does not
include any time when a distributes is unable to exercise it because the
party bound by the put option is prohibited from honoring it by applicable
Federal or State law. The price at which a put option must be exercisable
is the value of the Company Stock determined in accordance with Section
6.2. Payment under the put option involving a "Total Distribution" shall be
paid in substantially equal monthly, quarterly, semiannual or annual
installments over a period certain beginning not later than thirty (30)
days after the exercise of the put option and not extending beyond (5)
years. The deferral of payment is reasonable if adequate security and a
reasonable interest rate on
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the unpaid amounts are provided. The amount to be paid under the put
option involving installment distributions must be paid not later than
thirty (30) days after the exercise of the put option. However, for
Company Stock acquired by the Plan prior to January 1, 1987, the payment
period may be extended to a date no later than the earlier of 10 years from
the date the put option is exercised or the date the proceeds of the loan
used by the Plan to acquire the Company Stock subject to such put option
are entirely repaid. Payment under a put option must not be restricted by
the provisions of a loan or any other arrangement, including the terms of
the Employer's articles of incorporation, unless so required by
applicable state law.
For purposes of this Section, "Total Distribution" means a
distribution to a Participant or his Beneficiary within one taxable year
of the entire Vested Participant's Account.
(d) An arrangement involving the Plan that creates a put
option must not provide for the issuance of put options other than
as provided under this Section. The Plan (and the Trust Fund) must
not otherwise obligate itself to acquire Company Stock from a
particular holder thereof at an indefinite time determined upon the
happening of an event such as the death of the holder.
7.12 NONTERMINABLE PROTECTIONS AND RIGHTS
No Company Stock, except as provided in Section 4.3(p) and Section
7.11(b), acquired with the proceeds of a loan described in Section 5.4 hereof
may be subject to a put, call, or other option, or buy-sell or similar
arrangement when held by and when distributed from the Trust Fund, whether or
not the Plan is then an ESOP. The protections and rights granted in this
section are nonterminable, and such protections and rights shall continue to
exist under the terms of this Plan so long as any Company Stock acquired with
the proceeds of a loan described in Section 5.4 hereof is held by the Trust
Fund or, by any Participant or other person for whose benefit such protections
and rights have been created, and neither the repayment of such loan nor the
failure of the Plan to be an ESOP, nor an amendment of the Plan shall cause a
termination of said protections and rights.
7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even 'if the affected
Participant has not separated from service and has not reached the
"earliest retirement age" under the Plan. For the purposes of this Section,
"alternate payee," "qualified domestic relations order" and "earliest
retirement age" shall have the meaning set forth under Code Section 414(p).
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ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Consistent with the "funding policy and method" determined
by the Employer, to invest, manage, and control the Plan assets
subject, however, to the direction of an Investment Manager if the
Trustee should appoint such manager as to all or a portion of the
assets of the Plan;
(b) At the direction of the Administrator, to pay benefits
required under the Plan to be paid to Participants, or, in the
event of their death, to their Beneficiaries;
(c) To maintain records of receipts and disbursements and
furnish to the Employer and/or Administrator for each Plan Year a
written annual report per Section 8.7; and
(d) If there shall be more than one Trustee, they shall act BY
a majority of their number, but may authorize one or more of them
to sign papers on their behalf.
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) The Trustee shall invest and reinvest the Trust Fund to
keep the Trust Fund invested without distinction between principal
and income and in such securities or property, real or personal,
wherever situated, as the Trustee shall deem advisable, including,
but not limited to, stocks, common or preferred, bonds and other
evidences of indebtedness or ownership, and real estate or any
interest therein. The Trustee shall at all times in making
investments of the Trust Fund consider, among other factors, the
short and long-term financial needs of the Plan on the basis of
information furnished by the Employer. In making such investments,
the Trustee shall not be restricted to securities or other property
of the character expressly authorized by the applicable law for
trust investments; however, the Trustee shall give due regard to
any limitations imposed by the Code or the Act so that at all times
the Plan may qualify as an Employee Stock Ownership Plan and Trust.
(b) The Trustee may employ a bank or trust company pursuant to
the terms of its usual and customary bank agency agreement, under
which the duties of such bank or trust company shall be of a
custodial, clerical and record-keeping nature.
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(c) The Trustee may from time to time with the consent of the
Employer transfer to a common, collective, or pooled trust fund
maintained by any corporate Trustee hereunder, all or such part of
the Trust Fund as the Trustee may deem advisable, and such part or
all of the Trust Fund so transferred shall be subject to all the
terms and provisions of the common, collective, or pooled trust
fund which contemplate the commingling for investment purposes of
such trust assets with trust assets of other trusts. The Trustee
may from time to time with the consent of the Employer, withdraw
from such common, collective, or pooled trust fund all or such part
of the Trust Fund as the Trustee may deem advisable.
(d) In the event the Trustee invests any part of the Trust
Fund, pursuant to the directions of the Administrator, in any
shares of stock issued by the Employer, and the Administrator
thereafter directs the Trustee to dispose of such investment, or
any part thereof, under circumstances which, in the opinion of
counsel for the Trustee, require registration of the securities
under the Securities Act of 1933 and/or qualification of the
securities under the Blue Sky laws of any state or states, then the
Employer at its own expense, will take or cause to be taken any and
all such action as may be necessary or appropriate to effect such
registration and/or qualification.
(e) The Trustee, at the direction of the Administrator, shall
ratably apply for, own, and pay premiums on Contracts on the lives
of the Participants. If a life insurance policy is to be purchased
for a Participant, the aggregate premium for ordinary life
insurance for each Participant must be less than 50% of the
aggregate of the contributions and Forfeitures to the credit of the
Participant at any particular time. If term insurance is purchased
with such contributions, the aggregate premium must be less than
25% of the aggregate contributions and Forfeitures allocated to a
Participant's Account. If both term insurance and ordinary life
insurance are purchased with such contributions, the amount
expended for term insurance plus one-half of the premium for
ordinary life insurance may not in the aggregate exceed 25% of the
aggregate contributions and Forfeitures allocated to a
Participant's Account. The Trustee must convert the entire value
of the life insurance contracts at or before retirement into cash
or provide for a periodic income so that no portion of such value
may be used to continue life insurance protection beyond
retirement, or distribute the Contracts to the Participant. In the
event of any conflict between the terms of this Plan and the
terms of any insurance Contract purchased hereunder, the Plan
provisions shall control.
8.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under
common law, statutory authority, including the Act, and other provisions of the
Plan, shall have the following
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powers and authorities, to be exercised in the Trustee's sole discretion:
(a) To purchase, or subscribe for, any securities or other
property and to retain the same. In conjunction with the purchase
of securities, margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to
purchase, or otherwise dispose of any securities or other property
held by the Trustee, by private contract or at public auction. No
person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity,
expediency, or propriety of any such sale or other disposition,
with or without advertisement;
(c) To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or
without power of substitution; to exercise any conversion
privileges, subscription rights or other options, and to make any
payments incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate
discretionary powers, and to pay any assessments or charges in
connection therewith; and generally to exercise any of the powers
of an owner with respect to stocks, bonds, securities, or other
property;
(d) To cause any securities or other property to be registered
in the Trustee's own name or in the name of one or more of the
Trustee's nominees, and to hold any investments in- bearer form,
but the books and records of the Trustee shall at all times show
that all such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in
such amount, and upon such terms and conditions, as the Trustee
shall deem advisable; and for any sum so borrowed, to issue a
promissory note as Trustee, and to secure the repayment thereof by
pledging all, or any part, of the Trust Fund; and no person lending
money to the Trustee shall be bound to see to the application of
the money lent or to inquire into the validity, expediency, or
propriety of any borrowing;
(f) To keep such portion of the Trust Fund in cash or cash
balances as the Trustee may, from time to time, deem to be in the
best interests of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustee may deem
advisable any securities or other property received or acquired as
Trustee hereunder, whether or not such securities or other property
would normally be purchased as investments hereunder;
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(h) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out the
powers herein granted;
(i) To settle, compromise, or submit to arbitration any
claims, debts, or damages due or owing to or from the Plan, to
commence 'or defend suits or legal or administrative proceedings,
and to represent the Plan in all suits and legal and administrative
proceedings;
(j) To employ suitable agents and counsel and to pay their
reasonable expenses and compensation, and such agent or counsel may
or may not be agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance
companies, to be selected by the Administrator, as an
investment of the Trust Fund such annuity, or other Contracts (on
the life of any Participant) as the Administrator shall deem
proper; to exercise, at any time or from time to time, whatever
rights and privileges may be granted under such annuity, or other
-Contracts; to collect, receive, and settle for the proceeds of all
such annuity or other Contracts as and when entitled to do so under
the provisions thereof;
(1) To invest funds of the Trust in time deposits or savings
accounts bearing a reasonable rate of interest in the Trustee's
bank;
(m) To invest in Treasury Bills and other forms of United
States government obligations;
(n) To invest in shares of investment companies registered
under the Investment Company Act of 1940;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To vote Company Stock as provided in Section 8.4;
(q) To consent to or otherwise participate in reorganizations,
recapitalizations, consolidations, mergers and similar
transactions with respect to Company Stock or any other securities
and to pay any assessments or charges in connection therewith;
(r) To deposit such Company Stock (but only if such deposit
does not violate the provisions of Section 8.4 hereof) or other
securities in any voting trust, or with any protective or like
committee, or with a trustee or with
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depositories designated thereby;
(s) To sell or exercise any options, subscription rights and
conversion privileges and to make any payments incidental thereto;
(t) To exercise any of the powers of an owner, with respect to
such Company Stock and other securities or other property
comprising the Trust Fund. The Administrator, with the Trustee's,
approval, may authorize the Trustee to act on any administrative
matter or class of matters with respect to which direction or
instruction to the Trustee by the Administrator is called for
hereunder without specific direction or other instruction from the
Administrator;
(u) To sell, purchase and acquire put or call options if the
options are traded on and purchased through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, or, if the options are not traded on a national securities
exchange, are guaranteed by a member firm of the New York Stock
Exchange;
(v) To do all such acts and exercise all such rights and
privileges, although not specifically mentioned herein, as the
Trustee may deem necessary to carry out the purposes of the Plan.
8.4 VOTING COMPANY STOCK
The Trustee shall vote all Company Stock held by it as part of the Plan assets.
Provided, however, that if any agreement entered into by the Trust provides
for voting of any shares of Company Stock pledged as security for any
obligation of the Plan, then such shares of Company Stock shall be voted in
accordance with such agreement. The Trustee shall not vote Company Stock which
a Participant or Beneficiary fails to exercise pursuant to this section.
Notwithstanding the foregoing, if the Employer has a registration-type
class of securities or, with respect to Company Stock acquired by, or
transferred to, the Plan in connection with a securities acquisition loan (as
defined in Code Section 133(b)) after July 10, 1989, each Participant or
Beneficiary shall be entitled to direct the Trustee as to the manner in which
the Company Stock which is entitled to vote and which is allocated to the
Company Stock Account of such Participant or Beneficiary is to be voted. If
the Employer does not have a registration-type class of securities, with
respect to Company Stock other than Company stock acquired by, or transferred
to, the Plan in connection with a securities acquisition loan (as defined in
Code Section 133(b)) after July 10, 1989, each Participant or Beneficiary in
the Plan shall be entitled to direct the Trustee as to the manner in which
voting rights on shares of Company Stock which are allocated to the Company
Stock Account of such Participant or Beneficiary are to be exercised with
respect to any corporate matter which involves the voting of such shares with
respect to the approval or disapproval of any corporate merger or
consolidation, recapitalization, reclassification, liquidation, dissolution,
sale of substantially all
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assets of a trade or business, or such similar transaction as
prescribed in Regulations. For purposes of this Section the term
"registration-type class of securities" means: (A) a class of securities
required to be registered under Section 12 of the securities Exchange Act of
1934; and (B) a class of securities which would be required to be so registered
except for the exemption from registration provided in subsection (g)(2)(H) of
such Section 12.
If the Employer does not have a registration-type class of securities and
the by-laws of the Employer require the Plan to vote an issue in a manner that
reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall
be entitled to cast one vote on an issue and the Trustee shall vote the shares
held by the Plan in proportion to the results of the votes cast on the issue by
the Participants and Beneficiaries.
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
(a) The Trustee shall make distributions from the Trust Fund
at such times and in such numbers of shares or other units of
Company Stock and amounts of cash to or for the benefit of the
person entitled thereto under the Plan as the Administrator directs
in writing. Any undistributed part of a Participant's interest in
his accounts shall be retained in the Trust Fund until the
Administrator directs its distribution. Where distribution is
directed in Company Stock, the Trustee shall cause an appropriate
certificate to be issued to the person entitled thereto and mailed
to the address furnished it by the Administrator. Any portion of a
Participant's Account to be distributed in cash shall be paid by
the Trustee mailing its check to the same person at the same
address. If a dispute arises as to who is entitled to or should
receive any benefit or payment, the Trustee may withhold4 or cause
to be withheld such payment until the dispute has been resolved.
(b) As directed by the Administrator, the Trustee shall make
payments out of the Trust Fund. Such directions or instructions
need not specify the purpose of the payments so directed and the
Trustee shall not be responsible in any way respecting the purpose
or propriety of such payments except as mandated by the Act.
(c) In the event that any distribution or payment directed by
the Administrator shall be mailed by the Trustee to the person
specified in such direction at the latest address of such person
filed with the Administrator, and shall be returned to the Trustee
because such person cannot be located at such address, the Trustee
shall promptly notify the Administrator of such return. Upon the
expiration of sixty (60) days after such notification, such
direction shall become void and unless and until a further
direction by the Administrator is received by the Trustee with
respect to such distribution or payment, the Trustee shall
thereafter continue to administer the Trust as if such direction
had not been made by the Administrator. The Trustee shall not be
obligated to search for or
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ascertain the whereabouts of any such person.
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from
time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
counsel fees incurred by it as Trustee. Such compensation and expenses shall
be paid from the Trust Fund unless paid or advanced by the Employer. All taxes
of-any kind and all kinds whatsoever that may be levied or assessed under
existing or future laws upon, or in respect of, the Trust Fund or the income
thereof, shall be paid from the Trust Fund.
8.7 ANNUAL REPORT OF THE TRUSTEE
Within a reasonable period of time after the later of the Anniversary
Date or receipt of the Employer's contribution for each Plan Year, the Trustee
shall furnish to the Employer and Administrator a written statement of account
with respect to the Plan Year for which such contribution was made setting
forth:
(a) the net income, or loss, of the Trust Fund;
(b) the gains, or losses, realized by the Trust Fund upon
sales or other disposition of the assets;
(c) the increase, or decrease, in the value of the Trust Fund;
(d) all payments and distributions made from the Trust Fund;
and
(e) such further information as the Trustee and/or
Administrator deems appropriate. The Employer, forthwith upon its-
receipt of each such statement of account, shall acknowledge
receipt thereof in writing and advise the Trustee and/or
Administrator of its approval or disapproval thereof. Failure by
the Employer to disapprove any such statement of account within
thirty (30) days after its receipt thereof shall be deemed an
approval thereof. The approval by the Employer of any statement of
account shall be binding as to all matters embraced therein as
between the Employer and the Trustee to the same extent as if the
account of the Trustee had been settled by judgment or decree in an
action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially settled if the
Trustee so desires.
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8.8 AUDIT
(a) If an audit of the Plan's records shall be required by the
Act and the regulations thereunder for any Plan Year, the
Administrator shall direct the Trustee to engage on behalf of all
Participants an independent qualified public accountant for that
purpose. Such accountant shall, after an audit of the books and
records of the Plan in accordance with generally accepted auditing
standards, within a reasonable period after the close of the Plan
Year, furnish to the Administrator and the Trustee a report of his
audit setting forth his opinion as to whether any statements,
schedules or lists that are required by Act Section 103 or the
Secretary of Labor to be filed with the Plan's annual report, are
presented fairly in conformity with generally accepted accounting
principles applied consistently. All auditing and accounting fees
shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund.
(b) If some or all of the information necessary to enable the
Administrator to comply with Act Section 103 is maintained-by a
bank, insurance company, or similar institution, regulated and
supervised and subject to periodic examination by a state or
federal agency, it shall transmit and certify the accuracy of that
information to the Administrator as provided in Act Section
103(b) within one hundred twenty (120) days after the end of the
Plan Year or by such other date as may be prescribed under
regulations of the Secretary of Labor.
8.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE
(a) The Trustee may resign at any time by delivering to the
Employer, at least thirty (30) days before its effective date, a
written notice of his resignation.
(b) The Employer may remove the Trustee by mailing by
registered or certified mail, addressed to such Trustee at his last
known address, at least thirty (30) days before its effective date,
a written notice of his removal.
(c) Upon the death, resignation, incapacity, or removal of any
Trustee, a successor may be appointed by the Employer; and such
successor, upon accepting such appointment in writing and
delivering same to the Employer, shall, without further act, become
vested with all the estate, rights, powers, discretions, and duties
of his predecessor with like respect as if he were originally named
as a Trustee herein. Until such a successor is appointed, the
remaining Trustee or Trustees shall have full authority, to act
under the terms of the Plan.
(d) The Employer may designate one or more successors prior to
the death, resignation, incapacity, or removal of a Trustee. In
the event a successor is so designated by the Employer and accepts
such designation, the successor
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shall, without further act, become vested with all the estate,
rights, powers, discretions, and duties of his predecessor with the
like effect as if he were originally named as Trustee herein
immediately upon the death, resignation, incapacity, or removal of
his predecessor.
(e) Whenever any Trustee hereunder ceases to serve as such, he
shall furnish to the Employer and Administrator a written statement
of account with respect to the portion of the Plan Year during
which he served as Trustee. This statement shall be either (i)
included as part of the annual statement of account for the Plan
Year required under Section 8.7 or (ii) set forth in a special
statement. Any such special statement of account should be
rendered to the Employer no later than the due date of the annual
statement of account for the Plan Year. The procedures set forth
in Section 8.7 for the approval by the Employer of annual
statements of account shall apply to any special statement of
account rendered hereunder and approval by the Employer of
any such special statement in the manner provided in Section
8.7 shall have the same effect upon the statement as the
Employer's approval of an annual statement of account. No
successor to the Trustee shall have any duty or responsibility
to investigate the acts or transactions of any predecessor who has
rendered all statements of account required by Section 8.7 and
this subparagraph.
8.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the
Trustee at the direction of the Administrator shall transfer the Vested
interest, if any, of such Participant in his account to another trust forming
part of a pension, profit sharing or stock bonus plan maintained by such
Participant's new employer and represented by said employer in writing as
meeting the requirements of Code Section 401(a), provided that the trust to
which such transfers are made permits the transfer to be made.
8.11 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under
this Section, a distributes may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion of
an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributes in a direct rollover.
(b) For purposes of this Section the following definitions
shall apply:
(1) An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the
distributes, except that an eligible rollover distribution
does not include: any distribution that is one
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of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or
life expectancy) of the distributes or the joint lives (or
joint life expectancies) of the distributes and the
distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9);
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities).
(2) An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), or a qualified
trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement
annuity.
(3) A distributes includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or
former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Code Section 414(p),
are distributees with regard to the interest of the spouse or
former spouse.
(4) A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributes.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the
Plan, subject to the limitations of this Section. Any such
amendment shall be adopted by formal action of the Employer's board
of directors and executed by an officer authorized to act on behalf
of the Employer. However, any amendment which affects the rights,
duties or responsibilities of the Trustee and Administrator may
only be made with the Trustee's and Administrator's written
consent. Any such amendment shall become effective as provided
therein upon its execution. The Trustee shall not be required to
execute any such amendment unless the Trust provisions contained
herein are a part of the Plan and the amendment affects the duties
of the Trustee hereunder.
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(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such
part as is required to pay taxes and administration expenses) to be
used for or diverted to any purpose other than for the exclusive
benefit of the Participants or their Beneficiaries or estates; or
causes any reduction in the amount credited to the account of any
Participant; or causes or permits any portion of the Trust Fund to
revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan amendment (such as a
merger, plan transfer or similar transaction) shall be effective to
the extent it eliminates or reduces any "Section 411(d)(6)
protected benefit" or adds or modifies conditions relating to
"Section 411(d)(6) protected benefits" the result of which is a
further restriction on such benefit unless such protected benefits
are preserved with respect to benefits accrued as of the later of
the adoption date or effective date of the amendment. "Section
411(d)(6) protected benefits" are benefits described in Code
Section 411(d)(6)(A), early retirement benefits and retirement-type
subsidies, and optional forms of benefit.
In addition, no such amendment shall have the effect of
terminating the protections and rights set forth in Section 7.12, unless
such termination shall then be permitted under the applicable provisions
of the Code and Regulations; such a termination is currently
expressly prohibited by Regulation 54.4975-11(a)(3)(ii).
9.2 TERMINATION
(a) The Employer shall have the right at any time to terminate
the Plan by delivering to the Trustee and Administrator written
notice of such termination. Upon any full or partial termination,
all amounts credited to the affected Participants' Accounts shall
become 100% Vested as provided in Section 7.4 and shall not
thereafter be subject to forfeiture, and all unallocated amounts
shall be allocated to the accounts of all Participants in
accordance with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall
direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies the
provisions of Sections 7.5 and 7.6. Except as permitted by
Regulations, the termination of the Plan shall not result in the
reduction of "Section 411(d)(6)'protected benefits" in accordance
with Section 9.1(c).
9.3 MERGER OR CONSOLIDATION
This Plan and Trust may be merged or consolidated with, or its assets
and/or
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liabilities may be transferred to any other plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 9.1(c).
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan
shall be deemed to give any Participant or Employee the right to be
retained in the service of the Employer or -to interfere with the right of the
Employer to discharge any Participant or Employee at any time regardless of the
effect which such discharge shall have upon him as a Participant of this Plan.
10.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a
Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, or charge the same shall
be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or
torts of any such person, nor shall it be subject to attachment or
legal process for or against such person, and the same shall not be
recognized by the Trustee, except to such extent as may be required
by law.
(b) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to
the extent provided under a "qualified domestic relations order," a
former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
10.3 CONSTRUCTION OF PLAN
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This Plan and Trust shall be construed and enforced according to
the Act and the laws of the State of Illinois, other than its laws
respecting choice of law, to the extent not preempted by the Act.
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in
another gender in all cases where they would so apply, and whenever any words
are used herein in the singular or plural form, they shall be construed as
though they were also used in the other form in all cases where they would so
apply.
10.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding
the Trust and/or Plan established hereunder to which the Trustee or
the Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee or Administrator, they shall be entitled to be
reimbursed from the Trust Fund for any and all costs, attorney's fees, and
other expenses pertaining thereto incurred by them for which they shall have
become liable.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan
or of the Trust, by termination of either, by power of revocation
or amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to, purposes
other than the exclusive benefit of Participants, Retired
Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such excessive
contribution at any time within one (1) year following the time of
payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable
to the excess contributions may not be returned to the Employer but
any losses attributable thereto must reduce the amount so returned.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted BY the Act and regulations thereunder, shall be bonded in an
amount not less than 10% of the amount of the funds such Fiduciary handles;
provided, however, that the minimum bond shall be $1,000 and the maximum bond,
$500,000. The amount of funds handled shall be determined at the
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beginning of each Plan Year by the amount of funds handled by such
person, group, or class to be covered and their predecessors, if any, during
the preceding Plan Year, or if there is no preceding Plan Year, then by the
amount of the funds to-be handled during the then current year. The bond shall
provide protection to the Plan against any loss by reason of acts of fraud or
dishonesty by the Fiduciary alone or in connivance with others. The surety
shall be a corporate surety company (as such term is used in Act Section
412(a)(2)), and the bond shall be in a form approved by the Secretary of Labor.
Notwithstanding anything in the Plan to the contrary, the cost of such bonds
shall be an expense of and may, at the election of the Administrator, be paid
from the Trust Fund or by the Employer.
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the
failure on the part of the insurer to make payments provided by any such
Contract, or f or the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.
10.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
10.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee
and the Employer, either of whom may require such Participant, legal
representative, Beneficiary, guardian or committee, as a condition precedent to
such payment, to execute a receipt and release thereof in such form as shall be
determined by the Trustee or Employer.
10.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done
and performed by a person duly authorized by its legally constituted authority.
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
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The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plants "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended
under the Plan that each named Fiduciary shall be responsible for the proper
exercise of its own powers, duties, responsibilities and obligations under the
Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against
investment -loss or depreciation in asset value. Any person or group may serve
in more than one Fiduciary capacity. In the furtherance of their
responsibilities hereunder, the "named Fiduciaries" shall be empowered to
interpret the Plan and Trust and to resolve ambiguities, inconsistencies and
omissions, which findings shall be binding, final and conclusive.
10.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the
application for the determination is made by the time prescribed by
law for filing the Employer's return for the taxable year in which the
Plan was adopted, or such later date as the Secretary of the Treasury
may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(c), any contribution by the Employer to the
Trust Fund is conditioned upon the deductibility of the contribution
by the Employer under the Code and, to the extent any such deduction
is disallowed, the Employer may,
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within one (1) year following the disallowance of the deduction,
demand repayment of such disallowed contribution and the Trustee shall
return such contribution within one (1) year following the
disallowance. Earnings of the Plan attributable to the excess
contribution may not be returned to the Employer, but any losses
attributable thereto must reduce the amount so returned.
10.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the Securities
and Exchange Commission stating that the transfers of Company Stock contemplated
hereunder do not involve transactions requiring a registration of such Company
Stock under the Securities Act of 1933. In the event that a favorable
interpretative letter is not-obtained, the Employer reserves the right to amend
the Plan and Trust retroactively to their Effective Dates in order to obtain a
favorable interpretative letter or to terminate the Plan.
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of the
Employer and Trustee, any other corporation or entity, whether an affiliate or
subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use the
same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle,
hold and invest as one Trust Fund all contributions made by
Participating Employers, as well as all increments thereof. However,
the assets of the Plan shall, on an ongoing basis, be available to pay
benefits to all Participants and Beneficiaries under the Plan without
regard to the Employer or Participating Employer who contributed such
assets.
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(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the Employer
or a Participating Employer, shall not affect such Participant's
rights under the Plan, and all amounts credited to such Participant's
Account as well as his accumulated service time with the transferor or
predecessor, and his length of participation in the Plan, shall
continue to his credit.
(d) All rights and values forfeited by termination of employment
shall inure only to the benefit of the Participants of the Employer or
Participating Employer by which the forfeiting Participant was
employed, except if the Forfeiture is for an Employee whose Employer
is an Affiliated Employer, then said Forfeiture shall be allocated to
the Participants employed by the Employer or Participating Employers
who are Affiliated Employers. Should an Employee of one ("First")
Employer be transferred to an associated ("Second") Employer which is
an Affiliated Employer, such transfer shall not cause his account
balance (generated while an Employee of "First" Employer) in any
manner, or by any amount to be forfeited. Such Employee's Participant
Account balance for all purposes of the Plan, including length of
service, shall be considered as though he had always been employed by
the "Second" Employer and as such had received contributions,
forfeitures, earnings or losses, and appreciation or depreciation in
value of assets totaling the amount so transferred.
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such Employer
bears to the total standing to the credit of all Participants.
11.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this
Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
11.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the
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Participating Employer from whom the Employee was transferred.
1.1.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated only among those Participants of the Employer or Participating
Employer making the contribution, except if the contribution is made by an
Affiliated Employer, in which event such contribution shall be allocated among
all Participants of all, Participating Employers who are Affiliated Employers in
accordance with the provisions of this Plan. On the basis of the information
furnished by the Administrator, the Trustee shall keep separate books and
records concerning the affairs of each Participating Employer hereunder and as
to the accounts and credits of the Employees of each Participating Employer. The
Trustee may, but need not, register Contracts so as to evidence that a
particular Participating Employer is the interested Employer hereunder, but in
the event of an Employee transfer from one Participating Employer to another,
the employing Employer shall immediately notify the Trustee thereof.
11.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall be a
Participating Employer hereunder shall only be by the written action of each and
every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.
11.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or revoke its
participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that
no such transfer shall be made if the result is the elimination or reduction of
any "Section 411(d)(6) protected benefits" in accordance with Section 9.1(c).
If no successor is designated, the Trustee shall retain such assets for the
Employees of said Participating Employer pursuant to the provisions of Article
VII hereof. In no such event shall any part of the corpus or income of the
Trust as it relates to such Participating Employer be used for or diverted to
purposes other than for the exclusive benefit of the Employees of such
Participating Employer.
11.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary rules
or regulations, binding upon all Participating Employers and all Participants,
to effectuate the purpose of this Article.
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EXHIBIT 10.13
UNIONBANCORP, INC.
1993 STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. PURPOSE OF THE PLAN........................................ 1
2. ADMINISTRATION OF THE PLAN................................. 1
3. SHARES SUBJECT TO THE PLAN................................. 1
4. STOCK OPTIONS.............................................. 2
a. Type of Options..................................... 2
b. Terms of Options.................................... 2
c. Additional Terms Applicable to All Options.......... 2
(i) Written Notice............................... 2
(ii) Method of Exercise........................... 2
(iii) Death, Disability or Retirement of Optionee.. 2
(iv) Transferability.............................. 2
d. Additional Terms Applicable to Incentive Options.... 3
(i) Option Price................................. 3
(ii) Term of Option............................... 3
(iii) Annual Exercise Limit........................ 3
e. Non-employee Director Grants........................ 3
5. STOCK APPRECIATION RIGHTS 3
a. Grants.............................................. 3
b. Terms of Grant...................................... 4
c. Payment upon Exercise............................... 4
6. RIGHT OF FIRST REFUSAL..................................... 4
7. AMENDMENT OR TERMINATION OF THE PLAN....................... 5
8. TERM OF PLAN............................................... 5
9. DELIVERY AND REGISTRATION OF STOCK......................... 5
10. RIGHTS AS STOCKHOLDER...................................... 6
11. MERGER OR CONSOLIDATION.................................... 6
12. CHANGES IN CAPITAL AND CORPORATE STRUCTURE................. 6
13. EMPLOYMENT RELATIONSHIP ................................... 6
14. WITHHOLDING OF TAX ........................................ 6
</TABLE>
<PAGE> 3
UNIONBANCORP, INC.
1993 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The UNIONBANCORP, INC. 1993 STOCK OPTION PLAN (hereinafter referred to as
the "Plan") is intended to provide a means whereby key individuals providing
services to UNIONBANCORP, INC. (hereinafter referred to as the "Company") and
its related corporations may sustain a sense of proprietorship and personal
involvement in the continued development and financial success of the Company,
and to encourage them to remain with and devote their best efforts to the
business of the Company, thereby advancing the interests of the Company and its
shareholders. Accordingly, certain directors, officers and employees will be
eligible to acquire common stock of the Company (hereinafter referred to as
"Shares") or otherwise participate in the financial success of the Company, on
the terms and conditions established herein. For purposes of the Plan, a
corporation shall be deemed a related corporation to the Company if such
corporation would be a parent or subsidiary corporation with respect to the
Company as defined in Section 424(e) or (f), respectively, of the Internal
Revenue Code of 1986, as amended (hereinafter referred to as the "Code").
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the UnionBancorp, Inc. 1993 Stock Option
Plan Administrative Committee (hereinafter referred to as the "Committee")
which shall be comprised of at least two (2) non-employee disinterested
directors appointed by the Board of Directors of the Company (hereinafter
referred to as the "Board"). A disinterested director is any member of the
Board who within the prior year has not been, and is not being, granted any
awards related to the Shares under the Plan or any other plan of the Company or
any related corporation except for awards which: (i) are calculated in
accordance with a formula as contemplated in paragraph (c)(ii) of Rule 16b-3
under the Securities Exchange Act of 1934 ("Rule 16b-3"); (ii) result from
participation in an ongoing securities acquisition plan meeting the conditions
of paragraph (d)(2) of Rule 16b-3; or (iii) arise from an election by a
director to receive all or part of his Board fees in securities. The Committee
shall have sole authority to select the officers and employees from among those
eligible to whom awards shall be made under the Plan, to establish the amount
of such award for each such individual and the time when certificates for
Shares shall be issued, and to prescribe the legend to be affixed to the
certificate. The Committee is authorized, subject to Board approval, to
interpret the Plan and may from time to time adopt such rules, regulations,
forms and agreements, not inconsistent with the provisions of the Plan, as it
may deem advisable to carry out the Plan. All decisions made by the Committee
in administering the Plan shall be subject to Board review.
3. SHARES SUBJECT TO THE PLAN
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The aggregate number of Shares that may be awarded to individuals under
the Plan shall be two hundred thousand (200,000) Shares. Any Shares that
remain unissued at the termination of the Plan shall cease to be subject to the
Plan, but until termination of the Plan, the Company shall at all times make
available sufficient Shares to meet the requirements of the Plan.
4. STOCK OPTIONS
a. Type of Options. The Company may issue options that constitute
Incentive Stock Options ("Incentive Options") under Section 422 of the Code and
options that do not constitute Incentive Options ("Nonqualified Options") to
individuals under the Plan. The grant of each option shall be confirmed by a
stock option agreement that shall be executed by the Company and the optionee
as soon as practicable after such grant. The stock option agreement shall
expressly state or incorporate by reference the provisions of the Plan and
state whether the option is an Incentive Option or Nonqualified Option.
b. Terms of Options. Except as provided in Subparagraphs (c) and (d)
below, each option granted under the Plan shall be subject to the terms and
conditions set forth by the Committee in the stock option agreement including,
but not limited to, option price, option term and transferability.
c. Additional Terms Applicable to All Options. Each option shall be
subject to the following terms and conditions:
(i) Written Notice. An option may be exercised only
by giving written notice to the Company specifying the number
of Shares to be purchased.
(ii) Method of Exercise. The aggregate option price
may, subject to the terms and conditions set forth by the
Committee in the stock option agreement, be paid in any one or
a combination of cash, personal check, personal note, Shares
already owned or Plan awards which the optionee has an
immediate right to exercise.
(iii) Death, Disability or Retirement of Optionee. If
an optionee terminates employment due to death, disability or
retirement, prior to exercise in full
right to exercise the options within a period of twelve (12)
months after the date of such termination to the extent that
the right was exercisable at the date of such termination, or
subject to such other terms as may be determined by the
Committee.
(iv) Transferability. No option may be transferred, assigned or
encumbered by an optionee, except in the event of the death
of the optionee, by will or the laws of descent and
distribution.
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<PAGE> 5
d. Additional Terms Applicable to Incentive Options. Each Incentive
Option shall be subject to the following terms and conditions:
(i) Option Price. The option price per Share shall be not less
than 100% of the fair market value of such Share on the date
the option is granted. Notwithstanding the preceding
sentence, the option price per Share granted to an individual
who, at the time such option is granted, owns stock possessing
more than 10% of the total combined voting power of all
classes of stock of the Company or related corporation
(hereinafter referred to as a "10% Stockholder") shall not be
less than 110% of the fair market value of such Share on the
date the option is granted.
(ii) Term of Option. No option may be exercised more than ten
(10) years after the date of grant. Notwithstanding the
preceding sentence, no option granted to a 10% Stockholder
may be exercised more than five (5) years after the date of
grant. No option may be exercised more than three (3) months
after the optionee terminates employment with the Company or
related corporation; except that, if the optionee terminates
employment due to his disability (within the meaning of
Section 22(e)(3) of the Code), the Committee may extend such
three (3) month period for up to an additional nine (9)
months.
(iii) Annual Exercise Limit. The aggregate value of Shares which
may first become exercisable during any calendar year
shall not exceed $100,000. For purposes of the preceding
sentence, the fair market value of each Share shall be
determined on the date the option with respect to such Share
is granted.
e. Non-employee Director Grants. Non-employee directors shall receive
Nonqualified Option grants pursuant to a formula. The formula shall include,
but is not limited to, the following criteria: (i) meeting attendance; (ii)
business calls; (iii) return on assets; (iv) overhead costs; (v) interest
margin; (vi) asset growth; and (vii) asset quality. The Committee shall
establish the number of earnable options and the criteria achievement levels
each year, if any. Non-employee director grants will have an exercise price of
not less than 75% of the fair market value of a Share on the date of grant, and
will be subject to a five (5) year, 20% per year, vesting schedule.
5. STOCK APPRECIATION RIGHTS
a. Grants. Stock Appreciation Rights ("SARs") are rights entitling the
grantee to receive cash or Shares having a fair market value equal to the
appreciation in market value of a stated number of Shares from the date of
grant, or in the case of rights granted in tandem with or by reference to an
option granted prior to the grant of such rights, from the date of grant of
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<PAGE> 6
the related option to the date of exercise, which may be granted to such
eligible directors and employees as may be selected by the Committee.
b. Terms of Grant. SARs may be granted in tandem with or with reference
to a related option, in which event the grantee may elect to exercise either
the option or the SAR, but not both, as to the same Share subject to the option
and the SAR, or the SAR may be granted independently of a related option. In
the event of a grant with a related option, the SAR shall be subject to the
terms and conditions of the related option. In the event of an independent
grant, the SAR shall be subject to the terms and conditions determined by the
Committee. SARs shall not be transferred, assigned or encumbered, except that
SARs may be exercised by the executor, administrator or personal representative
of the deceased grantee within twelve months of the death of the grantee and
transferred pursuant to a qualified domestic relations order as defined under
Section 414(q) of the Code.
c. Payment upon Exercise. Upon exercise of an SAR, the grantee shall be
paid the excess of the then fair market value of the number of Shares to which
the SAR relates over the fair market value of such number of Shares at the date
of grant of the SAR or of the related option, as the case may be. Such excess
shall be paid in cash or in Shares having a fair market value equal to such
excess or in such combination thereof as the Committee shall determine. The
exercise of an SAR may only be made in accordance with applicable restrictions
pursuant to paragraph (e) of Rule 16b-3 or any similar successor provision.
6. RIGHT OF FIRST REFUSAL
If any Shares issued under the Plan are not readily tradable on an
established market on the date an owner intends to sell such Shares, such owner
shall first offer such Shares to the Company for purchase and the Company shall
have thirty (30) days to exercise its right to purchase such Shares. The owner
shall give written notice to the Company stating that he has a bona fide offer
for the purchase of such Shares, stating the number of Shares to be sold, the
name and address of the person(s) offering to purchase the Shares and the
purchase price and terms of payment of such sale. The owner shall be entitled
to receive the same purchase price offered by such person(s) offering to
purchase such Shares. Payment may be in a lump sum or, if the lump sum exceeds
$100,000, in substantially equal annual or more frequent installments over a
period not exceeding five (5) years in the discretion of the Committee. If a
method of deferred payments is selected, the unpaid balance shall earn interest
at a rate that is substantially equal to the rate at which the Company could
borrow the amount due and shall be secured by a pledge of the Shares purchased
or such other adequate security as agreed to by the Company and the owner. For
purposes of this paragraph, Shares shall be considered not readily tradable on
an established market if such Shares are not publicly tradable or because such
Shares are subject to a trading limitation under any Federal or state
securities law or regulation that would make such Shares less freely tradable
than stock not so restricted. For purposes of this paragraph, an owner shall
include any person who acquires Shares from any other person and for any
reason; including, but not limited to, by gift, death or sale.
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<PAGE> 7
7. AMENDMENT OR TERMINATION OF THE PLAN
The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, but (except as provided in paragraph 3 hereof) no amendment shall
be made without approval of the stockholders of the Company which shall: (i)
materially increase the aggregate number of Shares with respect to which awards
may be made under the Plan; (ii) materially increase the aggregate number of
Shares which may be subject to awards to individuals who are not employees; or
(iii) change the class of persons eligible to participate in the Plan,
provided, however, that no such amendment, suspension or termination shall
impair the rights of any individual, without his consent, in any award
theretofore made pursuant to the Plan.
Notwithstanding anything in this Plan to the contrary, to the extent that
the Plan provides for formula awards, as defined in paragraph (c)(2)(ii) of
Rule 16b-3, such provisions may not be amended more than once every six months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or the rules thereunder.
8. TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the Board,
subject to the approval of the Plan by a majority of the stockholders within
twelve (12) months before or after the date of adoption. Unless sooner
terminated under the provisions of paragraph 8, Shares and SARs shall not be
awarded under the Plan after the expiration of ten (10) years from the
effective date of the Plan.
9. DELIVERY AND REGISTRATION OF STOCK
The Company's obligation to deliver Shares with respect to an award shall,
if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the individual to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become
inoperative upon a registration of the Shares or other action eliminating the
necessity of such representation under securities legislation. The Company
shall not be required to deliver any Shares under the Plan prior to (i) the
admission of such Shares to listing on any stock exchange on which Shares may
then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or federal law, rule or
regulation, as the Committee shall determine to be necessary or advisable.
This Plan is intended to comply with Rule 16b-3. Any provision of the
Plan which is inconsistent with said rule shall, to the extent of such
inconsistency, be inoperative and shall not affect the validity of the
remaining provisions of the Plan.
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<PAGE> 8
10. RIGHTS AS STOCKHOLDER
Upon delivery of any Share to an individual, such individual shall have
all of the rights of a stockholder of the Company with respect to such Share,
including the right to vote such Share and to receive all dividends or other
distributions paid with respect to such Share.
11. MERGER OR CONSOLIDATION
In the event the Company is merged or consolidated with another
corporation and the Company is not the surviving corporation, all outstanding
options, SARs and RSAs shall become immediately and fully exercisable and
unrestricted, and the surviving corporation may exchange options and SARs
issued under this Plan for options and SARs (with the same aggregate option
price) to acquire and participate in that number of shares in the surviving
corporation that have a fair market value equal to the fair market value
(determined on the date of such merger or consolidation) of Shares that the
grantee is entitled to acquire and participate in under this Plan on the date
of such merger, consolidation or change of control.
12. CHANGES IN CAPITAL AND CORPORATE STRUCTURE
The aggregate number of Shares and interests awarded and which may be
awarded under the Plan shall be adjusted to reflect a change in the outstanding
Shares of the Company be reason of an issuance of additional Shares,
recapitalization, reclassification, reorganization, stock split, reverse stock
split, combination of shares, stock dividend or similar transaction. The
adjustment shall be made in an equitable manner which will cause the awards to
remain unchanged as a result of the applicable transaction.
13. EMPLOYMENT RELATIONSHIP
An individual shall be considered to be in the employment of the Company
or related corporation as long as he or she remains an employee of the Company
or related corporation. Nothing herein shall confer on any individual the
right to continued employment with the Company or related corporation or affect
the right of the Company or related corporation to terminate such employment.
14. WITHHOLDING OF TAX
To the extent the award, issuance or exercise of Shares or SARs results in
the receipt of compensation by an individual, the Company is authorized to
withhold from any other cash compensation then or thereafter payable to such
individual or to withhold sufficient Shares to pay any tax required to be
withheld by reason of the receipt of the compensation. Alternatively, the
individual may tender a personal check in the amount of tax required to be
withheld.
6
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. UnionBank, an Illinois state bank with its main office located in
Streator, Illinois
2. UnionBank/Sandwich, an Illinois state bank with its main office located
in Sandwich, Illinois
3. Prairie Acquisition Corporation, an Illinois corporation, and its
subsidiaries:
a. Farmers State Bank of Ferris, an Illinois state bank
with its main office located in Carthage, Illinois
b. Hanover State Bank, an Illinois state bank with its
main office located in Hanover, Illinois
c. Bank of Ladd, an Illinois state bank with its main
office located in Ladd, Illinois
d. First National Bank of Manlius, a national bank with
its main office located in Manlius, Illinois
e. Tampico National Bank, a national bank with its main
office located in Tampico, Illinois
f. Tiskilwa State Bank, an Illinois state bank with its
main office located in Tiskilwa, Illinois
4. UnionData Corp, Inc., a Delaware corporation
5. Union Corporation, an Illinois corporation
6. LaSalle County Collections, Inc., an Illinois corporation
7. Country Bancshares, Inc., an Illinois corporation (to be acquired on or
about the date of this Offering), and its subsidiary:
Omni Bank, an Illinois state bank with its main office in
Macomb, Illinois
<PAGE> 1
EXHIBIT 23.2
[ McGLADREY AND PULLEN LETTERHEAD ]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report, dated January 17, 1996, (except for Note 15 for which
the date is May 20, 1996), with respect to the consolidated financial
statements of UnionBancorp, Inc. and Subsidiaries and our report dated May
24, 1996 with respect to the consolidated financial statements of Country
Bancshares, Inc. and Subsidiaries, included in this Registration Statement
(Form S-1 to be filed on or about August 9, 1996) and related prospectus of
UnionBancorp, Inc, for the offering of 1,265,000 shares of common stock.
McGladrey & Pullen, LLP
Champaign, Illinois
August 5, 1996
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report, dated January 26, 1996, with respect to the
consolidated financial statements of Prairie Bancorp, Inc. and Subsidiaries,
included in this Registration Statement (Form S-1 to be filed on or about August
9, 1996) and related prospectus of UnionBancorp, Inc, for the offering of
1,265,000 shares of common stock.
McGladrey & Pullen, LLP
Davenport, Iowa
August 5, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF MR. ROBERT J. DOTY
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his
being named in the Prospectus which forms a part of the Registration Statement
on Form S-1 relating to the initial public offering (the "Offering") of
UnionBancorp, Inc. (the "Company") as a person who is to become a director of
the Company following the Company's consummation of the acquisition of Prairie
Bancorp, Inc. and the completion of the Offering.
\s\ Robert J. Doty
----------------------------------
Robert J. Doty
August 7, 1996
Manlius, Illinois
<PAGE> 1
EXHIBIT 23.4
CONSENT OF MR. SCOTT C. SULLIVAN
Pursuant to Section 230.438 of Regulation C promulgated under the
Securities Act of 1933, as amended, the undersigned hereby consents to his
being named in the Prospectus which forms a part of the Registration Statement
on Form S-1 relating to the initial public offering (the "Offering") of
UnionBancorp, Inc. (the "Company") as a person who is to become a director of
the Company following the Company's consummation of the acquisition of Prairie
Bancorp, Inc. and the completion of the Offering.
\s\ Scott C. Sullivan
-------------------------------
Scott C. Sullivan
August 7, 1996
Rockford, Illinois
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