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Filed Pursuant to Rule No. 424(b)(3)
File No. 333-84955
CNB Bancshares, Inc. Letterhead
September 2, 1999
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
You are being asked to vote upon a historic event for your company. The
boards of directors of CNB Bancshares and Fifth Third Bancorp have agreed that
Fifth Third will acquire CNB Bancshares in a merger.
In the merger, CNB Bancshares will merge with and into Fifth Third, with
Fifth Third as the surviving corporation. Each share of CNB Bancshares common
stock that you hold will entitle you to receive .8825 shares of Fifth Third
common stock. No fractional shares will be issued. Instead, you will receive
cash for any fractional share owed to you (including fractional shares owed as a
result of conversion of shares of CNB Bancshares common stock held either
through CNB Bancshares' dividend reinvestment plan or in book-entry form) in an
amount based on the closing price of Fifth Third common stock on the effective
date of the merger.
We cannot complete the merger unless both parties obtain the necessary
government approvals and unless our shareholders approve the merger. We will
hold a special meeting of our shareholders to vote on this merger proposal. YOUR
VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special meeting of
shareholders, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you sign, date and send your proxy card without
indicating how you want to vote, your proxy will be counted as a vote FOR the
merger. If you do not return your card or otherwise vote, or if you do not
instruct your broker how to vote any shares held for you in the broker's name,
the effect will be a vote against the merger.
The special meeting of shareholders will be held at 10:00 a.m., Central
Daylight Savings Time, on October 14, 1999, in CNB Bancshares' offices on the
15th floor at 20 N.W. Third Street, Evansville, Indiana.
This document gives you detailed information about the merger we are
proposing, and it includes the affiliation agreement between CNB Bancshares and
Fifth Third as an appendix. You can also get information about both companies
from publicly available documents filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
The common stock of CNB Bancshares is traded on the New York Stock Exchange
under the symbol "BNK." The common stock of Fifth Third is traded on the Nasdaq
National Market under the symbol "FITB."
The CNB Bancshares board of directors unanimously and enthusiastically
supports the proposed merger and recommends that you vote in favor of the
merger.
/s/ JAMES J. GIANCOLA
James J. Giancola
President and Chief Executive Officer
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CNB BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 14, 1999
To the shareholders of CNB Bancshares, Inc.:
We will hold a special meeting of shareholders of CNB Bancshares, Inc., an
Indiana corporation, on October 14, 1999, local time, at the headquarters of CNB
Bancshares, 20 N. W. Third Street, 15th Floor, Evansville, Indiana for the
following purposes:
1. To consider and vote upon a proposal to approve an Affiliation
Agreement, dated as of June 16, 1999, by and between Fifth Third Bancorp,
an Ohio corporation, and CNB Bancshares, and the transactions contemplated
thereby, including the merger of CNB Bancshares with and into Fifth Third
upon the terms and subject to the conditions set forth in the affiliation
agreement, as more fully described in the enclosed Proxy
Statement-Prospectus.
2. To transact any other business as may properly be brought before
the special meeting or any adjournments or postponements of the special
meeting.
We have fixed the close of business on August 20, 1999 as the record date
for determining those shareholders entitled to vote at the special meeting and
any adjournments or postponements of the special meeting. Accordingly, only
shareholders of record on that date are entitled to notice of, and to vote at,
the special meeting and any adjournments or postponements of the special
meeting. If you wish to attend the meeting but your shares are held in the name
of a broker, trust, bank or other nominee, please bring a proxy or letter from
the broker, trustee or nominee with you to confirm your beneficial ownership of
the shares.
By Order of the Board of Directors,
David L. Knapp
Secretary
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PROXY STATEMENT FOR CNB BANCSHARES, INC. SPECIAL MEETING
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PROSPECTUS OF FIFTH THIRD BANCORP
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The boards of directors of CNB Bancshares, Inc. and Fifth Third Bancorp
have agreed that Fifth Third will acquire CNB Bancshares in a merger. If the
merger is approved by the shareholders of CNB Bancshares and all other closing
conditions are satisfied, each outstanding share of CNB Bancshares common stock
will be exchanged for .8825 of a share of Fifth Third common stock. The board of
directors of CNB Bancshares believes that the merger is in CNB Bancshares' and
your best interests.
The merger cannot be completed unless the shareholders of CNB Bancshares
approve the affiliation agreement and the merger. CNB Bancshares has scheduled a
special meeting for its shareholders to vote on the affiliation agreement and
the merger. The date, time and place of the special meeting are as follows:
10:00 a.m., Central Daylight Savings Time
October 14, 1999
CNB Bancshares, Inc.
20 N.W. Third Street
15th Floor
Evansville, Indiana 47739
Whether or not you plan to attend the special meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. YOUR VOTE IS
VERY IMPORTANT.
Fifth Third common stock is traded on the Nasdaq National Market under the
symbol "FITB."
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FOR A DESCRIPTION OF CERTAIN SIGNIFICANT CONSIDERATIONS IN CONNECTION WITH
THE MERGER AND RELATED MATTERS DESCRIBED IN THIS DOCUMENT, SEE "RISK FACTORS"
BEGINNING ON PAGE 9.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------------------
THE INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONS HAS NOT PASSED UPON THE
ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED HEREIN.
------------------------------------------------------
THE SHARES OF FIFTH THIRD COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------------------------------------
The date of this proxy statement/prospectus is September 2, 1999
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
RISK FACTORS................................................ 9
THE SPECIAL MEETING......................................... 12
Purpose of the Meeting.................................... 12
Voting and Revocability of Proxies........................ 12
Vote Required............................................. 12
Solicitation of Proxies................................... 12
PROPOSAL -- MERGER OF CNB BANCSHARES INTO FIFTH THIRD....... 13
Structure of the Merger................................... 13
Corporate Governance...................................... 13
Merger Consideration...................................... 13
No Fractional Shares...................................... 14
CNB Trust Preferred; Convertible Debentures............... 14
Effective Time of the Merger.............................. 15
Exchange of Certificates.................................. 15
Background of the Merger.................................. 15
Recommendation of the CNB Bancshares Board and CNB
Bancshares' Reasons for the Merger..................... 18
Opinion Of CNB Bancshares' Financial Advisor.............. 20
Federal Income Tax Consequences........................... 28
Accounting Treatment...................................... 29
Resale of Fifth Third Common Stock by Affiliates.......... 29
No Dissenter's Rights..................................... 30
TERMS OF THE AFFILIATION AGREEMENT.......................... 31
Representations and Warranties............................ 31
Conduct Pending Merger.................................... 31
Conditions to Closing..................................... 33
Termination; Amendment; Waiver............................ 34
Interests of Certain Persons in the Merger................ 34
Effect on CNB Bancshares Employees........................ 37
TERMS OF THE STOCK OPTION AGREEMENT......................... 38
FIFTH THIRD BANCORP......................................... 42
Description of Business................................... 42
Recent Developments....................................... 42
Additional Information.................................... 43
</TABLE>
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<TABLE>
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CNB BANCSHARES, INC. ....................................... 44
Description of Business................................... 44
Additional Information.................................... 44
UNAUDITED PRO FORMA FINANCIAL INFORMATION................... 44
SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD........... 50
SELECTED HISTORICAL FINANCIAL DATA OF CNB BANCSHARES........ 52
DESCRIPTION OF CAPITAL STOCK AND COMPARATIVE RIGHTS OF
SHAREHOLDERS.............................................. 54
Voting Rights............................................. 54
Dividends................................................. 55
Preemptive Rights......................................... 56
Rights Upon Liquidation................................... 56
Indemnification and Personal Liability of Directors and
Officers............................................... 56
Shareholders' Meetings; Quorum............................ 57
Qualification of Directors................................ 57
Removal of Directors...................................... 57
Amendment to Articles of Incorporation and Code of
Regulations............................................ 58
Vacancies on the Board of Directors....................... 59
Advance Notice Requirements for Nominations of Directors
at Meetings of Shareholders............................ 59
Subscription, Conversion, Redemption Rights; Stock
Nonassessable.......................................... 60
Change-of-Control Provisions.............................. 60
Consideration of Non-Shareholder Interests................ 63
EFFECT OF GOVERNMENTAL POLICIES............................. 64
REGULATION OF FINANCIAL INSTITUTIONS........................ 64
Holding Company Regulation................................ 64
Capital Requirements...................................... 65
Regulation of Banks....................................... 65
LEGAL MATTERS............................................... 66
EXPERTS..................................................... 66
WHERE YOU CAN FIND MORE INFORMATION......................... 66
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ANNEXES:
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Annex A: Affiliation Agreement dated June 16, 1999 by and between
Fifth Third Bancorp and CNB Bancshares, Inc. (excluding
exhibits)
Annex B: Stock Option Agreement dated June 16, 1999 between CNB
Bancshares, Inc., as Issuer, and Fifth Third Bancorp, as
Grantee
Annex C: Fairness Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation
</TABLE>
ii
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY DO CNB BANCSHARES AND FIFTH THIRD WANT TO MERGE?
A: The CNB Bancshares board of directors believes that you will benefit by
becoming a shareholder of Fifth Third, which has a strong financial
performance record. The CNB Bancshares board also believes that you will
benefit from the opportunity for potential future appreciation of Fifth
Third common stock. Fifth Third wants to better serve its customers in CNB
Bancshares' service areas and to expand Fifth Third's presence in those
markets.
Q: WHAT WILL I RECEIVE FOR MY CNB BANCSHARES SHARES?
A: You will receive .8825 of a share of Fifth Third common stock for each share
of CNB Bancshares common stock that you own at the effective time of the
merger. The exchange ratio reflects a substantial premium for your shares
compared to their market price prior to the merger announcement. Fifth Third
will not issue any fractional shares. Instead, you will receive cash in lieu
of any fractional share owed to you (including fractional shares owed as a
result of conversion of shares of CNB Bancshares common stock held either
through CNB Bancshares' dividend reinvestment plan or in book-entry form) in
an amount based on the closing price of Fifth Third common stock on the
effective date of the merger. As of August 31, 1999, the market value of
.8825 of a share of Fifth Third common stock was $58.47. The market value of
the shares of Fifth Third common stock that you will receive in the merger
will fluctuate both before and after the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger as soon as possible after the shareholders'
meeting, assuming the required shareholder approval is obtained. The merger
is also subject to the approval of federal and state banking regulatory
authorities and the satisfaction of other closing conditions.
Q: WHEN AND WHERE WILL THE SPECIAL MEETING TAKE PLACE?
A: The special meeting will be held at 10:00 a.m., Central Daylight Savings
Time, on October 14, 1999, at the headquarters of CNB Bancshares, Inc., 20
N.W. Third Street, 15th Floor, Evansville, Indiana.
Q: WHAT DO I NEED TO DO NOW?
A: After reviewing this document, indicate on your proxy card how you want to
vote, sign it and mail it in the enclosed return envelope as soon as
possible.
Q: HOW WILL MY SHARES BE VOTED IF I RETURN A BLANK PROXY CARD?
A: If you sign, date and send in your proxy card and do not indicate how you
want to vote, your proxies will be counted as a vote in favor of the
affiliation agreement and the merger at the special meeting.
Q: WHAT WILL BE THE EFFECT IF I DO NOT VOTE?
A: If you do not return your proxy card or otherwise vote at the special
meeting, it will have the same effect as if you voted against the
affiliation agreement and the merger.
Q: CAN I VOTE MY SHARES IN PERSON?
A: Yes. You may attend the special meeting and vote your shares in person
rather than signing and mailing your proxy card.
Q: CAN I REVOKE MY PROXIES AND CHANGE MY MIND?
A: Yes. You may take back your proxies up to and including the day of the
special meeting by following the directions on page 12. Then you can either
sign and deliver a new proxy or attend the special meeting and vote in
person.
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Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you instruct your broker on how to
vote. Your broker will send you directions on how you can instruct your
broker to vote. Your broker cannot vote your shares without instructions
from you.
Q: IF I HOLD TRUST PREFERRED SECURITIES OF CNB CAPITAL TRUST I, DO I VOTE THOSE
SHARES AT THE SPECIAL MEETING?
A: No. Only shares of CNB Bancshares common stock are entitled to vote at the
special meeting.
Q: WHAT WILL HAPPEN TO MY TRUST PREFERRED SECURITIES OF CNB CAPITAL TRUST I AS
A RESULT OF THE MERGER?
A: The trust preferred securities of CNB Capital Trust I will remain issued and
outstanding following the merger and will be convertible into Fifth Third
common stock in accordance with the exchange ratio.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send you written instructions for
exchanging your stock certificates and how you will receive certificates for
shares held in the CNB Bancshares dividend reinvestment plan or book-entry
form.
Q: WHO CAN ANSWER MY QUESTIONS ABOUT THE MERGER?
A: If you have more questions about the merger, please contact the shareholder
relations department of CNB Bancshares at (812) 456-3416 or e-mail at
[email protected].
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SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document, including the annexes,
and the other documents we have referred you to. For more information about
Fifth Third and CNB Bancshares, see "Where You Can Find More Information." (page
66)
THE COMPANIES
FIFTH THIRD BANCORP
38 FOUNTAIN SQUARE PLAZA
CINCINNATI, OHIO 45236
(513) 579-5300
Fifth Third is a registered multi-bank holding company, incorporated under
Ohio law, which conducts its principal activities through its banking and
non-banking subsidiaries. Fifth Third's ten subsidiary depository institutions
operate a general banking business from 483 offices located throughout Ohio,
Indiana, Kentucky, Michigan, Florida and Arizona. At June 30, 1999, on a
consolidated basis, Fifth Third had assets of approximately $31.6 billion,
deposits of approximately $20.1 billion, and shareholders' equity of
approximately $3.3 billion. Fifth Third common stock is traded on the Nasdaq
National Market under the symbol "FITB."
CNB BANCSHARES, INC.
20 N.W. THIRD STREET
EVANSVILLE, INDIANA 47739
(812) 456-3400
CNB Bancshares is a bank holding company incorporated under Indiana law.
CNB Bancshares owns all of the stock of Civitas Bank which is headquartered in
St. Joseph, Michigan and has executive offices in Evansville, Indiana. Civitas
Bank operates its 145 banking offices located throughout Indiana, Kentucky,
Michigan and Illinois. At June 30, 1999, CNB Bancshares, on a consolidated
basis, had assets of $7.7 billion, deposits of $4.9 billion and shareholders'
equity of $480.0 million. CNB Bancshares common stock is traded on the New York
Stock Exchange under the symbol "BNK."
THE MERGER
Pursuant to the affiliation agreement between CNB Bancshares and Fifth
Third dated as of June 16, 1999, at the effective time of the merger, CNB
Bancshares will merge with and into Fifth Third. Fifth Third will issue shares
of its common stock to the existing shareholders of CNB Bancshares in exchange
for their shares of CNB Bancshares common stock. Subsequent to the merger, we
anticipate that Fifth Third Bank, Indiana will merge with and into Civitas Bank.
CNB BANCSHARES SHAREHOLDERS WILL RECEIVE FIFTH THIRD STOCK IN THE MERGER
If the merger is approved and consummated, you will have the right to
receive .8825 of a share of Fifth Third common stock for each share of CNB
Bancshares common stock that you own as of the effective time of the merger.
Based on the closing price per share of Fifth Third common stock on the Nasdaq
National Market on August 31, 1999, the value of .8825 of a share of Fifth Third
common stock was $58.47.
The number of shares of Fifth Third common stock you will receive in the
merger is fixed, subject to adjustments for stock dividends and similar events
before the merger is completed. Such adjustments will not alter the value of the
exchange ratio, but the value of the shares of Fifth Third common stock to be
issued in the merger will fluctuate from time to time.
NO FRACTIONAL SHARES WILL BE ISSUED
Fifth Third will not issue any fractional shares. Instead, you will receive
cash in lieu of any fractional share of Fifth Third common stock owed to you
(including fractional shares owed as a result of conversion of shares of CNB
Bancshares common stock held either through CNB Bancshares' dividend
reinvestment plan or in book-entry form) in an amount based on the last closing
price of Fifth Third common stock on the date on which the merger occurs.
TAX CONSEQUENCES OF THE MERGER
The exchange of shares is expected to be tax-free to you for federal income
tax purposes, except for taxes payable on any cash you receive in lieu of
fractional shares. The expected material federal
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income tax consequences are set out in greater detail on page 28. We will not be
obligated to complete the merger unless we receive a legal opinion that the
federal income tax consequences to you are as described in the affiliation
agreement. That opinion will not bind the Internal Revenue Service, however,
which could take a different view.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on the facts of your own situation. You are urged to consult
your tax advisor for a full understanding of the tax consequences of the merger
to you.
REASONS FOR THE MERGER
The CNB Bancshares board believes that in the rapidly changing environment
of the banking industry, CNB Bancshares' long-term goal of enhancing shareholder
value will be reached by merging with Fifth Third. In addition, the CNB
Bancshares board believes that the customers and community served by CNB
Bancshares will benefit from the merger.
You can find a more detailed discussion of the background to the
affiliation agreement and CNB Bancshares' and Fifth Third's reasons for the
merger in this document under "Proposal -- Merger of CNB Bancshares into Fifth
Third -- Background of the Merger," and "Recommendation of the CNB Bancshares
Board and CNB Bancshares' Reasons for the Merger," beginning on page 15.
OPINION OF FINANCIAL ADVISOR
In deciding to approve the merger, the CNB Bancshares board considered an
opinion, dated June 15, 1999, from Donaldson, Lufkin & Jenrette Securities
Corporation, the financial advisor to CNB Bancshares, that, as of such date, the
consideration to be received by the shareholders of CNB Bancshares pursuant to
the affiliation agreement was fair to such shareholders from a financial point
of view. DLJ has confirmed this opinion by delivery of an additional written
opinion to the CNB Bancshares board, dated the date of this document. This
additional opinion is attached as Annex C to this document. We encourage you to
read this opinion completely to understand the assumptions made, matters
considered and limitations of the review undertaken by DLJ in providing its
opinions.
RECOMMENDATION TO CNB BANCSHARES SHAREHOLDERS
The CNB Bancshares board believes that the merger is in your best interests
and unanimously recommends that you vote FOR approval of the affiliation
agreement and the merger.
THE SPECIAL MEETING
A special meeting of the CNB Bancshares shareholders will be held at 10:00
a.m., Central Daylight Savings Time, on October 14, 1999, at the headquarters of
CNB Bancshares, 20 N.W. Third Street, 15th Floor, Evansville, Indiana. Holders
of CNB Bancshares common stock outstanding on August 20, 1999 are entitled to
vote at the special meeting and will be asked to consider and vote upon:
- the approval of the affiliation agreement and the merger; and
- any other matters as are properly presented at the special meeting.
As of the date of this document, the CNB Bancshares board does not know of
any other matters that will be presented at the special meeting.
VOTES REQUIRED
At the special meeting, the affiliation agreement and the merger must be
approved by the affirmative vote of at least a majority of the shares of CNB
Bancshares common stock outstanding at the close of business on August 20, 1999.
Approval of the affiliation agreement will also authorize the CNB
Bancshares board to exercise its discretion on whether to proceed with the
merger in the event CNB Bancshares has the right to terminate the affiliation
agreement. This determination may be made without notice to, or the
resolicitation of proxies from, the CNB Bancshares shareholders.
OWNERSHIP OF FIFTH THIRD FOLLOWING THE MERGER
Based on the number of shares of CNB Bancshares common stock outstanding on
the record date, Fifth Third will issue approximately 35,800,000 shares of its
common stock to CNB Bancshares shareholders in the merger. This will constitute
approximately 11.5% of the outstanding stock of Fifth Third immediately after
the merger.
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CONDITIONS TO THE MERGER
Fifth Third and CNB Bancshares will complete the merger only if certain
conditions are satisfied. Some of the conditions are listed below:
- the approval of the affiliation agreement and the merger by CNB
Bancshares shareholders;
- the receipt of certain regulatory approvals under federal and state
banking laws and expiration of any waiting periods; and
- the receipt of a letter from Fifth Third's independent auditors stating
its opinion that the merger shall qualify for pooling-of-interests
accounting treatment.
Some of the conditions to the merger may be waived by the company entitled
to assert the condition.
RIGHT TO TERMINATE
The boards of directors of Fifth Third and CNB Bancshares may jointly agree
in writing to terminate the affiliation agreement without completing the merger.
In addition, either company can individually terminate the affiliation agreement
prior to the completion of the merger if:
- the other party breaches any of the representations or warranties it made
or fails to comply with any of its obligations under the affiliation
agreement;
- the merger is not completed by April 1, 2000;
- the parties do not obtain the required regulatory approvals; or
- CNB Bancshares shareholders do not approve the affiliation agreement and
the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the CNB Bancshares board's recommendation that CNB
Bancshares shareholders vote in favor of the affiliation agreement and the
merger, you should be aware that certain CNB Bancshares directors and officers
may have interests in the merger that are different from, or in addition to,
yours.
CNB BANCSHARES EMPLOYMENT AND CHANGE-OF-CONTROL AGREEMENT PAYMENTS.
In lieu of any other severance benefits provided in the affiliation
agreement, Fifth Third will assume, upon consummation of the merger, the
obligations of CNB Bancshares under its existing change-of-control and
employment agreements.
FIFTH THIRD EMPLOYMENT AGREEMENT.
In the affiliation agreement, Fifth Third agreed to enter into a three year
employment agreement with James J. Giancola, CNB Bancshares' President and Chief
Executive Officer, at the effective time of the merger. Mr. Giancola will be
employed as the Chief Executive Officer of the surviving bank to the merger of
Civitas Bank and Fifth Third Bank, Indiana with an initial annual base salary of
$500,000, and will be eligible to receive variable compensation in an amount up
to 80% of base salary. On the effective date of the merger, Mr. Giancola will
also be granted 47,000 shares of Fifth Third common stock, which will be subject
to certain restrictions. He also will be eligible to receive annual stock
options to purchase between 50,000 and 80,000 shares pursuant to the terms of
Fifth Third's stock option plan.
RETENTION PROGRAM.
At the effective time of the merger, Fifth Third will establish a retention
program for key employees of CNB Bancshares or its subsidiaries under which
certain key employees will be granted options on the effective date of the
merger to purchase shares of Fifth Third common stock. Fifth Third will reserve
250,000 shares of Fifth Third common stock (subject to adjustment) for issuance
under the retention program.
STOCK OPTIONS.
At the effective time of the merger, all outstanding awards, options or
other rights to purchase CNB Bancshares common stock under CNB Bancshares' stock
option plans will become options to purchase Fifth Third common stock.
INDEMNIFICATION AND LIABILITY INSURANCE.
Fifth Third will assume all provisions for indemnification now existing in
favor of the directors and officers of CNB Bancshares and its subsidiaries.
Fifth Third also will purchase and
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keep in effect for a six-year period, a policy of directors' and officers'
liability insurance having liability limits and providing coverage for acts or
omissions of the type currently covered by CNB Bancshares' existing directors'
and officers' liability insurance for acts or omissions occurring at or prior to
the merger as long as such coverage may be obtained on a commercially reasonable
basis.
EFFECT ON CNB BANCSHARES EMPLOYEES
Fifth Third will use its best efforts to employ as many of the employees of
CNB Bancshares who desire employment within the Fifth Third holding company
system as possible, to the extent of available positions and consistent with
Fifth Third's standard staffing levels and personnel policies.
Fifth Third shall provide the employees of CNB Bancshares who become
employees of Fifth Third at or immediately subsequent to the merger as a group
with employee benefit plans in the aggregate that are comparable in all material
respects with the employee benefit plans provided to similarly situated
employees of Fifth Third. Under each employee benefit plan sponsored or
maintained by Fifth Third in which these employees participate, prior service
with CNB Bancshares shall be taken into account for purposes of eligibility,
vesting and, with the exception of any defined benefit plan, the accrual of
benefits.
Each employee of CNB Bancshares who becomes an employee of Fifth Third or
any of its subsidiaries or affiliates in connection with the merger, including
executive officers of CNB Bancshares, will be entitled to participate in all
employee benefit plans sponsored by Fifth Third on the same terms and to the
same extent as similarly situated employees of Fifth Third.
STOCK OPTION AGREEMENT
As an inducement and condition to Fifth Third's willingness to enter into
the affiliation agreement, CNB Bancshares entered into a stock option agreement
with Fifth Third. Pursuant to the stock option agreement, CNB Bancshares granted
Fifth Third an option which permits Fifth Third to purchase up to 6,921,479
shares of CNB Bancshares common stock, subject to adjustment in specified
circumstances (up to approximately 19.9% of the number of shares of CNB
Bancshares common stock outstanding at the time of exercise without giving
effect to any shares subject or issued pursuant to the option). The exercise
price of the option is $42.96 per share, subject to adjustment under specified
circumstances. The option is only exercisable by Fifth Third in certain
specified circumstances.
NO DISSENTERS' RIGHTS
Shareholders of CNB Bancshares will not have any rights to dissent from, or
obtain payment of the "fair value" of their shares as a result of, the merger.
ACCOUNTING
Fifth Third expects the merger to qualify for pooling-of-interests
accounting treatment.
RECENT DEVELOPMENTS
Fifth Third's strategy for growth includes strengthening its presence in
core markets, expanding into contiguous markets and broadening its product
offerings. Consistent with this strategy, in addition to the merger, Fifth Third
recently acquired Ashland Bankshares, Inc., a bank holding company headquartered
in Ashland, Kentucky, Enterprise Federal Bancorp, Inc., a savings and loan
holding company headquartered in West Chester, Ohio, South Florida Bank Holding
Corporation, a bank holding company headquartered in Fort Myers, Florida and
Emerald Financial Corp., a unitary savings and loan holding company
headquartered in Strongsville, Ohio.
In addition, Fifth Third's pending acquisition of Peoples Bank Corporation
of Indianapolis, a bank holding company headquartered in Indianapolis, Indiana,
is expected to be completed during the fourth quarter of 1999, shortly after the
merger with CNB Bancshares.
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COMPARATIVE MARKET PRICES AND DIVIDENDS
Fifth Third common stock is traded on the Nasdaq National Market under the
symbol "FITB" and CNB Bancshares common stock is traded on the New York Stock
Exchange under the symbol "BNK." On June 15, 1999, the business day immediately
preceding the public announcement of the execution of the affiliation agreement
setting forth the terms of the merger, and on August 31, 1999, the most recent
practicable date prior to the printing of this document, the market prices of
Fifth Third common stock and CNB Bancshares common stock and the equivalent
price per share of CNB Bancshares common stock giving effect to the merger were
as follows:
<TABLE>
<CAPTION>
JUNE 15, 1999 AUGUST 31, 1999
------------- ---------------
<S> <C> <C>
Fifth Third common stock (Closing sales price).............. $67.63 $66.25
CNB Bancshares common stock (Closing sales price)........... $41.44 $57.13
Equivalent Price Per Share of CNB Bancshares common stock... $59.68 $58.47
</TABLE>
The following table sets forth (in per share amounts), for the calender
quarters indicated, the high and low sales prices and the cash dividends
declared during each quarterly period:
<TABLE>
<CAPTION>
FIFTH THIRD COMMON STOCK CNB BANCSHARES COMMON STOCK
----------------------------- -----------------------------
DIVIDENDS DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter..................... $39.78 $27.00 $0.129 $37.53 $32.88 $0.200
Second Quarter.................... 38.06 30.94 0.147 40.70 35.59 0.200
Third Quarter..................... 44.33 36.33 0.147 41.02 36.52 0.200
Fourth Quarter.................... 55.67 41.08 0.147 46.31 37.33 0.220
1998:
First Quarter..................... 58.83 49.50 0.170 47.03 39.41 0.220
Second Quarter.................... 63.13 47.50 0.170 51.19 41.19 0.220
Third Quarter..................... 67.25 49.25 0.170 50.23 40.00 0.220
Fourth Quarter.................... 74.13 50.31 0.200 47.13 38.75 0.240
1999:
First Quarter..................... 75.44 62.38 0.200 46.56 39.06 0.240
Second Quarter.................... 74.25 61.63 0.200 57.31 38.06 0.240
Third Quarter (through August 31,
1999)........................... 69.88 60.06 -- 60.19 52.38 0.240
</TABLE>
7
<PAGE> 13
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share information for both Fifth
Third and CNB Bancshares at the dates indicated and for the periods then ended.
The equivalent shares basis is based on the exchange ratio of .8825 of a share
of Fifth Third common stock on a pro forma basis for each share of CNB
Bancshares common stock. Neither CNB Bancshares nor Fifth Third can give any
assurances that the following table will accurately reflect figures and values
applicable at the date of completion of the merger.
<TABLE>
<CAPTION>
EQUIVALENT SHARES
BASIS -- .8825
SHARES OF
FIFTH THIRD
COMMON STOCK
FIFTH THIRD CNB BANCSHARES PRO FORMA
-------------------------------------- ----------------- -----------------
HISTORICAL PRO FORMA(1) HISTORICAL
----------------- ----------------- ----------------- -----------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED BASIC DILUTED
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS PER SHARE
Six Months Ended June 30,
1999........................ $ 1.16 $1.14 $ 1.21 $1.17 $ 1.38 $1.34 $ 1.07 $1.03
Twelve months ended December
31:
1998........................ $ 1.80 $1.76 $ 1.82 $1.77 $ 1.74 $1.73 $ 1.61 $1.56
1997........................ $ 1.76 $1.73 $ 1.78 $1.73 $ 1.71 $1.69 $ 1.57 $1.53
1996........................ $ 1.45 $1.42 $ 1.48 $1.43 $ 1.54 $1.52 $ 1.31 $1.26
DIVIDENDS DECLARED PER SHARE
Six Months Ended June 30,
1999........................ $0.400 -- $0.400 -- $0.480 -- $0.353 --
Twelve Months Ended December
31:
1998........................ $0.710 -- $0.710 -- $0.900 -- $0.627 --
1997........................ $0.569 -- $0.569 -- $0.820 -- $0.502 --
1996........................ $0.489 -- $0.489 -- $0.740 -- $0.432 --
BOOK VALUE PER SHARE
At June 30, 1999:............. $12.29 -- $12.63 -- $13.81 -- $11.15 --
At December 31, 1998:......... $11.91 -- $12.45 -- $14.85 -- $10.99 --
</TABLE>
- ---------------
(1) Does not include the impact of Fifth Third's recent acquisition of Emerald
Financial Corp. or Fifth Third's pending acquisition of Peoples Bank
Corporation of Indianapolis.
8
<PAGE> 14
RISK FACTORS
In making your determination as to how to vote on the merger, you should
consider the following factors:
RISKS RELATING TO THE MERGER
THE EXCHANGE RATIO IS FIXED AND WILL NOT BE ADJUSTED TO REFLECT ANY CHANGES IN
STOCK VALUE PRIOR TO THE EFFECTIVE TIME OF THE MERGER.
The precise value of the merger consideration to be paid to CNB Bancshares'
shareholders will not be known at the time of the special meeting. The
affiliation agreement provides that .8825 of a share of Fifth Third common stock
will be issued in the merger in exchange for each share of CNB Bancshares common
stock. This exchange ratio is fixed and will not be adjusted to reflect any
changes in the value of either CNB Bancshares or Fifth Third common stock
between the date of the affiliation agreement and the effective time of the
merger. The value of Fifth Third common stock will fluctuate prior to the
effective time of the merger and may be higher or lower than on the date of the
affiliation agreement or the date of the special meeting.
CNB BANCSHARES' SHAREHOLDERS WILL NOT CONTROL FIFTH THIRD'S FUTURE OPERATIONS.
CNB Bancshares' shareholders collectively own 100% of CNB Bancshares and,
in the aggregate, have the absolute power to approve or reject any matters
requiring the approval of shareholders under Indiana law and CNB Bancshares'
articles of incorporation. After the merger, CNB Bancshares' shareholders in the
aggregate will hold approximately 11.5% of the outstanding shares of Fifth Third
common stock. Even if all of the former CNB Bancshares shareholders voted in
concert on all matters presented to Fifth Third's shareholders from time to
time, this number of shares of Fifth Third common stock likely will not be able
to dictate whether these proposals are ultimately approved or rejected.
CERTAIN DIRECTORS AND EXECUTIVE OFFICERS OF CNB BANCSHARES WILL RECEIVE
BENEFITS IN THE MERGER IN ADDITION TO THE MERGER CONSIDERATION RECEIVED BY ALL
OTHER CNB BANCSHARES SHAREHOLDERS.
- Fifth Third will assume the obligations of CNB Bancshares under all
existing change-in-control and employment agreements;
- Fifth Third will employ James J. Giancola as the chief executive officer
of the surviving bank to the merger of Civitas Bank and Fifth Third Bank,
Indiana at an annual base salary of $500,000 and possible variable annual
compensation in an amount of up to 80% of his base salary and option
shares of Fifth Third common stock in an amount from 50,000 to 80,000
shares per year;
- Mr. Giancola will be granted 47,000 restricted shares of Fifth Third
common stock at the effective time of the merger;
- Fifth Third will: (1) establish a retention program for certain key
employees of CNB Bancshares under which these key employees will be
granted options (which will vest on the same schedule as those options
regularly granted to employees of Fifth Third) on the effective date of
the merger to purchase shares of Fifth Third common stock and (2) reserve
250,000 shares of Fifth Third common stock (subject to adjustment) for
issuance under the retention program;
- Stock options granted to certain directors, executive officers and key
employees of CNB Bancshares under various stock option and incentive
plans established or assumed by CNB Bancshares which are not already
vested or exercisable will become vested and exercisable upon the
approval of the affiliation agreement and the merger by the shareholders
of CNB Bancshares; and
- Three current directors of CNB Bancshares to be mutually selected by CNB
Bancshares and Fifth Third will be appointed to the board of directors of
Fifth Third at the first meeting of the Fifth Third board after the
effective time of the merger.
9
<PAGE> 15
THE VALUE OF CNB BANCSHARES COMMON STOCK MAY VARY IN THE FUTURE.
If the merger is not completed, the value of CNB Bancshares common stock
could increase or decrease in the future. Such value could be either higher or
lower than the merger consideration being offered by Fifth Third in the merger.
POST MERGER RISKS
FIFTH THIRD'S ACQUISITION STRATEGY COULD POSE RISKS.
Fifth Third has grown through acquisitions in recent years and anticipates
that it will make additional acquisitions in the future. Fifth Third frequently
evaluates strategic opportunities not only in the banking industry but also in
related financial service industries. One or more future acquisitions could be
material to Fifth Third. Fifth Third may need to issue more common stock to pay
for those acquisitions, which would further dilute the ownership interest of all
Fifth Third shareholders at the time of the acquisition. Acquisitions also could
require Fifth Third to use substantial cash or other liquid assets or to incur
debt. In those events, Fifth Third could become more susceptible to economic
downturns and competitive pressures.
FIFTH THIRD FACES INTENSE COMPETITION FOR FINANCIAL SERVICES.
Fifth Third competes with hundreds of commercial banks, savings and loans
and other financial services providers. In addition to the challenge of
attracting and retaining customers for traditional banking services, Fifth
Third's competitors now include securities dealers, brokers, mortgage bankers,
investment advisors and finance and insurance companies who seek to offer
one-stop financial services to their customers that may include services that
banks have not been able or allowed to offer to their customers in the past. The
increasingly competitive environment is a result primarily of changes in
regulation, changes in technology and product delivery systems and the
accelerating pace of consolidation among financial services providers. Fifth
Third's ability to maintain its history of strong financial performance and
return on investment to shareholders will depend in part on Fifth Third's
ability to expand its scope of available financial services as needed to meet
the needs and demands of its customers.
FIFTH THIRD MAY ENCOUNTER DIFFICULTIES IN COMBINING THE OPERATIONS OF ACQUIRED
ENTITIES WITH FIFTH THIRD'S OWN OPERATIONS.
Because the markets and industries in which Fifth Third operates are highly
competitive, and because of the inherent uncertainties associated with the
integration of an acquired company, there can be no assurance that Fifth Third
will be able to realize fully the strategic objectives and operating
efficiencies in all of its acquisitions, including CNB Bancshares. In addition,
Fifth Third may lose key personnel, either from the acquired entities or from
itself, as a result of acquisitions. These factors could contribute to the
benefits expected from acquisitions not being achieved within expected time
frames or not being achieved at all.
GOVERNMENTAL REGULATION AND LEGISLATION COULD LIMIT FIFTH THIRD'S FUTURE
GROWTH.
Fifth Third and its subsidiaries are subject to extensive state and federal
regulation, supervision, and legislation which govern almost all aspects of the
operations of Fifth Third and its subsidiaries. These laws may change from time
to time and are primarily intended for the protection of consumers, depositors,
and the deposit insurance funds. The impact of any changes to these laws may
negatively impact Fifth Third's ability to expand its services and to increase
the value of its business. In addition, Fifth Third's earnings are affected by
the monetary policies of the Federal Reserve Board. These policies, which
include regulating the national supply of bank reserves and bank credit, can
have a major effect upon the source and cost of funds and the rates of return
earned on loans and investments. The Federal Reserve influences the size and
distribution of bank reserves through its open market operations and changes in
cash reserve requirements against member bank deposits. We cannot predict what
effect any presently contemplated or future changes in the laws or regulations
or their interpretations would have on Fifth Third, but such changes could be
materially adverse to Fifth Third's shareholders.
10
<PAGE> 16
CHANGES IN INTEREST RATES COULD REDUCE FIFTH THIRD'S INCOME AND CASH FLOWS.
Fifth Third's income and cash flows depend to a great extent on "interest
rate differentials" and the resulting net interest margins (i.e., the difference
between the interest rates earned on interest-earning assets such as loans and
investment securities, and the interest rates paid on interest-bearing
liabilities such as deposits and borrowings). These rates are highly sensitive
to many factors which are beyond Fifth Third's control, including general
economic conditions and the policies of various governmental and regulatory
agencies, in particular, the Federal Reserve Board. Changes in monetary policy,
including changes in interest rates, will influence the origination of loans,
the purchase of investments, the generation of deposits, and the rates received
on loans and investment securities and paid on deposits. Fluctuations in these
areas may adversely affect Fifth Third.
FIFTH THIRD'S AND CNB BANCSHARES' OPERATIONS EACH MUST BE YEAR 2000 COMPLIANT.
As with other bank holding companies and other businesses generally, Fifth
Third and CNB Bancshares are exposed to the risk that the year 2000 could cause
system failures which could be disruptive to their operations. Although Fifth
Third and CNB Bancshares have each undertaken significant projects to minimize
the risk that the year 2000 will result in any significant problems for them,
some factors, including the year 2000 compliance of Fifth Third's and CNB
Bancshares' customers and suppliers, are not within their direct control and
could disrupt their operations. Additionally, we do not plan to merge CNB
Bancshares' computer systems with those of Fifth Third until after January 1,
2000. Therefore, each of Fifth Third's and CNB Bancshares' systems must
independently be year 2000 compliant. If either system is not so compliant, the
systems and operations of the combined company as a whole could be disrupted.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.
This document, including information incorporated by reference into this
document, contains a wide variety of historical and forward looking information.
There are a number of important factors which could cause future results to
differ materially from historical performance. These include, but are not
limited to, financial condition, prepayment speeds, loan sale volumes,
charge-offs and loan loss provisions. Factors that might cause such a difference
include, but are not limited to: (1) expected cost savings from the merger
cannot be realized within the expected time frame; (2) revenues following the
merger are lower than expected; (3) costs or difficulties related to the
integration of the business of Fifth Third and CNB Bancshares are greater than
expected; (4) competitive pressures among depository institutions increase
significantly; (5) changes in the interest rate environment reduce interest
margins; (6) general economic conditions, either nationally or in the states in
which Fifth Third does business, are less favorable than expected; (7) year 2000
compliance failures result in additional expense or business disruption; (8)
legislative or regulatory changes adversely affect the businesses in which Fifth
Third is engaged; and (9) changes in the securities markets.
11
<PAGE> 17
THE SPECIAL MEETING
This document and the accompanying proxy card are being furnished to you in
connection with the solicitation by the board of directors of CNB Bancshares of
proxies to be used at the special meeting to be held at 10:00 a.m., Central
Daylight Savings Time, on October 14, 1999, at the headquarters of CNB
Bancshares, 20 N.W. Third Street, 15th Floor, Evansville, Indiana, and at any
adjournments thereof. This document, the enclosed notice of CNB Bancshares'
special meeting and proxy card are first being sent to you on or about September
8, 1999.
PURPOSE OF THE MEETING
The purpose of the special meeting of CNB Bancshares shareholders is to
approve the affiliation agreement, and the transactions contemplated thereby,
including the merger of CNB Bancshares with and into Fifth Third. CNB Bancshares
shareholders also may consider and vote upon such other matters as are properly
brought before the special meeting, including a proposal to adjourn the special
meeting to permit further solicitation of proxies by the CNB Bancshares board in
the event that there are not sufficient votes to approve the affiliation
agreement and the merger at the time of the special meeting. However, no proxy
which is voted against the affiliation agreement and the merger will be voted in
favor of adjournment to solicit further proxies for such proposal. As of the
date of this document, the CNB Bancshares board knows of no business that will
be presented for consideration at the special meeting, other than matters
described in this document.
VOTING AND REVOCABILITY OF PROXIES
Shareholders who execute proxies retain the right to revoke them at any
time prior to their exercise. Unless revoked, the shares represented by proxies
will be voted at the special meeting and all adjournments thereof. Proxies may
be revoked by: (1) written notice to David L. Knapp, Secretary, CNB Bancshares,
Inc., 20 N.W. Third Street, Evansville, Indiana 47739, (2) filing a later dated
proxy prior to a vote being taken on a particular proposal at the special
meeting, or (3) attending the special meeting and voting in person.
Proxies solicited by the CNB Bancshares board will be voted in accordance
with the directions given on the proxy cards. IF YOU SIGN AND DATE THE PROXY BUT
DO NOT INDICATE YOUR VOTE ON THE PROXY, YOUR PROXY WILL BE VOTED FOR APPROVAL OF
THE AFFILIATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING
THE MERGER, AT THE SPECIAL MEETING. The proxies confer discretionary authority
on the persons named on the proxy cards to vote CNB Bancshares common stock with
respect to matters incident to the conduct of the special meeting. If any other
business is presented at the special meeting, proxies will be voted in
accordance with the discretion of the proxy holders. Proxies marked as
abstentions will have the same effect as a vote against the affiliation
agreement and the merger at the special meeting. If you do not return your proxy
card or otherwise vote at the special meeting, it will have the same effect as
if you voted against the affiliation agreement and the merger at the special
meeting.
VOTE REQUIRED
The affirmative vote of at least a majority of the shares of CNB Bancshares
common stock outstanding as of August 20, 1999 is required for the approval of
the affiliation agreement and the merger at the special meeting. We expect that
substantially all of the 1,303,007 shares of CNB Bancshares common stock
beneficially owned by directors and executive officers of CNB Bancshares at the
August 20, 1999 record date (3.8% of the 34,567,431 total outstanding shares at
that date) will be voted for the approval of the affiliation agreement and the
merger.
SOLICITATION OF PROXIES
CNB Bancshares will pay all the costs of soliciting proxies, except that
Fifth Third will share the expenses of printing and mailing this document and,
as described below, Fifth Third may pay a fee to D.F. King & Co., Inc. CNB
Bancshares will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of
12
<PAGE> 18
common stock. In addition to solicitations by mail, directors, officers and
employees of CNB Bancshares may solicit proxies personally or by telephone
without additional compensation.
Fifth Third may retain D.F. King & Co., Inc., a proxy solicitation firm, to
assist CNB Bancshares in soliciting its shareholders. As of the date of this
document, Fifth Third has not engaged D.F. King to assist CNB Bancshares in
soliciting proxies for the special meeting, but may do so prior to the special
meeting. If Fifth Third does retain D.F. King to assist CNB Bancshares in
soliciting the CNB Bancshares shareholders, Fifth Third anticipates that the
costs of these services would be approximately $5,000.
PROPOSAL -- MERGER OF CNB BANCSHARES INTO FIFTH THIRD
The following description summarizes all material terms of the affiliation
agreement. We urge you to read the affiliation agreement, a copy of which is
attached as Annex A to this document and is incorporated by reference into this
document.
STRUCTURE OF THE MERGER
Upon completion of the merger, CNB Bancshares will merge with and into
Fifth Third and CNB Bancshares will cease to exist as a separate entity. In a
related subsequent transaction, we anticipate that Fifth Third Bank, Indiana
will merge with and into Civitas Bank. Fifth Third may, at any time, change the
legal method of effecting these mergers if and to the extent Fifth Third
reasonably deems such change to be desirable, including, without limitation, to
provide for the merger of CNB Bancshares with a wholly-owned subsidiary of Fifth
Third or the merger of Civitas Bank with Fifth Third Bank, Indiana or another
wholly-owned subsidiary of Fifth Third; provided, however, that no such change
shall: (1) alter or change the amount or kind of consideration to be received by
the shareholders of CNB Bancshares in the merger, (2) adversely affect the tax
treatment to shareholders of CNB Bancshares, or (3) materially impede or delay
receipt of any approvals referred to in the affiliation agreement or the
consummation of the transactions contemplated thereby.
CORPORATE GOVERNANCE
After the merger is completed, the directors and officers of Fifth Third
who were in office prior to the effective time of the merger will continue to
serve as the directors and officers, respectively, of Fifth Third for the term
for which they were elected, subject to the Fifth Third code of regulations and
in accordance with law. Additionally, in the affiliation agreement, Fifth Third
has agreed: (1) to take all steps necessary at the first Fifth Third board of
directors meeting held after the effective time of the merger to elect or
appoint as directors of Fifth Third three persons mutually selected by Fifth
Third and CNB Bancshares prior to the effective time of the merger who were
directors of CNB Bancshares on the date the affiliation agreement was executed,
with each of such persons to serve in a different class of the Fifth Third board
of directors, and (2) to enter into an employment agreement to employ James J.
Giancola as the Chief Executive Officer of the surviving bank to the merger of
Civitas Bank and Fifth Third Bank, Indiana. See "Terms of the Affiliation
Agreement -- Interests of Certain Persons in the Merger" for a description of
Mr. Giancola's employment agreement with Fifth Third.
MERGER CONSIDERATION
Each share of CNB Bancshares common stock (excluding treasury shares) that
is issued and outstanding immediately prior to the effective time of the merger
will be canceled and converted, by virtue of the merger and without any further
action, into the right to receive .8825 of a share of Fifth Third common stock.
This exchange ratio is subject to change: (1) so as to give CNB Bancshares'
shareholders the economic benefit of any stock dividends, reclassifications,
recapitalizations, split-ups, exchanges of shares or combinations or
subdivisions of Fifth Third common stock effected before the effective time of
the merger, and (2) so as to maintain as closely as practicable the proportional
interest in Fifth Third common stock which the shareholders of CNB Bancshares
would otherwise have received if CNB Bancshares should pay or declare a stock
dividend prior to the effective time of the merger. Additionally, if Fifth Third
consolidates with or is
13
<PAGE> 19
merged with or into any other corporation prior to the effective time of the
merger and the terms of this other transaction provide that Fifth Third common
stock is to be converted into or exchanged for the shares of any other
corporation or entity, then provision shall be made as part of the terms of such
other transaction so that each shareholder of CNB Bancshares who would be
entitled to receive shares of Fifth Third common stock pursuant to the
affiliation agreement shall be entitled to receive the same kind and amount of
securities or assets as such CNB Bancshares shareholder would have received with
respect to such shares if the merger between Fifth Third and CNB Bancshares had
been consummated and such shareholder had received shares of Fifth Third common
stock immediately prior to the consummation of the other transaction.
THE VALUE OF THE FIFTH THIRD COMMON STOCK TO BE RECEIVED BY YOU WILL DEPEND
ON THE MARKET PRICE OF SHARES OF FIFTH THIRD COMMON STOCK AT THE EFFECTIVE TIME
OF THE MERGER. THE MARKET PRICE OF FIFTH THIRD COMMON STOCK IS SUBJECT TO CHANGE
AT ALL TIMES BASED ON THE FUTURE FINANCIAL CONDITION AND OPERATING RESULTS OF
FIFTH THIRD, FUTURE MARKET CONDITIONS AND OTHER FACTORS. ON JUNE 15, 1999, THE
BUSINESS DAY IMMEDIATELY PRECEDING PUBLIC ANNOUNCEMENT OF THE MERGER, FIFTH
THIRD'S COMMON STOCK CLOSED AT $67.63. ON AUGUST 31, 1999, FIFTH THIRD'S COMMON
STOCK CLOSED AT $66.25. THE MARKET PRICE OF FIFTH THIRD COMMON STOCK AT THE
EFFECTIVE TIME OF THE MERGER MAY BE SUBSTANTIALLY HIGHER OR LOWER THAN RECENT
PRICES. YOU ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR FIFTH THIRD
COMMON STOCK.
NO FRACTIONAL SHARES
Only whole shares of Fifth Third common stock will be issued in connection
with the merger. In lieu of fractional shares, each holder of CNB Bancshares
common stock (including shares of CNB Bancshares common stock held either
through CNB Bancshares' dividend reinvestment plan or in book-entry form)
otherwise entitled to a fractional share of Fifth Third common stock will be
paid, without interest, an amount of cash equal to the amount of this fraction
multiplied by the per share closing price of Fifth Third common stock as
reported on the Nasdaq National Market on the date the merger is completed. No
shareholder will be entitled to interest, dividends, voting rights or other
rights in respect of any fractional share.
CNB TRUST PREFERRED; CONVERTIBLE DEBENTURES
CNB Capital Trust I, a trust created by CNB Bancshares, issued trust
preferred securities in June 1998. The trust preferred securities are listed on
the New York Stock Exchange under the symbol "BNK PrA." The trust preferred
securities have a liquidation amount of $25 per share with a cumulative annual
distribution rate of 6.0%, or $.375 per share, payable quarterly, and mature on
June 30, 2028. The trust preferred securities are convertible at any time into
shares of CNB Bancshares common stock at a conversion ratio of .4835 shares of
CNB Bancshares common stock for each trust preferred security (equivalent to a
conversion price of $51.71), subject to certain adjustments. The trust preferred
securities will remain issued and outstanding following the merger and their
terms will be unaffected by the merger, except that instead of being convertible
into CNB Bancshares common stock, the trust preferred securities will be
convertible into Fifth Third common stock and at a conversion ratio of .4267
shares of Fifth Third common stock for each trust preferred security (equivalent
to a conversion price of $58.59), subject to certain adjustments. The sole
assets of CNB Capital Trust I are convertible subordinated debentures of CNB
Bancshares with the interest rate, maturity date and conversion rate
substantially identical to those of the trust preferred securities. In order to
convert the trust preferred securities into shares of CNB common stock, the
holder first exchanges the trust preferred securities for convertible
subordinated debentures having a principal amount equal to the liquidation value
of the trust preferred securities so exchanged and the convertible subordinated
debentures are then converted into shares of CNB common stock at the applicable
conversion ratio. The convertible subordinated debentures will remain
outstanding, unchanged by reason of the merger, except that the obligations of
CNB Bancshares thereunder will be assumed by Fifth Third and, thereafter, the
convertible subordinated debentures will be convertible into shares of Fifth
Third common stock instead of CNB Bancshares common stock at the conversion
ratio described above.
Holders of the trust preferred securities and the convertible subordinated
debentures are not eligible to vote on the merger.
14
<PAGE> 20
EFFECTIVE TIME OF THE MERGER
Unless we agree otherwise, the effective time of the merger will occur on a
Friday selected by Fifth Third which is not more than 15 days after all
conditions contained in the affiliation agreement have been met or waived,
including the expiration of all applicable waiting periods. It is anticipated
that the effective time of the merger will occur in the fourth quarter of 1999,
although no assurance can be given in this regard. CNB Bancshares and Fifth
Third each will have the right, but not the obligation, to terminate the
affiliation agreement if the effective time of the merger does not occur on or
before April 1, 2000, provided the terminating party is not in material breach
or default of any representation, warranty or covenant contained in the
affiliation agreement on the date of such termination.
EXCHANGE OF CERTIFICATES
After the effective time of the merger, you will cease to have any rights
as a shareholder of CNB Bancshares, and your sole rights will pertain to the
rights to receive shares of Fifth Third common stock and cash in lieu of
fractional shares, if any, into which your shares of CNB Bancshares common stock
will have been converted by virtue of the merger.
Within seven business days after the effective time of the merger, Fifth
Third will send to you a letter of transmittal for use in submitting to Fifth
Third Trust Department, acting as exchange agent, certificates formerly
representing shares of CNB Bancshares common stock to be exchanged for
certificates representing Fifth Third common stock (and, to the extent
applicable, cash in lieu of fractional shares of Fifth Third common stock) which
you are entitled to receive as a result of the merger. You will also receive
instructions for handling uncertificated shares of CNB Bancshares common stock,
shares held through CNB Bancshares' dividend reinvestment plan and share
certificates which have been lost, stolen, destroyed or mislaid. You will not be
entitled to receive any dividends or other distributions which may be payable to
holders of record of Fifth Third common stock following the effective time of
the merger until you have surrendered and exchanged your certificates (or, in
the case of uncertificated shares or lost, stolen, destroyed or mislaid share
certificates, such documentation as is required by Fifth Third) evidencing
ownership of CNB Bancshares common stock. Any dividends payable on Fifth Third
common stock after the effective time of the merger will be paid to the exchange
agent and, upon receipt of the certificates (or, in the case of uncertificated
shares or lost, stolen, destroyed or mislaid share certificates, such
documentation as is required by Fifth Third) representing CNB Bancshares common
stock, the exchange agent will forward to you (1) certificates representing your
shares of Fifth Third common stock, (2) dividends declared thereon subsequent to
the effective time of the merger, without interest, and (3) the cash value of
any fractional shares, without interest. YOU SHOULD NOT SUBMIT SHARE
CERTIFICATES UNTIL YOU HAVE RECEIVED WRITTEN INSTRUCTIONS TO DO SO.
At the effective time of the merger, the stock transfer books of CNB
Bancshares will be closed and no transfer of CNB Bancshares common stock will
thereafter be made on CNB Bancshares' stock transfer books. If a certificate
formerly representing CNB Bancshares common stock is presented to CNB Bancshares
or Fifth Third, it will be forwarded to the exchange agent for cancellation and
exchange for a certificate representing shares of Fifth Third common stock.
BACKGROUND OF THE MERGER
In 1995, CNB Bancshares implemented a five year strategic plan to enhance
shareholder value through (1) the standardization and consolidation of its
operations, (2) the expansion of assets and earnings through strategic
acquisitions and cost savings, and (3) targeted marketing to enhance revenue
growth. CNB Bancshares substantially completed the standardization and
consolidation of its operations during the last twelve months when it combined
all of its banking charters into one Michigan state bank in December 1998 and
changed the name of the resulting bank to Civitas Bank in April 1999. Since
January 1, 1995, CNB Bancshares has expanded its assets and earnings through the
acquisition of six banks, two thrifts, two consumer finance companies, a
full-service broker dealer and asset management firm, several small insurance
agencies and agency business and a third party employee benefit plan
administrator. In 1998, CNB Bancshares completed its largest acquisition when it
acquired Pinnacle Financial Services, Inc., a bank
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holding company with $2.1 billion in assets headquartered in St. Joseph,
Michigan. The Pinnacle acquisition represented CNB Bancshares' first entry into
the southwestern Michigan and northwestern Indiana markets. At June 30, 1999,
CNB Bancshares was the largest bank holding company headquartered in Indiana,
with assets of $7.7 billion. During 1997 and 1998, CNB Bancshares focused on
enhancing its revenue growth by placing particular emphasis on the retail side
of its banking franchise in order to increase the number and volume of its
checking and other transaction accounts and to increase its focus on consumer
loans and common brand advertising.
During the first quarter of 1999, the CNB Bancshares board conducted a
strategic review of the various factors influencing the banking industry in
general, and CNB Bancshares in particular, and of the various alternatives
available to CNB Bancshares. Among the factors considered were proposed changes
in merger related accounting rules, the underperformance, in terms of stock
price and trading multiples, of regional banking organizations as compared to
larger banking organizations and the effect that it had in terms of shareholder
values and competition for stock-for-stock acquisition opportunities, the
rapidly changing nature of the banking industry, the continued national trend
toward consolidation of the banking industry, industry overcapacity, and
increased competition from other banks and from non-traditional competitors. The
CNB Bancshares board noted that regional banking organizations were adversely
affected by the continuing high capital requirements for the additional
technology required to stay competitive and by the cost advantages enjoyed by
larger competitors. The CNB Bancshares board also noted that, if CNB Bancshares
were to remain independent, it could prove difficult to continue to achieve high
earnings per share growth while adhering to the organization's traditional
policies and practices concerning risk tolerance.
The interest of larger financial institutions in acquiring CNB Bancshares
increased in recent years due to CNB Bancshares' increased size and
profitability. Although the CNB Bancshares board has not actively solicited
offers for an acquisition of CNB Bancshares, it instructed management,
consistent with the organization's strategic plan, to consider all bona fide
offers that may enhance shareholder value. James J. Giancola, President and
Chief Executive Officer of CNB Bancshares, advised the CNB Bancshares board from
time to time as he received casual expressions of interest from, and had
discussions with, larger financial institutions interested in exploring the
possibility of a business combination with CNB Bancshares. While there had been
a number of such inquiries in recent years, there had been no formal on-going
discussions or negotiations with any other potential acquirors except for the
Fifth Third offer described below.
In early December 1998, George A. Schaefer, Jr., President and Chief
Executive Officer of Fifth Third, called Mr. Giancola to inquire about the
possibility of visiting with Mr. Giancola. Mr. Giancola was familiar with the
operation and franchise of Fifth Third as part of CNB Bancshares' ongoing
strategic review of competitors and potential alliances. Later in December 1998,
Mr. Schaefer and another member of Fifth Third's senior management met in
Evansville with Mr. Giancola and H. Lee Cooper, III, Chairman of CNB Bancshares.
At the meeting, the parties discussed generally their respective organizations
and briefly discussed, in unspecific terms, the possibility and potential
advantages of a business combination of the two organizations. Although CNB
Bancshares' general view of its franchise value was generally discussed, no
offers were made or specifics as to price or structure were discussed. No
additional meetings were scheduled at that time, although the parties agreed to
continue their informal discussions regarding a possible transaction. During the
months that followed, Mr. Schaefer and Mr. Giancola periodically discussed the
possibility of a business combination of their respective organizations,
including in general terms the possible financial terms of a transaction, and
Mr. Giancola and Mr. Cooper each spoke periodically with members of the CNB
Bancshares board about the status of discussions.
In May 1999, Mr. Schaefer suggested another meeting at which senior
management of CNB Bancshares and Fifth Third would discuss in greater detail a
possible business combination. Mr. Giancola informed members of the CNB
Bancshares executive committee of his conversation with Mr. Schaefer and was
advised to determine, before the discussions proceeded to a more specific level,
the possible price range within which Fifth Third would consider a business
combination with CNB Bancshares. Messrs. Giancola and Schaefer thereafter had
several conversations during which they generally discussed the form and a range
of amount of consideration that Fifth Third would consider offering in the event
that a business combination was pursued.
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On May 21, 1999, Mr. Giancola and three other members of CNB Bancshares'
senior management team met with Mr. Schaefer and members of the Fifth Third
management team at the offices of Fifth Third in Cincinnati, Ohio. At the
meeting, the parties discussed each organization's operating philosophies and
strategies and financial performance and goals. There was no discussion of
specific terms of a possible business combination at the meeting, although the
parties generally discussed the advantages of a merger and determined that a
potential transaction should be considered in more detail.
In the several weeks that followed, Messrs. Schaefer and Giancola and
members of their senior management teams held a series of discussions with
respect to the possible business combination. On June 2, 1999, the CNB
Bancshares executive committee met to discuss the strong interest expressed by
Mr. Schaefer in a possible business combination of CNB Bancshares and Fifth
Third. Mr. Giancola summarized the recent conversations that he had with Mr.
Schaefer and a representative of Donaldson, Lufkin & Jenrette Securities
Corporation generally discussed industry conditions and issues related to the
discussions with Fifth Third. After further discussion, the executive committee
agreed that further discussions should continue to determine more specific
details of any meaningful interest shown by the Fifth Third management in a
possible transaction with CNB Bancshares. On June 4, 1999, Fifth Third presented
a transaction termsheet outlining a few key terms, including a proposed exchange
ratio. After further discussion, a revised transaction termsheet was exchanged
on June 8, 1999, which included a proposed exchange ratio of .8825 shares of
Fifth Third common stock for each share of CNB Bancshares common stock.
A small group of senior executives at CNB Bancshares began a preliminary
due diligence review of publicly available information about Fifth Third and
began to develop analyses regarding the financial terms of a possible
combination, including the review of comparable transactions, pricing, structure
and the market reaction to previously announced transactions.
During this time, the principal financial and business terms of the
transaction were negotiated through arm's-length negotiations between Fifth
Third and CNB Bancshares.
During the second week of June 1999, Fifth Third conducted its due
diligence review of CNB Bancshares.
Also during the second week of June 1999, legal counsel to Fifth Third and
CNB Bancshares began to draft definitive documentation with respect to a
possible merger of the two companies. Fifth Third engaged Salomon Smith Barney
Inc. to advise it on the proposed merger and CNB Bancshares formally engaged
Donaldson, Lufkin & Jenrette Securities Corporation as its financial advisor.
DLJ regularly advised CNB Bancshares regarding merger and acquisition activity
and, in addition, since mid-May 1999, DLJ provided informal advice from time to
time with respect to the proposed transaction with Fifth Third.
At a meeting of the CNB Bancshares executive committee on June 10, 1999,
Mr. Cooper reviewed the transaction term sheet reflecting the Fifth Third
proposal and the agenda for the special board of directors meeting to be held
June 11, 1999.
At a special meeting of the CNB Bancshares board held on June 11, 1999,
Messrs. Giancola and Cooper described in detail the discussions which had
occurred with Fifth Third and presented the terms of the Fifth Third proposal.
Mr. Giancola discussed the financial terms of the proposal, including the
proposed exchange ratio of .8825 shares of Fifth Third common stock for each
share of CNB Bancshares common stock, the potential for the retention of
employees and discussions regarding employee benefits, the representation of CNB
Bancshares board members on the Fifth Third board, the role of Mr. Giancola with
the resulting company, and the management capabilities, philosophies and
potential of Fifth Third. Mr. Schaefer and Neal E. Arnold, Chief Financial
Officer, Executive Vice President and Treasurer of Fifth Third, then joined the
meeting. Messrs. Schaefer and Arnold made a presentation regarding Fifth Third
and their views as to the benefits of the proposed combination and answered
questions from the CNB Bancshares directors. After the Fifth Third
representatives left the meeting, a representative of DLJ made a presentation
regarding the financial aspects of the Fifth Third proposal and the financial
performance of Fifth Third. Legal counsel for CNB Bancshares then made
presentations to the CNB Bancshares board regarding fiduciary duties and the
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legal standards applicable to its consideration of a possible business
combination. No action was taken by the CNB Bancshares board at this meeting.
On June 11 and 12, 1999, members of CNB Bancshares' senior management team,
financial advisors and legal counsel conducted on-site due diligence of Fifth
Third in Cincinnati, Ohio and representatives of Fifth Third and CNB Bancshares
continued to negotiate the definitive documentation with respect to a possible
merger.
On June 14, 1999, the CNB Bancshares board again met to consider the Fifth
Third proposal. At the meeting, Mr. Giancola and CNB Bancshares' legal counsel
discussed in detail the terms of the proposed form of affiliation agreement, the
stock option agreement, Mr. Giancola's employment agreement with Fifth Third,
and the results of the due diligence investigation of Fifth Third by CNB
Bancshares. DLJ discussed the form of the fairness opinion that it would render
when requested by the CNB Bancshares board. No action was taken by the CNB
Bancshares board at this meeting.
On June 15, 1999, the CNB Bancshares board again met to consider the Fifth
Third proposal. The directors discussed the proposal in detail and DLJ rendered
its written opinion that, as of such date, the consideration to be received by
the shareholders of CNB Bancshares pursuant to the affiliation agreement was
fair to such shareholders from a financial point of view. After questions by,
and discussion among, the members of the CNB Bancshares board, and after
consideration of the factors described below under "-- Recommendation of the CNB
Bancshares Board and CNB Bancshares' Reasons for the Merger," the CNB Bancshares
board voted unanimously to approve the affiliation agreement, the stock option
agreement and the transactions contemplated by those agreements. The affiliation
agreement and the stock option agreement were executed by Fifth Third and CNB
Bancshares on June 16, 1999.
RECOMMENDATION OF THE CNB BANCSHARES BOARD AND CNB BANCSHARES' REASONS FOR THE
MERGER
THE CNB BANCSHARES BOARD BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, CNB BANCSHARES AND ITS SHAREHOLDERS. ACCORDINGLY, THE CNB
BANCSHARES BOARD HAS UNANIMOUSLY APPROVED THE AFFILIATION AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT CNB BANCSHARES SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE AFFILIATION AGREEMENT AND THE MERGER.
In reaching our decision to approve the affiliation agreement and the stock
option agreement, we consulted with our company's management, as well as with
its financial and legal advisors, and considered a number of factors, including
the following:
- Our knowledge of our company's and Fifth Third's business, operations,
financial condition, earnings and prospects and the complementary nature
of the businesses of Fifth Third and CNB Bancshares.
- Our belief and that of our company's senior management that Fifth Third
and CNB Bancshares share a common vision about the importance of
delivering financial performance and shareholder value.
- The results of our diligence review of Fifth Third, including our
assessment of Fifth Third's credit policies, asset quality, year 2000
compliance, litigation risks and interest rate risk.
- The consistency of the merger with our long-term business strategy and
our review of alternatives to the merger.
- Our view that the combination of Fifth Third and CNB Bancshares presents
manageable execution risk in view of the similar markets and customer
demographics served by Fifth Third and CNB Bancshares, the similar
business lines and business cultures of the two companies and
management's prior experience in successfully completing acquisitions and
integrating the acquired companies.
- Our expectation that the merger will result in economies of scale and
cost savings and efficiencies. While there can be no assurances as to
future results, our expectation of the financial impact of the merger on
Fifth Third, as the issuer of the stock our shareholders would receive in
the merger, included the pro forma capital ratios and asset quality of
the combined company, expected pre-tax
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restructuring charges, expected pre-tax expense savings and the
expectation that the merger would enhance Fifth Third's earnings per
share beginning at completion.
- The terms of the affiliation agreement, the stock option agreement and
the transactions contemplated thereby, including the nature and scope of
the closing conditions to the merger.
- The historical trading ranges for the Fifth Third common stock and the
CNB Bancshares common stock and our view that the recent performance of
the CNB Bancshares common stock did not reflect the recent financial
performance of CNB Bancshares.
- The exchange ratio of .8825 of a share of Fifth Third common stock for
each share of CNB Bancshares common stock and the fact that it reflected
a 44% premium for the holders of CNB Bancshares common stock based on the
closing prices of Fifth Third and CNB Bancshares common stock,
respectively, on June 15, 1999, the last trading day prior to the public
announcement of the merger.
- The potential effects of the merger on CNB Bancshares' employees,
including the fact that the merger is an extension of Fifth Third's
market and therefore is not anticipated to result in many branch
closings. The general impact the merger would have on the various
constituencies served by CNB Bancshares, including its customers, its
community and others, and the fact that the combined entity would be able
to offer a more extensive range of products and banking services to CNB
Bancshares' customers.
- The potential impact of the merger on the price of the Fifth Third common
stock over the short term and the long term and the resulting relative
interests of Fifth Third and CNB Bancshares shareholders in the equity of
the combined company.
- The fact that the stock option agreement might discourage third parties
from seeking to acquire CNB Bancshares by increasing the cost of such an
acquisition and might also preclude any third party from being able to
effect a merger with CNB Bancshares that would qualify for
"pooling-of-interests" accounting treatment.
- The fact that the equivalent per share annual dividend for our
shareholders would decrease based upon Fifth Third's current annual
dividend rate, from $.96 per share of CNB Bancshares common stock to
$.706 per .8825 of a share of Fifth Third common stock. We also discussed
Fifth Third's annual dividend growth rate, which averaged 20% over the
last three years, compared to our annual dividend growth rate of 10% over
the same period.
- Our view of the current and prospective economic and competitive and
regulatory environment facing the financial services industry generally
and each of Fifth Third and CNB Bancshares in particular, and the
potential growth, development, productivity and profitability of Fifth
Third.
- The fact that the merger is intended to qualify as a reorganization under
Section 368(a) of the Internal Revenue Code and for "pooling of
interests" accounting treatment.
- The proposed arrangements with members of management of CNB Bancshares,
including the fact that Mr. Giancola would enter into an employment
agreement with Fifth Third and under that agreement would become Chief
Executive Officer of the surviving bank to the merger of Civitas Bank and
Fifth Third Bank, Indiana and that three of the current directors of CNB
Bancshares (to be mutually selected by Fifth Third and CNB Bancshares
prior to the closing of the merger) will serve as directors of Fifth
Third after the merger. We also considered the fact that directors and
executive officers of CNB Bancshares could be expected to receive
benefits in the merger under existing severance and compensation
arrangements with CNB Bancshares and, in the case of Mr. Giancola, as a
result of his new employment agreement. See "Terms of the Affiliation
Agreement -- Interests of Certain Persons in the Merger" and
"Proposal -- Merger of CNB Bancshares into Fifth Third -- Corporate
Governance."
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- The opinion of DLJ that, as of June 15, 1999, the consideration to be
received by the shareholders of CNB Bancshares pursuant to the
affiliation agreement was fair to such shareholders from a financial
point of view. See "-- Opinion of CNB Bancshares' Financial Advisor"
below.
- The likelihood that the merger will be approved by the appropriate
regulatory authorities. In this connection, we considered that there is
only a modest amount of branch overlap in several large metropolitan
markets and that no divestitures of assets and deposit liabilities of
either company is expected to be required by regulatory authorities in
connection with the merger.
This discussion of the information and factors considered by us is not
intended to be exhaustive but includes all material factors we considered. In
reaching our determination to approve and recommend the merger, the CNB
Bancshares board did not assign any relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors. The CNB Bancshares board is unanimous in its recommendation
that CNB Bancshares shareholders vote for approval of the affiliation agreement
and the merger.
Fifth Third's primary reason for entering into the merger is to further a
long-range commitment of realigning and expanding its banking system to better
meet and satisfy the needs of its customers, including those in CNB Bancshares'
service area. Fifth Third's acquisition strategy has generally been to fill in
its markets along the interstate highways in Ohio, Kentucky and Indiana. These
acquisitions are designed to strengthen Fifth Third's ability to compete in
these markets by increasing its presence, consumer access and sales force.
OPINION OF CNB BANCSHARES' FINANCIAL ADVISOR
CNB Bancshares engaged DLJ to act as financial advisor with respect to the
possible business combination with Fifth Third. CNB Bancshares' decision to
engage DLJ was based upon DLJ's qualifications, expertise and reputation, as
well as upon its senior bankers' familiarity and prior experience with CNB
Bancshares.
On June 15, 1999, DLJ rendered to the board of directors of CNB Bancshares
its opinion to the effect that, as of such date and based upon and subject to
the assumptions, limitations and qualifications set forth in its opinion, the
consideration to be received by the shareholders of CNB Bancshares pursuant to
the affiliation agreement was fair to such shareholders from a financial point
of view.
DLJ has confirmed its June 15, 1999 opinion by delivery of a written
opinion to the CNB Bancshares board, dated the date of this document, stating
that, as of the date of this document and based upon and subject to the
assumptions, limitations and qualifications set forth in its opinion, the
consideration to be received by the shareholders of CNB Bancshares pursuant to
the affiliation agreement is fair to such shareholders from a financial point of
view.
You should consider the following when reading the discussion of the DLJ
Opinion in this document:
- The following description of the DLJ opinion is qualified by reference to
the full opinion, dated the date of this document, attached as Annex C to
this document. We urge you to read carefully the entire DLJ opinion.
- The DLJ opinion was necessarily based on economic, market, financial and
other conditions as they existed on the date of that opinion and on the
information made available to DLJ as of that date and, although
subsequent developments may affect the DLJ opinion, DLJ does not have any
obligation to update, revise or reaffirm its opinion.
- DLJ expressed no opinion as to the prices at which the CNB Bancshares
common stock or the Fifth Third common stock will actually trade at any
time.
- The DLJ opinion does not address the relative merits of the merger and
the other business strategies considered by CNB Bancshares board nor does
it address the board's decision to proceed with the merger.
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- The DLJ opinion does not constitute a recommendation to any shareholder
as to how such shareholder should vote on the proposed transaction.
In arriving at its opinion, DLJ, among other things:
- Reviewed the affiliation agreement and its exhibits.
- Reviewed financial and other information that was publicly available or
furnished to DLJ by CNB Bancshares, including earnings estimates as
reported by the Institutional Brokers Estimate Service (commonly referred
to as "I/B/E/S"), and other information that was provided during
discussions with CNB Bancshares and Fifth Third management. I/B/E/S is a
data service that monitors and publishes compilations of earnings
estimates by selected research analysts regarding companies of interest
to institutional investors.
- Compared certain financial and securities data of CNB Bancshares and
Fifth Third with various other companies whose securities are traded in
public markets.
- Reviewed the historical stock prices and trading volumes of CNB
Bancshares common stock and Fifth Third common stock.
- Reviewed prices and premiums paid in certain other business combinations
involving bank holding companies.
- Conducted such other financial studies, analyses and investigations as
DLJ deemed appropriate for purposes of its opinion.
- Was not requested to, nor did it, solicit the interest of any other party
in acquiring CNB Bancshares.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources or that was otherwise reviewed by DLJ. With respect to
the financial projections used in its analysis, DLJ assumed that they did not
materially differ from the best currently available estimates and judgments of
the management of CNB Bancshares and Fifth Third as to the future operating and
financial performance of CNB Bancshares, Fifth Third or the combined company.
DLJ is not an expert in the evaluation of loan portfolios or allowances for
loan and real estate owned losses. DLJ has relied upon CNB Bancshares' valuation
of the loan portfolio and loan allowances. DLJ has not independently verified
and has assumed that the aggregate allowances for loan losses set forth in the
balance sheets of each of CNB Bancshares and Fifth Third at March 31, 1999 are
adequate to cover such losses and complied fully with applicable law, regulatory
policy and sound banking practice as of the date of such financial statements.
DLJ was not retained to and it did not conduct a physical inspection of any of
the properties or facilities of CNB Bancshares or Fifth Third, and it did not
make any independent evaluation or appraisal of the assets, liabilities or
prospects of CNB Bancshares or Fifth Third, was not furnished with any such
evaluation or appraisal, and did not review any individual credit files. In
rendering its opinion, DLJ understands that the merger is conditioned upon,
among other things, receipt of opinions to the effect that the merger will
qualify for treatment as a tax-free reorganization and as a pooling-of-interests
for accounting purposes. DLJ has been advised by CNB Bancshares and has assumed
that there are no other factors that would delay or subject to adverse
conditions any necessary regulatory or governmental approval for the merger, and
DLJ has assumed that all conditions to the merger will be satisfied and not
waived.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In the ordinary course of its business, DLJ and its affiliates actively trade
the debt and equity securities of companies, including CNB Bancshares and Fifth
Third, for their own account and for the accounts of customers, and,
accordingly, may at any time hold a long or short position in those securities.
DLJ has performed investment banking and other services for each of CNB
Bancshares and Fifth Third in the past and has been compensated for such
services.
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CNB Bancshares has agreed to pay DLJ a transaction fee of $12,000,000 which
is contingent upon consummation of the merger and payable in cash at the closing
of the merger. CNB Bancshares has agreed to indemnify DLJ against various
liabilities, including certain liabilities under the federal securities laws.
The following is a summary of the material financial analyses DLJ used in
connection with providing its opinion to the CNB Bancshares board on June 15,
1999, and does not purport to be a complete description of the analyses
performed by DLJ. The following quantitative information, to the extent it is
based on market data, is based on market data as it existed at or about June 15,
1999, and is not necessarily indicative of current market conditions. In
connection with its written opinion dated the date of this document, DLJ
performed procedures to update certain of its analyses and reviewed the
assumptions on which such analyses were based and the factors considered in
connection therewith. In updating its opinion, DLJ did not utilize any method of
analysis in addition to those described below. You should understand that the
order of analyses (and results thereof) described do not represent relative
importance or weight given to these analyses (or results thereof) by DLJ. This
summary of financial analyses includes information presented in tabular format.
THE TABLES SHOULD BE READ TOGETHER WITH THE TEXT THAT ACCOMPANIES THEM.
FIFTH THIRD BUSINESS REVIEW. DLJ described the overall highlights of and
recent developments within Fifth Third's banking franchise and the diverse
business lines comprising Fifth Third's franchise. DLJ also reviewed selected
five-year historical consolidated financial information of Fifth Third in order
to assess Fifth Third's historical performance. DLJ also reviewed Fifth Third's
operating profitability and growth performance during the period. In addition,
DLJ reviewed:
- Fifth Third's deposit market share, based on the dollar value of
deposits, in the states in which Fifth Third operates;
- Research analysts' recommendations with respect to the Fifth Third common
stock;
- Fifth Third's acquisition history of banks and branches, including an
analysis of the prices paid for these acquisitions and the effect of
recent selected acquisitions on the value of Fifth Third's common stock;
- Fifth Third's loan portfolio and deposit portfolio compositions in
percentage terms; and
- Selected trading and ownership statistics related to Fifth Third common
stock.
PRO FORMA MERGER ANALYSIS. DLJ analyzed the pro forma impact of the merger
on the combined company's market capitalization, total assets and net income
(excluding any synergies); loan portfolio contribution; deposit base
contribution; noninterest income contribution; market share, based on the dollar
value of deposits in the states in which Fifth Third operates, the states in
which CNB Bancshares operates and the states in which both entities operate;
profitability; capitalization; and credit quality.
DLJ analyzed the pro forma financial impact of the merger on Fifth Third's
diluted earnings per share on a GAAP basis both with and without estimated
synergies, on the book value per share and the tangible book value per share.
For purposes of these analyses, DLJ assumed that the merger would close in the
fourth quarter of 1999. DLJ used median I/B/E/S earnings estimates for Fifth
Third and CNB Bancshares for 1999 and 2000 and median I/B/E/S estimated
long-term earnings growth rates for later years. DLJ's analyses of the merger
from Fifth Third's perspective showed that the merger, compared to the continued
operation of Fifth Third on a stand-alone basis, would be accretive to Fifth
Third's GAAP estimated earnings per share through 2001 and accretive to Fifth
Third's book value per share and tangible book value per share.
HISTORICAL STOCK PRICE PERFORMANCE ANALYSIS. DLJ compared the daily
closing price per share of Fifth Third common stock and CNB Bancshares common
stock for the one-year and three-year periods ended June 15, 1999. For each
company, DLJ also compared the ratio of closing stock price on June 15, 1999 to
the 52-week high and low prices. DLJ noted that Fifth Third's common stock
closing price of $67.625 on June 15, 1999 represented 89.6% of the 52-week high
price and 137.3% of the 52-week low price. CNB Bancshares' common stock closing
price of $41.4375 on June 15, 1999 represented 82.5% of the 52-week high price
and 108.9% of the 52-week low price.
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COMPARABLE COMPANY ANALYSIS. DLJ compared selected operating and stock
market results of Fifth Third and CNB Bancshares to publicly available
information for peer companies that DLJ selected and deemed to be relevant. The
Fifth Third peer group, which included selected commercial banks with estimated
I/B/E/S long-term growth rates in excess of 12.0%, consisted of:
- Firstar Corporation
- Northern Trust Corporation
- State Street Corporation
- Synovus Financial Corporation
The CNB Bancshares peer group, which included selected Midwest based
commercial banks with comparable business lines and asset size to that of CNB
Bancshares, consisted of:
- Associated Banc-Corp
- Commerce Bancshares, Inc.
- First Midwest Bancorp, Inc.
- FirstMerit Corporation
- Old Kent Financial Corporation
- Old National Bancorp
- Provident Financial Group, Inc.
- TCF Financial Corporation
In addition, DLJ analyzed Fifth Third and CNB Bancshares compared to their
respective peer groups, the S&P 500 Index and the S&P Regional Banking Index on
the following bases:
- Relative stock price performance for the one-year and three-year periods
ended June 15, 1999;
- One-year and two-year relative forward price-to-earnings performance in
the case of CNB Bancshares;
- One-year and three-year relative forward price-to-earnings performance in
the case of Fifth Third;
- Total returns for the year-to-date, one-year, three-year and five-year
periods; and
- A valuation analysis of Fifth Third and CNB Bancshares compared with the
low, mean, median and high trading multiples, performance ratios,
profitability ratios and asset quality measures of the peer groups
discussed above.
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The following table compares selected information derived by DLJ for Fifth
Third, CNB Bancshares, the median of the Fifth Third peer group and the median
of the CNB Bancshares peer group:
<TABLE>
<CAPTION>
PRICING MULTIPLES
-----------------------------------------------------------
PRICE / 1999 PRICE / 2000 PRICE / PRICE / TANGIBLE
EARNINGS EARNINGS BOOK VALUE BOOK VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Fifth Third............................... 28.8x 25.5x 5.45x 6.13x
CNB Bancshares............................ 14.8 13.4 2.81 3.06
Fifth Third Peer Group Median............. 25.2 22.3 5.03 5.58
CNB Bancshares Peer Group Median.......... 15.3 13.8 2.56 2.68
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPERATING STATISTICS
------------------------------------------------
NORMALIZED
NORMALIZED RETURN ON FEE BASED
RETURN ON COMMON EFFICIENCY REVENUE
ASSETS EQUITY RATIO RATIO
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Fifth Third............................... 1.88% 18.1% 40.4% 37.8%
CNB Bancshares............................ 1.39 18.4 52.9 30.2
Fifth Third Peer Group Median............. 1.44 20.4 63.9 61.9
CNB Bancshares Peer Group Median.......... 1.42 16.7 58.6 31.2
- --------------------------------------------------------------------------------------------
</TABLE>
DISCOUNTED DIVIDEND ANALYSIS. DLJ performed a discounted dividend analysis
to estimate a range of present values per share of CNB Bancshares common stock
and Fifth Third common stock assuming each entity continued to operate as a
stand-alone entity. The discounted dividend analysis for CNB Bancshares was
conducted with and without applying estimated synergies; the discounted dividend
analysis for Fifth Third was conducted without applying estimated synergies. DLJ
also performed a further pro forma analysis to estimate the range of present
values per share of Fifth Third common stock based on the pro forma combined
company, which was conducted with and without applying estimated synergies.
These ranges were determined by adding the present value of the estimated future
dividend stream that each entity could generate through December 31, 2004 and
the present value of the "terminal value" of each entities' common stock at
December 31, 2004.
DLJ determined the range of present values per share of CNB Bancshares and
Fifth Third common stock using the terminal year multiples and discount rates
that DLJ viewed as appropriate for companies with their risk characteristics.
DLJ used median I/B/E/S earnings estimates for 1999 and 2000. For periods after
2000, earnings were grown at median I/B/E/S estimated long-term growth rates,
adjusted to reflect an assumed constant ratio of tangible common equity to
assets as DLJ viewed appropriate. DLJ used a range of discount rates from 8.2%
to 12.2% for CNB Bancshares based on CNB Bancshares' cost of capital under
classical capital asset pricing model ("CAPM") theory and a range of terminal
values from 11.6x to 15.6x based on CNB Bancshares' forward twelve month cash
price/earnings multiple. Based on these assumptions, the stand-alone present
value (as of June 15, 1999) of CNB Bancshares common stock without synergies
ranged from $35.01 to $51.94 per share. Using management assumptions provided to
DLJ as it prepared its analyses with respect to merger synergies (including the
phase-in period for achieving cost savings, no revenue enhancements and 1%
deposit runoffs), the stand-alone present value (as of June 15, 1999) of CNB
Bancshares common stock with synergies ranged from $40.29 to $60.69 per share.
DLJ used a range of discount rates from 12.3% to 16.3% for Fifth Third based on
Fifth Third's cost of capital under classical CAPM theory and a range of
terminal values from 24.1x to 28.1x based on Fifth Third's forward twelve month
cash price/earnings multiple. Based on these assumptions, the stand-alone
present value (as of June 15, 1999) of Fifth Third common stock without
synergies ranged from $57.24 to $79.21 per share. Using management assumptions
provided to DLJ as it prepared its analyses with respect to merger synergies
(including the phase-in period for achieving cost savings, no revenue
enhancements and 1% deposit runoffs), the present value (as of June 15, 1999) of
Fifth Third common stock, on a pro forma combined basis with synergies, ranged
from $62.17 to $85.01 per share. These ranges of present values for Fifth Third
common stock implied values per share of CNB Bancshares common stock, based on
the exchange ratio of .8825
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<PAGE> 30
shares of Fifth Third common stock per share of CNB Bancshares common stock, of
$50.51 to $69.90 per share (excluding synergies) and $54.86 to $75.02 per share
(including synergies).
The discounted dividend analyses do not necessarily indicate actual values
or actual future results. They do not purport to reflect the prices at which any
securities may trade at the present time or at any time in the future. Dividend
discount analysis is a widely used valuation method, but the results of this
method are highly dependent upon the numerous assumptions that must be made,
including earnings growth rates, dividend payout rates, multiples to terminal
stock prices and discount rates.
COMPARABLE TRANSACTIONS ANALYSIS. DLJ analyzed publicly available
financial, operating and stock market information for the merger and for 13
selected comparable domestic commercial bank merger transactions greater than
$800 million in transaction value. DLJ divided these transactions into the
following two groups:
MIDWEST TRANSACTIONS: Midwest Transactions are comparable
transactions between bank holding companies operating primarily in the
Midwest region of the U.S. The transactions in this group were:
- Firstar Corporation/Mercantile Bancorp, Inc.
- Union Planters Corporation/Magna Group, Inc.
- Regions Financial Corporation/First Commercial Corporation
- National City Corporation/Fort Wayne National Corporation
- Huntington Bancshares, Inc./First Michigan Bank Corporation
- Mercantile Bancorp, Inc./Mark Twain Bancshares, Inc.
NATIONWIDE TRANSACTIONS: Nationwide Transactions are comparable
transactions between bank holding companies operating in multiple regions
or throughout the entire U.S. The transactions in this group were:
- Zions Bancorporation/First Security Corporation
- AmSouth Bancorporation/First American Corporation
- Firstar Corporation/Mercantile Bancorp, Inc.
- Union Planters Corporation/Magna Group, Inc.
- Regions Financial Corporation/First Commercial Corporation
- National City Corporation/Fort Wayne National Corporation
- First American Corporation/Deposit Guaranty Corporation
- Bank One Corporation/First Commerce Corporation
- First Union Corporation/Signet Banking Corporation
- Wachovia Corporation/Central Fidelity Banks, Inc.
- Huntington Bancshares, Inc./First Michigan Bank Corporation
- Allied Irish Banks, plc/Dauphin Deposit Corporation
In each case, the shareholders of the second-named company (comparable to
CNB Bancshares in the merger) received stock of the first-named company
(comparable to Fifth Third in the merger) in the
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<PAGE> 31
transaction. The following table compares information derived by DLJ on June 15,
1999 about the merger and these selected transactions:
<TABLE>
<CAPTION>
SELECTED TRANSACTION
-----------------------
RANGE MEDIAN THE MERGER
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
MIDWEST TRANSACTIONS
Ratio of implied offer price to:
Market price one month prior to announcement... 1.06x - 1.46x 1.20x 1.47x
Reported book value per share(1)............... 2.81 - 3.97 3.07 3.32
Reported tangible book value per share(1)...... 2.87 - 4.46 3.84 3.54
Last 12 months earnings per share.............. 16.0 - 30.9 23.7 24.1
Estimated current fiscal year earnings per
share....................................... 14.0 - 23.2 21.1 21.3
Estimated current fiscal year +1 earnings per
share....................................... 12.7 - 21.2 19.8 19.3
NATIONWIDE TRANSACTIONS
Ratio of implied offer price to:
Market price one month prior to announcement... 1.06x - 1.69x 1.37x 1.47x
Reported book value per share(1)............... 2.39 - 4.19 3.39 3.32
Reported tangible book value per share(1)...... 2.46 - 5.41 3.83 3.54
Last 12 months earnings per share.............. 19.4 - 30.9 23.4 24.1
Estimated current fiscal year earnings per
share....................................... 17.7 - 27.5 21.1 21.3
Estimated current fiscal year +1 earnings per
share....................................... 16.5 - 26.5 18.8 19.3
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Multiples presented under "The Merger" assume conversion of $172.5
million in convertible trust preferred securities into 3,336,150 shares
of common stock.
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<PAGE> 32
CONTRIBUTION ANALYSIS. DLJ computed the contributions of CNB Bancshares
and Fifth Third to various elements of the combined company's income statement,
balance sheet and market capitalization, excluding estimated synergies.
Projected earnings were based on median I/B/E/S earnings estimates and median
I/B/E/S long-term growth rate estimates. The following table compares the pro
forma ownership of CNB Bancshares and Fifth Third shareholders in the combined
company based upon the exchange ratio of .8825 shares of Fifth Third common
stock per share of CNB Bancshares common stock with each company's respective
contribution to each element of this analysis:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FIFTH THIRD CNB BANCSHARES
OWNERSHIP IN THE OWNERSHIP IN THE
COMBINED COMPANY COMBINED COMPANY
<S> <C> <C>
- ---------------------------------------------------------------------------------------
IMPLIED PRO FORMA OWNERSHIP...................... 89.2% 10.8%
</TABLE>
<TABLE>
<CAPTION>
FIFTH THIRD CNB BANCSHARES
CONTRIBUTION TO CONTRIBUTION TO
COMBINED COMPANY COMBINED COMPANY
<S> <C> <C>
- ---------------------------------------------------------------------------------------
INCOME STATEMENT
12 months normalized net income at March 31,
1999........................................... 85.6% 14.4%
Estimated 1999 net income........................ 85.7 14.3
Estimated 2000 net income........................ 85.9 14.1
BALANCE SHEET AS OF MARCH 31, 1999
Total loans...................................... 83.0% 17.0%
Total assets..................................... 81.0 19.0
Total deposits................................... 80.1 19.9
Total tangible equity............................ 82.3 17.7
Total equity..................................... 83.0 17.0
MARKET CAPITALIZATION BASED ON:
June 15, 1999 closing price...................... 92.3% 7.7%
- ---------------------------------------------------------------------------------------
</TABLE>
IMPLIED HISTORICAL VALUATION OF CONSIDERATION RECEIVED. DLJ calculated the
implied value per share of CNB Bancshares common stock (based on the applying
the fixed exchange ratio of .8825 shares of Fifth Third common stock per share
of CNB Bancshares common stock to Fifth Third's closing stock price) on June 15,
1999 and compared it to the implied value during other various periods of time.
The implied value of CNB Bancshares common stock on June 15, 1999 was $59.68,
compared to: (1) an average year-to-date value per share of $60.87; (2) an
average three-month value per share of $61.55; (3) a 30 trading day average
value per share of $61.29; and (4) a five trading day average value per share of
$59.43, in each case as of June 15, 1999.
The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances. Therefore it is not necessarily susceptible to partial analysis
or summary description. Selecting portions of the analyses summarized above,
without considering these analyses as a whole, could create an incomplete view
of the processes underlying DLJ's opinion. In arriving at its fairness
determination, DLJ considered the results of all those analyses and did not
attribute any particular weight to any factor or analysis considered by it.
Instead, DLJ made its determinations as to fairness on the basis of its
experience and professional judgment after considering the results of all those
analyses. In addition, in performing its analyses, DLJ made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters. No company or transaction used in the
above analyses as a comparison is directly comparable to CNB Bancshares or Fifth
Third or the merger. The analyses were prepared solely for purposes of DLJ
providing its opinions to the CNB Bancshares board as to the fairness, from a
financial point of view, of the consideration to be received by CNB Bancshares
shareholders, pursuant to the affiliation agreement, and do not purport to be
appraisals or to necessarily reflect the prices at which
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<PAGE> 33
businesses or securities actually may be sold. Analyses based on forecasts of
future results do not necessarily indicate actual future results, which may be
significantly more or less favorable than suggested by those analyses. Because
those analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors, none of CNB Bancshares, Fifth Third, DLJ or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, DLJ's June 15, 1999 opinion to the CNB Bancshares board
was among many factors taken into consideration by the CNB Bancshares board in
making its determination to approve the affiliation agreement. Consequently, the
analyses described above should not be viewed as determinative of the CNB
Bancshares board's or CNB Bancshares management's opinion with respect to the
value of CNB Bancshares or a combination of CNB Bancshares and Fifth Third, or
of whether the CNB Bancshares board or CNB Bancshares management would have been
willing to agree to a different amount of consideration. CNB Bancshares placed
no limits on the scope of the analysis performed, or opinion expressed, by DLJ.
FEDERAL INCOME TAX CONSEQUENCES
Fifth Third will receive an opinion from Cleary, Gottlieb, Steen &
Hamilton, that, for federal income tax purposes: (1) the merger will constitute
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, and (2) accordingly, no gain or loss will be recognized by Fifth Third as
a result of the merger.
CNB Bancshares will receive an opinion from Lewis, Rice & Fingersh, L.C.,
that, for federal income tax purposes: (1) the merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, and (2) that, (a) no gain or loss will be recognized by CNB Bancshares as
a result of the merger and (b) no gain or loss will be recognized by
shareholders of CNB Bancshares who receive Fifth Third common stock in exchange
for shares of CNB Bancshares common stock, except for cash received in lieu of
fractional shares.
In rendering their opinions, Cleary, Gottlieb, Steen & Hamilton and Lewis,
Rice & Fingersh, L.C. will rely upon certain representations contained in
letters from Fifth Third and CNB Bancshares delivered for purposes of the
opinions. The opinions will also be based on the assumptions that the merger
will be completed in accordance with the provisions of the affiliation
agreement, that the merger will qualify as a statutory merger under state law,
that the representations made by Fifth Third and CNB Bancshares in the
affiliation agreement are accurate and that the facts set out herein are
accurate. An opinion of counsel only represents counsel's best legal judgment on
the matters addressed in the opinion, and has no binding effect or official
status of any kind, and no assurance can be given that contrary positions may
not be taken by the Internal Revenue Service or a court considering the issues.
Neither Fifth Third nor CNB Bancshares has requested or will request a ruling
from the Internal Revenue Service with regard to any of the federal income tax
consequences of the merger.
Provided that the merger constitutes a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, for federal income tax purposes:
- the aggregate adjusted federal income tax basis of the Fifth Third common
stock (including a fractional share interest in Fifth Third common stock
deemed received and redeemed, as described below) received by a CNB
Bancshares shareholder who receives Fifth Third common stock in exchange
for CNB Bancshares common stock pursuant to the terms of the affiliation
agreement will be, in each instance, the same as the aggregate adjusted
federal income tax basis of the CNB Bancshares common stock surrendered
in exchange therefor;
- the holding period of the Fifth Third common stock received (including
any fractional share interest in Fifth Third common stock deemed received
and redeemed, as described below) by a CNB Bancshares shareholder will
include, in each case, the period during which the CNB Bancshares common
stock surrendered in exchange therefor was held, provided that the CNB
Bancshares common stock was held as a capital asset by the shareholder on
the date of the exchange; and
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<PAGE> 34
- a holder of CNB Bancshares common stock who receives cash in lieu of a
fractional share of Fifth Third common stock will be treated as having
received such fractional share interest and then as having received cash
in redemption of such fraction share interest and will, in general,
recognize capital gain on the excess of the amount received for the
fractional share over the shareholder's adjusted basis in the fractional
share.
The foregoing discussion is intended only as a summary of the material
federal income tax consequences of the merger. The foregoing discussion is not a
comprehensive description of all of the tax consequences that may be relevant to
a holder of CNB Bancshares common stock or shares of Fifth Third common stock,
and does not include tax consequences that arise from rules of general
application to all taxpayers or to some classes of taxpayers or that are
generally assumed to be known by investors. The foregoing discussion does not
address the tax consequences that may be relevant to particular taxpayers in
light of their personal circumstances (for example, individuals who receive
Fifth Third common stock in exchange for CNB Bancshares common stock acquired as
a result of the exercise of employee stock options or otherwise as compensation)
or to taxpayers subject to special treatment under the Internal Revenue Code
(for example, insurance companies, financial institutions, dealers in
securities, tax-exempt organizations, foreign corporations, foreign
partnerships, or other foreign entities and individuals who are not citizens or
residents of the United States). No information is provided herein with respect
to the tax consequences, if any, of the merger under applicable state, local,
foreign, and other tax laws.
The foregoing discussion is based upon the provisions of the Internal
Revenue Code, applicable Treasury regulations thereunder, Internal Revenue
Service rulings, and judicial decisions as in effect as of the date of this
document. There can be no assurance that future legislative, administrative, or
judicial changes or interpretations will not affect the accuracy of the
statements or conclusions set forth herein. Any such change could apply
retroactively and could affect the accuracy of this discussion.
You are urged to consult your own tax advisor as to the specific tax
consequences to you of the merger, including the application of federal, state,
local, foreign and other tax laws.
ACCOUNTING TREATMENT
The merger is intended to qualify for pooling-of-interests accounting
treatment. Under pooling-of-interests accounting treatment, as of the effective
time of the merger, the assets and liabilities of CNB Bancshares will be added
to those of Fifth Third at their recorded book values and the shareholders'
equity account of CNB Bancshares will be included on Fifth Third's consolidated
balance sheet.
RESALE OF FIFTH THIRD COMMON STOCK BY AFFILIATES
The shares of Fifth Third common stock to be issued to shareholders of CNB
Bancshares in connection with the merger will be registered under the Securities
Act of 1933 and will be freely transferable under the Securities Act, except for
shares issued to any shareholder who may be deemed to be an "affiliate" of CNB
Bancshares or Fifth Third at the time of the special meeting. Generally, an
affiliate includes a director, an executive officer or a 10% or more shareholder
at the time of the special meeting.
Rule 145 under the Securities Act restricts the public sale of Fifth Third
common stock received in the merger by affiliates. During the first year
following the effective time of the merger, affiliates of CNB Bancshares who do
not become affiliates of Fifth Third may publicly resell the Fifth Third common
stock received by them in connection with the merger upon compliance with the
following conditions of Rule 144:
- Fifth Third must have satisfied its reporting requirements under the
Exchange Act for the 12 months preceding the proposed sale;
- the number of shares sold in any three month period is limited to the
greater of (1) one percent of Fifth Third's shares outstanding or (2) the
average weekly trading volume during the four calendar weeks preceding
the first sale; and
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<PAGE> 35
- the shares must be sold by a broker in a routine open market transaction
that does not involve the solicitation of orders for purchase.
Shares of Fifth Third common stock sold by (1) an affiliate's spouse or
relative living in the affiliate's household, or (2) any trust or estate in
which the affiliate or person listed in (1) collectively owns ten percent or
more of the beneficial interest or of which any of these persons serves as
trustee or executor, or (3) any corporation in which the affiliate or any person
specified in (1) beneficially owns at least 10% of an equity interest, will be
aggregated with the number of shares sold by the affiliate for purposes of
determining whether the volume limitations of Rule 144 are exceeded.
After the one-year period, affiliates of CNB Bancshares who are not
affiliates of Fifth Third may resell their shares publicly without regard to the
volume limitation or manner of sale requirement so long as Fifth Third has
satisfied its reporting requirements under the Exchange Act during the prior
twelve-month period.
If Fifth Third has not satisfied its reporting requirements, affiliates may
not publicly resell their shares of Fifth Third common stock received in the
merger until two years have elapsed since completion of the merger. At that
time, the shares may be sold without any restriction.
Sales and other dispositions of Fifth Third common stock by any affiliate
of CNB Bancshares who becomes an affiliate of Fifth Third in connection with the
merger, must be made in compliance with the requirements of Rule 144 set forth
above until such person has not been an affiliate of Fifth Third for at least
three months and a period of at least two years has elapsed since the date the
shares were acquired in connection with the merger.
Even if the shares are sold, pledged or donated in compliance with Rule
145, the shares will remain subject to Rule 145 in the hands of the recipient
until the restrictive period applicable to the affiliate transferor have
expired.
The affiliation agreement provides that CNB Bancshares will use its best
efforts to cause each director, executive officer and other person who is deemed
by CNB Bancshares to be an affiliate (for purposes of Rule 145 and for purposes
of qualifying the merger for pooling-of-interests accounting treatment) of CNB
Bancshares to execute and deliver to Fifth Third a written agreement intended to
ensure compliance with the Securities Act and to ensure that the merger will
qualify as a pooling-of-interests. Under that agreement, among other things,
affiliates of CNB Bancshares may not dispose of any shares received in the
merger during the period beginning 30 days before the effective time of the
merger and ending when financial results covering at least 30 days of
post-merger operations of Fifth Third have been published.
Fifth Third has agreed to use its best efforts to cause each person who may
be deemed an affiliate of it to execute and deliver to Fifth Third a letter
intended to ensure that the merger will qualify as a pooling-of-interests.
Fifth Third has also agreed, subject to certain conditions, to cause the
Fifth Third board of directors to adopt a resolution providing that, to the
extent that any directors and executive officers of CNB Bancshares who will
become affiliates of Fifth Third would be deemed, for purposes of Section 16(b)
of the Securities Exchange Act of 1934, as amended, to have "acquired" shares
and/or options to purchase shares of Fifth Third common stock as a result of the
merger, such "acquisitions" are intended to be exempt from liability under
Section 16(b) of the Exchange Act. The CNB Bancshares board of directors
likewise expects to adopt a resolution providing that, to the extent that any
directors and executive officers of CNB Bancshares would be deemed, for purposes
of Section 16(b) of the Exchange Act, to have "sold" their CNB Bancshares common
stock and options to purchase CNB Bancshares common stock as a result of the
merger, such "sales" are intended to be exempt from liability under Section
16(b) of the Exchange Act.
NO DISSENTER'S RIGHTS
Holders of CNB Bancshares common stock are not entitled to dissenter's
rights under the Indiana Business Corporation Law in connection with the merger.
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<PAGE> 36
TERMS OF THE AFFILIATION AGREEMENT
REPRESENTATIONS AND WARRANTIES
Fifth Third and CNB Bancshares have made numerous representations and
warranties to each other relating to, among other things, the following:
- their incorporation, good standing, corporate power and similar corporate
matters;
- their capitalization;
- their authorization, execution, delivery and performance and the
enforceability of the affiliation agreement and the stock option
agreement and the absence of violations;
- tax and accounting treatment;
- compliance with laws and regulations;
- their year 2000 plans;
- the absence of material changes since December 31, 1998;
- their SEC and other regulatory filings; and
- their financial statements.
The affiliation agreement also contains, among other things,
representations and warranties of CNB Bancshares relating to employee benefit
matters, the non-applicability of anti-takeover provisions and certain material
contracts of CNB Bancshares and a representation and warranty by Fifth Third
that the shares of Fifth Third common stock issued in the merger will be duly
and validly issued, fully-paid and non-assessable.
No representations or warranties made by either CNB Bancshares or Fifth
Third will survive beyond the effective time of the merger.
CONDUCT PENDING MERGER
The affiliation agreement provides that CNB Bancshares and its
subsidiaries, and the officers, directors, financial or legal advisors of CNB
Bancshares and its subsidiaries will not, directly or indirectly: (1) take any
action to solicit, initiate or encourage any "Acquisition Proposal" or (2)
engage in negotiations with, or disclose any nonpublic information relating to
CNB Bancshares or any of its subsidiaries or afford access to the properties,
books or records of CNB Bancshares or any of its subsidiaries to, any person
that may be considering making, or has made, an "Acquisition Proposal," except
as necessary to permit the directors of CNB Bancshares to exercise their
fiduciary duties. An "Acquisition Proposal" is defined as any offer or proposal
for, or any indication of interest in:
- a purchase or other acquisition (including a merger, consolidation or
share exchange) of beneficial ownership of securities representing 10% or
more of the voting power of CNB Bancshares or more than 25% of any
significant subsidiary of CNB Bancshares;
- a purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of CNB Bancshares or all or
a substantial portion of the assets or deposits of any significant
subsidiary of CNB Bancshares;
- a merger or consolidation, or any similar transaction, involving CNB
Bancshares or any significant subsidiary of CNB Bancshares; or
- any substantially similar transaction.
CNB Bancshares shall promptly notify Fifth Third of the identity of the
person making an Acquisition Proposal or request for information and the
material terms of the proposal or request. CNB Bancshares will also keep Fifth
Third fully and currently informed of the status and details of any such
Acquisition Proposal or request and any related discussions or negotiations.
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<PAGE> 37
In addition, CNB Bancshares has agreed that prior to the effective time of
the merger, CNB Bancshares and its subsidiaries will be operated in the ordinary
course of business and will give Fifth Third and Fifth Third's representatives
reasonable access during business hours to its books, records and properties. In
addition, without Fifth Third's prior written consent, neither CNB Bancshares
nor its subsidiaries will, among other things:
- make any changes in its articles of incorporation, bylaws or corporate
structures;
- issue any additional shares of CNB Bancshares common stock or other
equity securities other than: (1) pursuant to the exercise of options
granted prior to the date of the affiliation agreement, (2) pursuant to
the issuance of permissible stock dividends (as specified below), (3)
upon conversion of CNB Bancshares' convertible debentures, (4) pursuant
to CNB Bancshares' dividend reinvestment plan or (5) pursuant to certain
benefit plans;
- issue as borrower any long-term debt or convertible or other securities
of any kind, or right to acquire any of its securities;
- repurchase any equity securities, other than the repurchase of shares of
CNB Bancshares common stock in accordance with past practice and in
compliance with applicable law and the safe harbor provisions of Rule
10b-18 of the Exchange Act;
- make any material changes in its method of business operations;
- make, enter into any agreement to make, or become obligated to make, any
capital expenditures in excess of $500,000 (except for certain scheduled
capital expenditures);
- make, or enter into or renew any agreement for services to be provided to
CNB Bancshares or its subsidiaries, or permit the automatic renewal of
any such agreement, other than certain scheduled agreements, except any
agreement for services having a term of not more than six months and
requiring the expenditure of not more than $500,000;
- make, declare, pay or set aside for payment any cash dividends on its own
stock other than normal and customary cash dividends per quarter paid in
such amounts and at such times as CNB Bancshares historically has done on
its common stock and which shall not exceed $0.24 per share in the case
of the dividend paid in July 1999 and $0.26 per share in the case of
subsequent quarters, or be paid more frequently than once per calendar
quarter, provided this covenant shall only apply to CNB Bancshares;
- make any distributions on its stock, other than (1) stock dividends to be
declared in accordance with past practice (provided that Fifth Third has
been given a reasonable opportunity prior to such declaration to review
and comment on any announcement with respect thereto) and (2) cash
dividends, as described in the immediately preceding clause;
- change or otherwise amend any benefit plans other than as required by law
or as contemplated in the affiliation agreement;
- provide any increases in employee salaries or benefits other than in the
ordinary course of business;
- acquire, become obligated to acquire, or enter into any agreement to
acquire, any banking or non-banking company or any branch offices of any
such companies, or any material assets or liabilities outside the
ordinary course of business (other than agreements existing on the date
of the affiliation agreement and previously announced or scheduled);
- sell, transfer, mortgage or otherwise dispose of or encumber any of the
shares of the capital stock of the subsidiaries of CNB Bancshares which
were owned by it at the date of the affiliation agreement; and
- sell, transfer, mortgage or otherwise dispose of or encumber any other
assets, except in the ordinary course of business.
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<PAGE> 38
Except with the prior written consent of CNB Bancshares, the affiliation
agreement provides that Fifth Third will not: (1) make any changes in its
articles of incorporation or code of regulations in a manner adverse to the
shareholders of CNB Bancshares; (2) make, declare, pay or set aside for payment
any extraordinary cash dividends on its own stock; or (3) agree to, or make any
commitment to, take any of such actions.
The affiliation agreement also provides that CNB Bancshares and Fifth Third
will coordinate the timing of the declaration and payment of dividends to ensure
that each company's shareholders will receive fair dividends prior to the merger
and will not receive more than one fair dividend in any quarter prior to, or the
first quarter after, the merger.
CONDITIONS TO CLOSING
The affiliation agreement and the merger must be approved by the
affirmative vote of holders of at least a majority of the outstanding shares of
CNB Bancshares common stock. The merger also must be approved in writing by the
Federal Reserve Board, the Indiana Department of Financial Institutions and the
Michigan Financial Institutions Bureau, applications for which have been filed.
Fifth Third's obligation to consummate the merger is further conditioned upon
such approvals not being subject to conditions, restraints or requirements that
would materially adversely reduce the anticipated economic or business benefits
of the merger to Fifth Third or could reasonably be expected to have a material
adverse effect on CNB Bancshares and its subsidiaries taken as a whole. No
assurance can be given that the required governmental approvals will be
forthcoming.
Fifth Third's and CNB Bancshares' obligations to complete the merger are
subject to additional conditions set forth in the affiliation agreement. These
include: (1) the absence at the effective time of the merger of any waiting
period mandated by law and any orders or injunction of any federal or state
agency or court preventing, prohibiting or enjoining the transactions
contemplated by the affiliation agreement, (2) Fifth Third and CNB Bancshares
having received letters from Deloitte & Touche LLP stating its opinion that the
merger qualifies for pooling-of-interests accounting, and (3) both institutions
having performed (in all material respects) all of the obligations required of
them under the affiliation agreement.
Fifth Third's obligation to complete the merger is further subject to
conditions set forth in the affiliation agreement, including:
- the continuing truth and accuracy of all of the representations and
warranties of CNB Bancshares;
- receipt by Fifth Third of an opinion of Cleary, Gottlieb, Steen &
Hamilton to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion: (a) the merger constitutes a
"reorganization" within the meaning of Section 368 (a) of the Internal
Revenue Code, and (b) that, accordingly, no gain or loss will be
recognized by Fifth Third as a result of the merger; and
- the absence of any investigation or action by any state or federal agency
having been threatened in writing or instituted seeking to enjoin or
prohibit or unwind the transactions contemplated by the affiliation
agreement and any governmental action or proceeding having been
threatened or instituted before any court or governmental body or
authority, seeking to enjoin or prohibit or unwind, the transactions
contemplated by the affiliation agreement or seeking to impose material
sanctions or penalties as a result thereof.
CNB Bancshares' obligation to complete the merger is further subject to
conditions set forth in the affiliation agreement, including:
- the continuing truth and accuracy in all material respects of Fifth
Third's representations and warranties; and
- the receipt by CNB Bancshares of an opinion from Lewis, Rice & Fingersh,
L.C. that, on the basis of the facts, representations and assumptions set
forth in the opinion: (1) the merger constitutes a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and
(2) that, (a) no gain or loss will be recognized by CNB Bancshares as a
result of the merger and (b) no gain or
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loss will be recognized by shareholders of CNB Bancshares who receive
Fifth Third common stock in exchange for shares of CNB Bancshares common
stock, except for cash received in lieu of fractional shares.
TERMINATION; AMENDMENT; WAIVER
The affiliation agreement may be terminated and the merger abandoned at any
time prior to the effective time of the merger by written notice delivered by
Fifth Third to CNB Bancshares or by CNB Bancshares to Fifth Third in the
following instances:
- if there has been a breach of a representation or warranty or a material
breach of any covenant on the part of the other party with respect to the
representations, warranties and covenants set forth in the affiliation
agreement and that misrepresentation, breach or failure to comply has not
been cured within 30 days after receipt of written notice or is not
capable of being cured, provided the party in default has no right to
terminate for its own default;
- if the merger has not been completed by April 1, 2000, provided the
terminating party is not in material breach or default of any
representation, warranty or covenant contained in the affiliation
agreement on the date of the termination;
- by the mutual written consent of Fifth Third and CNB Bancshares;
- if CNB Bancshares' shareholders vote not to approve the affiliation
agreement and the merger;
- if any event occurs which renders impossible of satisfaction one or more
of the conditions to the obligations of the other party to effect the
merger, and such non-compliance is not waived by the unaffected party; or
- by Fifth Third if the CNB Bancshares board of directors publicly
announces its withdrawal or modification in a manner adverse to Fifth
Third of its favorable recommendation of the merger.
The affiliation agreement may be amended, modified or supplemented by the
written agreement of each of the parties, upon the authorization of each
company's respective board of directors, at any time before or after approval of
the affiliation agreement and the merger by CNB Bancshares' shareholders.
Approval of any amendment, modification or supplement by CNB Bancshares'
shareholders is not required unless this action would adversely change the
consideration to be provided to CNB Bancshares' shareholders pursuant to the
affiliation agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Shares of CNB Bancshares common stock held by or for the benefit of
directors and executive officers of CNB Bancshares will be canceled and
converted into the right to receive shares of Fifth Third common stock on the
same basis as shares held by you and the other shareholders of CNB Bancshares.
In addition, directors and executive officers of CNB Bancshares may be deemed to
have the following interests in the merger that are different from, or in
addition to, those of you and the other shareholders of CNB Bancshares.
CNB BANCSHARES EMPLOYMENT AND CHANGE-OF-CONTROL AGREEMENT PAYMENTS. In
lieu of any other severance benefits provided in the affiliation agreement,
Fifth Third will assume, upon consummation of the merger, the obligations of CNB
Bancshares under all existing change-of-control and employment agreements
specifically identified by CNB Bancshares. CNB Bancshares has Change-of-Control
Agreements with 23 of its executive officers, including the five most highly
compensated executive officers: James J. Giancola, President and Chief Executive
Officer, John R. Spruill, Executive Vice President and Chief Administrative
Officer, David L. Knapp, Executive Vice President, Anthony L. Guerrerio,
Executive Vice President and David M. Viar, Executive Vice President and
Treasurer. Each Change-of-Control Agreement provides for the payment of benefits
to the executive officer if, during the "change period" specified in the
Change-of-Control Agreement, he or she either voluntarily terminates his or her
employment for good reason or his or her employment is terminated without cause.
The "change period" for each executive varies, but generally commences six
months prior to a change-of-control and terminates up to between 18 and 36
months after a change-of-control. The change period for each of the executives
referred to above is 36 months.
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<PAGE> 40
The termination benefits payable under the Change-of-Control Agreements are
(a) an amount equal to the executive's highest rate of base monthly pay plus
one-twelfth of his or her annual incentive compensation for a period of up to
three years, and (b) certain family medical, life insurance and other welfare
benefits (subject to certain limitations and at the executive's cost as provided
in his or her Change-of-Control Agreement). Such benefits are payable beginning
on the later of the change-of-control date or the date of his or her termination
of employment and continue for the number of months specified in the
Change-of-Control Agreement. The number of months in the executive's payment
period will be reduced by the number of months the executive remains employed by
CNB Bancshares or its successor after the later of the date of the affiliation
agreement or the date of the closing of the merger of CNB Bancshares and Fifth
Third. No benefits are payable if the executive's employment terminates due to
death or disability. Each executive may elect to reduce the amount of benefits
payable under his Change-of-Control Agreement to the extent necessary to avoid
excise taxes imposed under Section 4999 of the Internal Revenue Code. The
execution of the affiliation agreement constituted a "change-of-control" under
the Change-of-Control Agreements. The aggregate amount of benefits payable under
the Change-of-Control Agreements will be approximately $12.8 million.
FIFTH THIRD EMPLOYMENT AGREEMENTS. In the affiliation agreement, Fifth
Third agreed to enter into a three year employment agreement with James J.
Giancola effective upon consummation of the merger. Mr. Giancola will be
employed as the chief executive officer of the surviving bank to the merger of
Civitas Bank and Fifth Third Bank, Indiana. His employment agreement will
provide for an annual base salary of $500,000 which may be increased annually in
accordance with Fifth Third's practices for similarly situated employees. Mr.
Giancola is also eligible to receive, on an annual basis during the term of the
employment agreement, variable compensation in an amount up to 80% of his base
salary and options to purchase between 50,000 and 80,000 shares of Fifth Third
common stock pursuant to the terms of Fifth Third's stock option plan. On the
effective date of the merger, Mr. Giancola will receive 47,000 shares of Fifth
Third common stock, which will be restricted shares which will vest with respect
to the first 25% on the six-month anniversary and 25% on each of the first three
anniversaries of the merger. Vesting is also conditioned upon his remaining
employed by Fifth Third on each such anniversary, provided that vesting will
immediately occur upon his death, disability or any termination of his
employment other than for cause. Upon Mr. Giancola's termination of employment
with Fifth Third other than for cause or his resignation for good reason, he
will receive for the remaining term of his contract: (1) his base salary, (2)
the maximum amount of his variable compensation, and (3) the maximum amount of
option shares.
Other executive officers of CNB Bancshares who remain employed with Fifth
Third will enter into agreements or arrangements with Fifth Third for such
compensation and benefits as are negotiated between the parties.
RETENTION PROGRAM. At the effective time of the merger, Fifth Third shall
establish a retention program for key employees of CNB Bancshares or its
subsidiaries under which certain key employees will be granted options on the
effective date of the merger to purchase shares of Fifth Third common stock. The
number of shares of Fifth Third common stock which will be reserved for issuance
under the retention program will be 250,000 shares, subject to adjustment. These
options will have an exercise price equal to their fair market value at the time
of their issuance and will vest on the same schedule as those options regularly
granted to Fifth Third's employees. The final determination of which employees
of CNB Bancshares will participate and the amount, terms and conditions of the
awards under the retention program will be determined by Fifth Third in its sole
discretion.
STOCK OPTIONS. CNB Bancshares has granted stock options to certain
directors, executive officers and key employees under its various incentive
stock plans, including the CNB Bancshares, Inc. 1999 Stock Incentive Plan and
the CNB Bancshares, Inc. 1995 Stock Incentive Plan. Generally, stock options
granted under the plans become exercisable or otherwise vest only at the date or
dates provided for in the respective award grant, which generally is a minimum
of six months after the date of grant. The terms of CNB Bancshares' stock
incentive plans provide, however, for the immediate vesting of the stock options
upon a change-of-control of CNB Bancshares. The approval of the affiliation
agreement by the CNB Bancshares shareholders will constitute a change-of-control
under the stock incentive plans and, therefore, all options
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<PAGE> 41
granted thereunder which are not already vested or exercisable will become
vested and exercisable at that time.
At the effective time of the merger, all outstanding awards, options or
other rights to purchase CNB Bancshares common stock under each of the stock
option and incentive plans established or assumed by CNB Bancshares will become
options to purchase Fifth Third common stock. The number of shares subject to
these options will be adjusted to allow the holder, upon exercise, to receive
shares of Fifth Third common stock calculated by multiplying the exchange ratio
by the number of shares of CNB Bancshares common stock subject to the options,
and the exercise price of the CNB Bancshares stock options will be adjusted by
dividing the exercise price per share by the exchange ratio.
The effect of the merger on the CNB Bancshares options held by the five
most highly paid executive officers of CNB Bancshares and by all executive
officers and non-employee directors as a group as of August 20, 1999 will be as
follows:
<TABLE>
<CAPTION>
OPTIONS VESTING UPON
OPTIONS CURRENTLY APPROVAL OF THE
NAME OPTIONS HELD EXERCISABLE AFFILIATION AGREEMENT
- ---- ------------ ----------------- ---------------------
<S> <C> <C> <C>
James J. Giancola................... 100,551 49,536 51,015
David L. Knapp...................... 67,601 42,258 25,343
John R. Spruill..................... 50,678 25,335 25,343
David M. Viar....................... 37,240 19,926 17,314
Anthony L. Guerrerio................ 36,000 21,000 15,000
Other executive officers............ 225,620 139,988 85,632
------- ------- --------
All executive officers.............. 517,690 298,043 219,647
Non-employee directors.............. 63,450 27,400 36,050
------- ------- --------
Total............................... 581,140 325,443 255,697
======= ======= ========
</TABLE>
As soon as practicable after the effective time of the merger, Fifth Third
will file a registration statement with the SEC to register the shares of Fifth
Third common stock issuable pursuant to these options. Holders of these options
may not exercise the options until this registration statement has become
effective.
INDEMNIFICATION AND LIABILITY INSURANCE. Fifth Third will assume the
obligations of CNB Bancshares or any of its subsidiaries arising under
applicable Ohio, Michigan, Indiana and federal law and under CNB Bancshares' or
Civitas Bank's articles of incorporation or bylaws, to indemnify each officer or
director of CNB Bancshares or any of its subsidiaries or predecessors against
liabilities in connection with any claim arising out of the fact that such
person is or was a director or officer of CNB Bancshares or any of its
subsidiaries, if such claim pertains to any matter occurring prior to the
effective time of the merger, regardless of whether such claim is asserted prior
to, at or after the effective time of the merger. Fifth Third's assumption of
these indemnification obligations will continue for the period of the applicable
statute of limitations after the effective time of the merger or, in the case of
claims asserted prior to the fifth anniversary of the effective time of the
merger, until such matters are finally resolved. Fifth Third also shall purchase
and keep in force for a six-year period, a policy of directors' and officers'
liability insurance having liability limits and providing coverage for acts or
omissions of the type currently covered by CNB Bancshares' existing directors'
and officers' liability insurance for acts or omissions occurring on or prior to
the effective time of the merger, but only to the extent that this insurance may
be purchased or kept in full force on commercially reasonable terms. Fifth Third
and CNB Bancshares have agreed that these costs shall be commercially reasonable
so long as they do not exceed 100% of the annual costs currently paid for such
coverage by CNB Bancshares. Fifth Third has agreed that all rights to
indemnification existing in favor of officers and directors and employees of
Fifth Third affiliates shall be accorded to officers and directors and employees
of CNB Bancshares or any of its subsidiaries who become affiliated with any
Fifth Third affiliate in such capacities after the effective time of the merger
and that this indemnification will relate to covered actions or inactions only
after the effective time of the merger.
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EFFECT ON CNB BANCSHARES EMPLOYEES
EMPLOYMENT. Fifth Third shall use its best efforts to employ as many of
the employees of CNB Bancshares and its subsidiaries who desire employment
within the Fifth Third holding company system as possible, to the extent of
available positions and consistent with Fifth Third's standard staffing levels
and personnel policies.
FIFTH THIRD EMPLOYEE BENEFIT PLANS. Fifth Third shall provide the
employees of CNB Bancshares and its subsidiaries who become employees of Fifth
Third or any of its subsidiaries or affiliates at or immediately subsequent to
the merger as a group with employee benefit plans in the aggregate that are
comparable in all material respects with the employee benefit plans provided to
similarly situated employees of Fifth Third. Under each employee benefit plan
sponsored or maintained by Fifth Third or its subsidiaries or affiliates in
which these employees participate, prior service with CNB Bancshares and any of
its subsidiaries (including service prior to acquisition by CNB Bancshares to
the extent CNB Bancshares takes such service into account) shall be taken into
account for purposes of eligibility, vesting and, with the exception of any
defined benefit plan, the accrual of benefits.
CNB BANCSHARES ASSOCIATE STOCK OPTION PLAN. CNB Bancshares has also
granted stock options to its employees under its broad-based CNB Bancshares,
Inc. Associate Stock Option Plan. Stock options granted under the Associate
Stock Option Plan become exercisable or otherwise vest at the earlier to occur
of August 1, 2001 or at such time as the closing price of a share of CNB
Bancshares common stock exceeds $58.96 for each of ten consecutive trading days.
The terms of the Associate Stock Option Plan provide, however, for the immediate
vesting of the stock options upon a change-of-control of CNB Bancshares. The
execution of the affiliation agreement constituted a change-of-control under the
Associate Stock Option Plan and, therefore, all options granted thereunder which
were not already vested or exercisable became vested and exercisable on June 16,
1999, the date that the affiliation agreement was executed by CNB Bancshares and
Fifth Third.
CNB BANCSHARES EMPLOYEE BENEFIT PLANS. All participants in the defined
benefits plans maintained by CNB Bancshares shall become 100% vested as of the
effective time of the merger. With respect to any other CNB Bancshares' benefit
plan that provides for the vesting of benefits, there will be no discretionary
acceleration of vesting without Fifth Third's consent; provided, however, that a
benefit plan which, pursuant to its terms, provides for an acceleration of
vesting upon a change of control of CNB Bancshares, shall accelerate as of the
effective time of the merger or any other date as provided in such plan.
Fifth Third will continue to maintain: (1) the retiree health plan
maintained by CNB Bancshares for specified individuals, and (2) the health plan
for specified disabled employees, and/or merge such plans with the retiree
medical plans provided by Fifth Third.
Bonuses will be paid by CNB Bancshares in its Cash Bonus Plan at a rate of
8% of compensation for the calendar year 1999. CNB Bancshares' Short Term
Incentive Plan distributions for the calendar year 1999 will be made at the
maximum level permitted under the plan. Employees of CNB Bancshares and the
subsidiaries of CNB Bancshares who are terminated on or after the date of the
affiliation agreement and before January 1, 2000, will receive a pro-rata
portion of the Cash Bonus Plan and/or Short Term Incentive Plan distribution
they otherwise would have received for the calendar year 1999. Bonuses and
distributions under the Short Term Incentive Plan will be paid on or before
December 31, 1999.
The amount of the surplus in the CNB Bancshares defined benefit plan will
be calculated on a plan termination basis, as of the effective time of the
merger, as mutually agreed by CNB Bancshares' and Fifth Third's actuaries. An
amount equal to 50% (subject to adjustment) of the surplus in excess of
$6,000,000 will be used to provide enhanced benefits for: (1) employees of CNB
Bancshares and the subsidiaries of CNB Bancshares who are employed by Fifth
Third on December 31, 2000, and (2) employees of CNB Bancshares and the
subsidiaries of CNB Bancshares who are involuntarily terminated on or after the
date of the affiliation agreement and prior to December 31, 2000. The enhanced
benefits will be payable within the defined benefit plan and the nature of those
benefits will be determined by the management of CNB Bancshares subject to the
approval of Fifth Third.
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SEVERANCE. The affiliation agreement provides for the payment of severance
amounts to employees of CNB Bancshares who do not have an employment or
severance agreement under certain conditions upon termination of employment or
specific other circumstances. Those amounts will be equal to two weeks of pay
for each year of service, with a minimum of four weeks of pay and up to a
maximum of 26 weeks of pay, plus any earned but not paid vacation pay.
With respect to any employee of CNB Bancshares or subsidiaries of CNB
Bancshares who is not employed by Fifth Third or one of its subsidiaries or
affiliates as of the effective time of the merger, Fifth Third shall be
responsible for providing continuation coverage to such employee (and his or her
dependents), as required by COBRA. With respect to any former employee of CNB
Bancshares or its subsidiaries (or their dependents) who is receiving
continuation coverage under COBRA as of the effective time of the merger, Fifth
Third shall be responsible to maintain such continuation coverage in compliance
with COBRA.
TERMS OF THE STOCK OPTION AGREEMENT
As an inducement and condition to Fifth Third's willingness to enter into
the affiliation agreement, CNB Bancshares entered into a stock option agreement
with Fifth Third. The following description of the stock option agreement is
qualified in its entirety by reference to the text of the stock option
agreement, a copy of which is attached hereto as Annex B and which is
incorporated herein by reference.
Pursuant to the stock option agreement, CNB Bancshares granted Fifth Third
an option which permits Fifth Third to purchase up to 6,921,479 shares of CNB
Bancshares common stock, subject to adjustment in specified circumstances (up to
approximately 19.9% of the number of shares of CNB Bancshares common stock
outstanding at the time of exercise without giving effect to any shares subject
or issued pursuant to the option). The exercise price of the option is $42.96
per share, subject to adjustment under specified circumstances.
The option will become exercisable in whole or in part if, but only if,
both an "Initial Triggering Event" and a "Subsequent Triggering Event" occur
with respect to CNB Bancshares prior to the occurrence of an "Exercise
Termination Event," as such terms are defined below. The purchase of any shares
of CNB Bancshares common stock pursuant to the option is subject to compliance
with the terms of the stock option agreement and applicable law (including the
receipt of necessary regulatory approvals).
The stock option agreement generally defines the term "Initial Triggering
Event" to mean any of the following events or transactions:
- CNB Bancshares or any of its significant subsidiaries, without having
received Fifth Third's prior written consent, has entered into an
agreement to engage in an "Acquisition Transaction" (defined below) with
any person other than Fifth Third or any of its subsidiaries or the board
of directors of CNB Bancshares has recommended that the shareholders of
CNB Bancshares approve or accept any "Acquisition Transaction" (other
than the merger referred to in the affiliation agreement);
- CNB Bancshares or any of its significant subsidiaries, without having
received Fifth Third's prior written consent, has authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, to engage in an Acquisition Transaction with any
person other than Fifth Third or its subsidiaries or has authorized or
engaged in, or announced its intention to authorize or engage in, any
negotiations regarding an Acquisition Transaction with any person other
than the Fifth Third or its subsidiaries, or the board of directors of
CNB Bancshares has failed to recommend or has publicly withdrawn or
modified, or publicly announced its intention to withdraw or modify, in
any manner adverse to Fifth Third, its recommendation that the
shareholders of CNB Bancshares approve the merger;
- the shareholders of CNB Bancshares have voted and failed to approve the
merger at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting has not been held in
violation of the affiliation agreement if, prior to such meeting (or if
such meeting has not been held or has been canceled prior to such
termination), any person (other than Fifth Third or its
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<PAGE> 44
subsidiaries) has made a proposal to CNB Bancshares or its shareholders
by public announcement or written communication that is or becomes the
subject of public disclosure to engage in an acquisition transaction;
- any person other than Fifth Third, any subsidiary of Fifth Third or any
significant subsidiary of CNB Bancshares acting in a fiduciary capacity
in the ordinary course of its business, has acquired beneficial ownership
or the right to acquire beneficial ownership of 10% or more of the then
outstanding shares of CNB Bancshares common stock;
- any group, other than a group of which Fifth Third or any subsidiary of
Fifth Third is a member, has been formed that beneficially owns 10% or
more of the shares of the CNB Bancshares common stock then outstanding;
- any person, other than Fifth Third or any subsidiary of Fifth Third, has
made a bona fide proposal to CNB Bancshares or its shareholders to engage
in an Acquisition Transaction and such proposal has been publicly
announced;
- after a proposal is made by a third party to CNB Bancshares or its
shareholders to engage in an Acquisition Transaction or such third party
states its intention to make such a proposal if the affiliation agreement
terminates, CNB Bancshares has willfully breached any covenant or
obligation contained in the affiliation agreement and such breach would
entitle Fifth Third to terminate the affiliation agreement; or
- any person other than Fifth Third or any subsidiary of Fifth Third, other
than in connection with a transaction to which Fifth Third has given its
prior written consent, has filed an application with any federal or state
regulatory or governmental authority for approval or notice of intention
to engage in an Acquisition Transaction.
The term "Acquisition Transaction" is defined as: (a) a merger or
consolidation or any similar transaction, involving CNB Bancshares or any
significant subsidiary of CNB Bancshares, (b) a purchase, lease or other
acquisition or assumption of all or a substantial portion of the assets or
deposits of CNB Bancshares or any of its significant subsidiaries, or (c) a
purchase or other acquisition (including by merger, consolidation, share
exchange or otherwise) of beneficial ownership of securities representing 10% or
more of the voting power of CNB Bancshares or more than 10% of any of its
significant subsidiaries. The stock option agreement, however, also provides
that a merger, consolidation, purchase or similar transaction involving only CNB
Bancshares and one or more of its wholly-owned subsidiaries or involving only
two or more of such wholly-owned subsidiaries, will not be deemed to be an
Acquisition Transaction if such transaction is not entered into in violation of
the terms of the affiliation agreement.
The stock option agreement generally defines the term "Subsequent
Triggering Event" to mean any of the following events or transactions: (1) the
acquisition by any person or group other than Fifth Third, any subsidiary of
Fifth Third or any significant subsidiary of CNB Bancshares acting in a
fiduciary capacity, of beneficial ownership of 25% or more of the then
outstanding common stock of CNB Bancshares or (2) the occurrence of an Initial
Triggering Event outlined in the first bullet point of the definition of
"Initial Triggering Event" set forth above, except that references to 10% in
clause (c) of the definition of "Acquisition Transaction" set forth above shall
be 25%.
The stock option agreement defines the term "Exercise Termination Event" to
mean any of (1) the effective time of the merger; (2) termination of the
affiliation agreement in accordance with its terms, if such termination occurs
prior to the occurrence of an Initial Triggering Event, except a termination by
Fifth Third if there has been a breach of a representation or warranty or a
material breach of any covenant by CNB Bancshares with respect to the
representations, warranties and covenants set forth in the affiliation agreement
and such breach has not been cured within 30 days after CNB Bancshares' receipt
of written notice or is not capable of being cured, provided that the breach by
CNB Bancshares that gives rise to the termination by Fifth Third is willful; or
(3) the passage of 18 months (subject to extension in order to obtain required
regulatory approvals, to comply with applicable regulatory waiting periods or to
avoid liability under Section 16(b) of the Exchange Act) after termination of
the affiliation agreement if such termination:
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<PAGE> 45
(a) follows or is concurrent with the occurrence of an Initial Triggering Event,
or (b) is a termination of the type described in clause (2) above.
Notwithstanding anything to the contrary contained in the stock option
agreement, the stock option agreement shall automatically terminate upon the
proper termination of the affiliation agreement by CNB Bancshares pursuant to
the terms thereof as a result of a breach of a representation or warranty or a
material breach of any covenant by Fifth Third with respect to the
representations, warranties and covenants set forth in the affiliation agreement
and such breach has not been cured within 30 days after Fifth Third's receipt of
written notice or is not capable of being cured.
If the option becomes exercisable, it may be exercised in whole or in part
within 180 days following the applicable Subsequent Triggering Event, upon the
written notice of such exercise to CNB Bancshares. Fifth Third's right to
exercise the option and certain other rights under the stock option agreement
are subject to an extension in order to obtain required regulatory approvals and
comply with applicable regulatory waiting periods and to avoid liability under
Section 16(b) of the Exchange Act. The exercise price of the option and the
number of shares issuable under the option are subject to adjustment in the
event of specified changes in the capital stock of CNB Bancshares.
Upon the occurrence of a Subsequent Triggering Event that occurs prior to
an Exercise Termination Event, Fifth Third will have certain registration rights
with respect to the shares of CNB Bancshares common stock issued or issuable
pursuant to the option.
The stock option agreement also provides that at any time after the
occurrence of a "Repurchase Event" (as defined below), upon request (delivered
prior to an Exercise Termination Event), CNB Bancshares shall be obligated to
repurchase the option and all or any part of the shares received upon the full
or partial exercise of the option from the holder thereof. Such repurchase of
the option shall be at a price equal to the amount by which the "Market/Offer
Price" exceeds the option price, multiplied by the number of shares for which
the option may then be exercised. A repurchase of shares shall be at a price per
share equal to the Market/ Offer Price.
The term "Market/Offer Price" means the highest of (1) the price per share
after June 16, 1999 at which a tender or exchange offer has been made for CNB
Bancshares common stock, (2) the price per share of CNB Bancshares common stock
that any third party is to pay pursuant to an agreement with CNB Bancshares, (3)
the highest closing price per share of CNB Bancshares common stock as reported
in the Wall Street Journal within the six-month period immediately preceding the
date on which notice to repurchase is given, or (4) in the event of a sale of
all or a substantial portion of CNB Bancshares' assets or deposits, the sum of
the price paid for such assets or deposits and the current market value of the
remaining assets (as determined by a nationally recognized investment banking
firm), divided by the number of shares of CNB Bancshares common stock
outstanding at the time of such sale.
The term "Repurchase Event" is defined to mean: (1) the acquisition by any
person other than Fifth Third or its subsidiaries of beneficial ownership of 50%
or more of the outstanding shares of CNB Bancshares common stock or (2) the
consummation of any Acquisition Transaction, except that for purposes of the
definition of "Repurchase Event," the percentage referred to in clause (c) of
the definition of "Acquisition Transaction" above shall be 50% rather than 10%.
Pursuant to the terms of the stock option agreement, in the event that,
prior to an Exercise Termination Event, CNB Bancshares enters into certain
transactions in which CNB Bancshares is not the surviving corporation, certain
fundamental changes in the capital stock of CNB Bancshares occur or CNB
Bancshares sells all or substantially all of its or certain of its subsidiaries'
assets, the option shall be converted into a substitute option, with terms
similar to those of the option, to purchase capital stock of the entity that is
the effective successor to CNB Bancshares.
The stock option agreement provides that neither Fifth Third nor CNB
Bancshares may assign any of its rights or obligations thereunder without the
written consent of the other party, except that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event,
Fifth Third may, subject to certain limitations, assign its rights and
obligations thereunder in whole or in part (subject to extension in certain
cases).
40
<PAGE> 46
Arrangements such as the stock option agreement are customarily entered
into in connection with corporate mergers and acquisitions in an effort to
increase the likelihood that the transactions will be consummated in accordance
with their terms, and to compensate the grantee for the efforts undertaken and
the expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the issuer by a third party. The
stock option agreement was entered into to accomplish these objectives. The
existence of the option could significantly increase the cost to a potential
acquiror of acquiring CNB Bancshares compared to the cost had the stock option
agreement not been entered into. The provisions of the stock option agreement
may prevent an acquiror from accounting for its acquisition of CNB Bancshares
using the pooling-of-interests method of accounting. Accordingly, the stock
option agreement may have the effect of discouraging or precluding offers by
third parties to acquire CNB Bancshares prior to the merger, even if such
persons were prepared to offer to pay consideration to CNB Bancshares'
shareholders which has a higher current market price than the shares of Fifth
Third common stock to be received by such holders pursuant to the affiliation
agreement.
To the best knowledge of Fifth Third and CNB Bancshares, no event giving
rise to the right to exercise the option has occurred as of the date of this
document.
41
<PAGE> 47
FIFTH THIRD BANCORP
DESCRIPTION OF BUSINESS
Fifth Third is an Ohio corporation organized in 1975 as a bank holding
company registered under the Bank Holding Company Act and subject to regulation
by the Federal Reserve Board. Fifth Third, with its principal office located in
Cincinnati, is a multi-bank holding company that owns all of the outstanding
stock of nine commercial banks and one savings bank with 483 offices in Ohio,
Kentucky, Indiana, Michigan, Florida and Arizona. Those institutions are: Fifth
Third Bank; Fifth Third Bank, Central Ohio; Fifth Third Bank, Northwestern Ohio,
N.A.; Fifth Third Bank, Ohio Valley; Fifth Third Bank, Western Ohio; Fifth Third
Bank, Florida; Fifth Third Bank, Northern Kentucky, Inc.; Fifth Third Bank,
Kentucky, Inc.; Fifth Third Bank, Indiana; and Fifth Third Bank, Southwest,
F.S.B.
At June 30, 1999, Fifth Third, its affiliated banks and other subsidiaries
had consolidated total assets of $31.6 billion, consolidated total deposits of
$20.1 billion and consolidated total shareholders' equity of approximately $3.3
billion.
Fifth Third, through its subsidiaries, engages primarily in commercial,
retail and trust banking, investment services and leasing activities and also
provides credit life, accident and health insurance, discount brokerage services
and property management for its properties. Those subsidiaries consist of The
Fifth Third Company, Fifth Third Securities, Inc., The Fifth Third Leasing
Company, Midwest Payment Systems, Inc., Fifth Third International Company and
Heartland Capital Management, Inc. Fifth Third's affiliates provide a full range
of financial products and services to the retail, commercial, financial,
governmental, educational and medical sectors, including a wide variety of
checking, savings and money market accounts, and credit products such as credit
cards, installment loans, mortgage loans and leasing. Each of the banking
affiliates has deposit insurance provided by the Federal Deposit Insurance
Corporation through the Bank Insurance Fund and the Savings Association
Insurance Fund.
Fifth Third, through its banking subsidiaries, also participates in several
regional shared ATM networks, including "Money Station(R)," "Honor(R)" and
"Star." These networks include approximately 5,400, 42,000 and 44,000 ATMs,
respectively. All Fifth Third banking subsidiaries also participate in the "PLUS
System(R)" network, which is an international ATM network with approximately
625,000 ATMs.
Fifth Third is a corporate entity legally separate and distinct from its
affiliates. The principal source of Fifth Third's income is dividends from its
affiliates. There are certain regulatory restrictions as to the extent to which
the affiliates can pay dividends or otherwise supply funds to Fifth Third. See
"Description of Capital Stock and Comparative Rights of
Shareholders -- Dividends."
RECENT DEVELOPMENTS
Fifth Third's strategy for growth includes strengthening its presence in
core markets, expanding into contiguous markets and broadening its product
offerings.
Fifth Third believes it has an excellent track record in integrating
acquired businesses. Since 1989, Fifth Third has completed 30 acquisitions,
which have contributed to its growth. Consistent with this strategy, in addition
to the merger with CNB Bancshares, Fifth Third recently acquired Ashland
Bankshares, Inc., Enterprise Federal Bancorp, Inc., South Florida Bank Holding
Corporation and Emerald Financial Corp. and recently entered into an agreement
to acquire Peoples Bank Corporation of Indianapolis.
ASHLAND BANKSHARES, INC. On April 16, 1999, Fifth Third acquired Ashland
Bankshares, Inc., a bank holding company based in Ashland, Kentucky which owns
Bank of Ashland, Inc. As of December 31, 1998, Ashland had total assets of
$171.1 million and total deposits of $141.4 million. Fifth Third issued
approximately 1,225,000 shares of Fifth Third common stock to shareholders of
Ashland in that merger. Based on the fair market value per share of Fifth Third
common stock as of April 16, 1999, the closing date of this merger, these shares
had an aggregate value of approximately $84.5 million. This acquisition was
accounted for as a pooling-of-interests.
42
<PAGE> 48
ENTERPRISE FEDERAL BANCORP, INC. On May 14, 1999, Fifth Third acquired
Enterprise Federal Bancorp, Inc., a savings and loan holding company based in
Cincinnati, Ohio which owns Enterprise Federal Savings Bank. As of December 31,
1998, Enterprise Federal Bancorp, Inc. had total assets of $544.1 million and
total deposits of $343.2 million. Fifth Third issued approximately 1,676,596
shares of Fifth Third common stock to shareholders of Enterprise in that merger.
Based on the fair market value per share of Fifth Third common stock as of May
14, 1999, the closing date of this merger, these shares had an aggregate value
of approximately $121.9 million. This acquisition was accounted for as a
pooling-of-interests.
SOUTH FLORIDA BANK HOLDING CORPORATION. On June 11, 1999, Fifth Third
acquired South Florida Bank Holding Corporation, a bank holding company based in
Ft. Myers, Florida which owns South Florida Bank. As of December 31, 1998, South
Florida had total assets of $90.2 million and total deposits of $77.0 million.
Fifth Third issued approximately 440,000 shares of Fifth Third common stock to
shareholders of South Florida in that merger. Based on the fair market value per
share of Fifth Third common stock as of June 11, 1999, the closing date of this
merger, these shares had an aggregate value of approximately $28.6 million. This
acquisition was accounted for as a pooling-of-interests.
EMERALD FINANCIAL CORP. On August 6, 1999, Fifth Third acquired Emerald
Financial Corp., a unitary savings and loan holding company based in
Strongsville, Ohio which owns The Strongsville Savings Bank. As of March 31,
1999, Emerald had total assets of $677.1 million and total deposits of $562.4
million. Fifth Third issued approximately 3,430,000 shares of Fifth Third common
stock to shareholders of Emerald in that merger. Based on the fair market value
per share of Fifth Third common stock as of August 6, 1999, the closing date of
this merger, these shares had an aggregate value of approximately $214.2
million. This acquisition was accounted for as a pooling-of-interests.
PEOPLES BANK CORPORATION OF INDIANAPOLIS. On July 12, 1999, Fifth Third
agreed to acquire Peoples Bank Corporation of Indianapolis, a bank holding
company based in Indianapolis, Indiana which owns Peoples Bank and Trust
Company. As of June 30, 1999, Peoples had total assets of $674.5 million and
total deposits of $587.3 million.
In connection with the acquisition of Peoples, shareholders of Peoples will
receive 1.09 shares of Fifth Third common stock for each outstanding share of
Peoples capital stock. Fifth Third expects to issue approximately 3,500,000
shares of Fifth Third common stock to shareholders of Peoples. Based on the fair
market value per share of Fifth Third common stock as of August 31, 1999, these
shares would have an aggregate value of approximately $231.9 million. This
merger is subject to shareholder and regulatory approval. Fifth Third expects
that its acquisition of Peoples will be accounted for as a pooling-of-interests
and will be completed in the fourth quarter of 1999, shortly after the merger
with CNB Bancshares.
ADDITIONAL INFORMATION
For more detailed information about Fifth Third, reference is made to the
Fifth Third Annual Report on Form 10-K, as amended, for the year ended December
31, 1998, Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999
and June 30, 1999, and Current Report on Form 8-K filed with the SEC on June 17,
1999, which are incorporated into this document by reference. See "Where You Can
Find More Information." More information about Fifth Third is also contained in
its 1998 Annual Report to Shareholders which is available through Fifth Third's
website at http://www.53.com/investor/annual.
43
<PAGE> 49
CNB BANCSHARES, INC.
DESCRIPTION OF BUSINESS
CNB Bancshares is an Indiana corporation organized in 1983 as a bank
holding company registered under the Bank Holding Company Act and subject to
regulation by the Federal Reserve Board. CNB Bancshares, with its principal
office located in Evansville, Indiana is the largest bank holding company
headquartered in Indiana.
At June 30, 1999, CNB Bancshares, its affiliated bank and other
subsidiaries had assets of $7.7 billion, deposits of $4.9 billion and
shareholders' equity of $480 million.
CNB Bancshares operates through its subsidiaries. CNB Bancshares' principal
subsidiary is Civitas Bank, a Michigan state chartered bank headquartered in St.
Joseph, Michigan, which, until April 22, 1999, was named Citizens Bank of
MidAmerica. CNB Bancshares has 145 banking offices and 200 ATMs in 91 cities and
towns in Indiana, Michigan, Kentucky and Illinois, where it provides a wide
range of commercial banking, retail banking, trust, insurance and investment
services.
CNB Bancshares has grown significantly through over 30 acquisitions of
banks and non-banks since 1986. CNB Bancshares consummated its largest
acquisition to date on April 17, 1998, when it acquired Pinnacle Financial
Services, Inc., a $2.1 billion bank holding company headquartered in St. Joseph,
Michigan. Pinnacle, which operated 14 offices in southwestern Michigan and 30
offices in northwestern Indiana, marked CNB Bancshares' first entry into the
southwestern Michigan and northwestern Indiana markets.
ADDITIONAL INFORMATION
For more detailed information about CNB Bancshares, reference is made to
the CNB Bancshares Annual Report on Form 10-K for the year ended December 31,
1998, as amended, Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999 and June 30, 1999, and Current Report on Form 8-K filed with the SEC on
June 18, 1999, which are incorporated into this document by reference. See
"Where You Can Find More Information." More information about CNB Bancshares is
also contained in its 1998 Annual Report to Shareholders which is available
through CNB Bancshares' website at www.civitasbank.com.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Financial Information is based on the
historical financial statements of Fifth Third and CNB Bancshares and has been
prepared to illustrate the effects of the acquisitions described below.
The unaudited pro forma balance sheet as of June 30, 1999 assumes the
following transactions were consummated on June 30, 1999: (1) the merger of CNB
Bancshares into Fifth Third, accounted for as pooling-of-interests, and (2)
Fifth Third's acquisition of Peoples Bank Corporation of Indianapolis, accounted
for as a pooling-of-interests.
The unaudited pro forma consolidated statements of income for the six
months ended June 30, 1999 and for the years ended December 31, 1998, 1997, and
1996 give effect to each of the following transactions as if such transactions
had been effective during the periods shown: (1) the merger of CNB Bancshares
into Fifth Third, accounted for as a pooling-of-interests, and (2) Fifth Third's
acquisition of Peoples Bank Corporation of Indianapolis, accounted for as a
pooling-of-interests.
The unaudited Pro Forma Financial Information should be read in conjunction
with Fifth Third's Consolidated Financial Statements and notes thereto
incorporated by reference in this document and CNB Bancshares' Consolidated
Financial Statements and notes thereto incorporated by reference in this
document.
44
<PAGE> 50
FIFTH THIRD BANCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
FIFTH THIRD
BANCORP PEOPLES BANK
AND CNB CORPORATION OF ADJUSTMENTS PRO FORMA
SUBSIDIARIES BANCSHARES INDIANAPOLIS (1),(2),(3),(4) COMBINED
------------ ---------- -------------- --------------- -----------
($000'S EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks.................. $ 703,303 $ 216,192 $ 20,286 $ $ 939,781
Securities Available for Sale............ 9,497,834 3,010,654 137,827 12,646,315
Securities Held to Maturity.............. 63,505 -- -- 63,505
Other Short-Term Investments............. 110,472 30,410 6,800 147,682
Loans and Leases......................... 19,440,242 4,070,983 495,352 24,006,577
Reserve for Credit Losses................ (284,443) (58,039) (8,004) (350,486)
----------- ---------- -------- --------- -----------
Net Loans and Leases.................. 19,155,799 4,012,944 487,348 -- 23,656,091
Bank Premises and Equipment.............. 335,396 106,150 7,666 449,212
Accrued Income Receivable................ 265,623 62,064 4,250 331,937
Goodwill................................. 144,713 39,327 -- 184,040
Premium on Purchased Deposits............ 228,707 -- -- 228,707
Mortgage Servicing Rights................ 85,829 11,176 534 97,539
Other Assets............................. 1,037,240 206,744 9,813 1,253,797
----------- ---------- -------- --------- -----------
Total Assets............................... $31,628,421 $7,695,661 $674,524 $ -- $39,998,606
=========== ========== ======== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total Deposits........................... $20,128,840 $4,885,501 $587,291 $ $25,601,632
Federal Funds Borrowed................... 3,239,496 278,850 -- 3,518,346
Short-Term Bank Notes.................... 125,000 -- -- 125,000
Other Short-Term Borrowings.............. 2,013,637 1,039,515 21,264 3,074,416
Accrued Taxes, Interest and Expenses..... 784,111 51,095 7,551 842,757
Other Liabilities........................ 180,753 -- 6,000 186,753
Guaranteed Preferred Beneficial Interests
in the Corporation's Convertible
Subordinated Debentures............... -- 172,500 -- (172,500) --
Long-Term Debt........................... 1,823,295 788,164 -- 172,500 2,783,959
----------- ---------- -------- --------- -----------
Total Liabilities.......................... 28,295,132 7,215,625 622,106 -- 36,132,863
STOCKHOLDERS' EQUITY
Common Stock............................. 602,140 34,764 12,391 36,850 686,145
Capital Surplus.......................... 352,791 365,002 (38,586) 679,207
Retained Earnings........................ 2,429,745 115,049 42,638 2,587,432
Net Unrealized Gains (Losses) on
Securities Available for Sale......... (46,758) (34,779) (875) (82,412)
Treasury Stock........................... (4,629) -- (1,736) 1,736 (4,629)
----------- ---------- -------- --------- -----------
Total Stockholders' Equity................. 3,333,289 480,036 52,418 -- 3,865,743
----------- ---------- -------- --------- -----------
Total Liabilities and Stockholders'
Equity................................... $31,628,421 $7,695,661 $674,524 $ -- $39,998,606
=========== ========== ======== ========= ===========
</TABLE>
- ---------------
(1) To record the issuance of up to 34,913,719 shares of Fifth Third common
stock, $2.22 stated value, to effect the merger of CNB Bancshares, Inc. into
Fifth Third Bancorp, accounted for as a pooling-of-interests.
(2) To record the issuance of up to 3,569,884 shares of Fifth Third common
stock, $2.22 stated value, to effect the merger of Peoples Bank Corporation
of Indianapolis into Fifth Third Bancorp, accounted for as a
pooling-of-interests.
(3) To reclass Convertible Subordinated Debentures.
(4) To eliminate Treasury Stock of Peoples Corporation.
45
<PAGE> 51
FIFTH THIRD BANCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
FIFTH THIRD PEOPLES BANK
BANCORP CORPORATION ADJUSTMENTS
AND CNB OF DR.(CR.) PRO FORMA
SUBSIDIARIES BANCSHARES INDIANAPOLIS (3),(4),(5) 6/30/99
------------ ---------- ------------ ----------- ----------
($000'S, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest Income................... $1,018,079 $257,791 $23,785 $ $1,299,655
Interest Expense.................. 467,412 130,495 11,112 5,258 614,277
---------- -------- ------- ------- ----------
Net Interest Income............... 550,667 127,296 12,673 (5,258) 685,378
Provision for Credit Losses....... 51,021 4,951 1,000 56,972
---------- -------- ------- ------- ----------
Net Interest Differential......... 499,646 122,345 11,673 (5,258) 628,406
OTHER OPERATING INCOME:
Service Charges on Deposits..... 65,570 16,184 1,304 83,058
Other Operating Income.......... 296,748 43,730 3,037 343,515
---------- -------- ------- ------- ----------
Total Other Income................ 362,318 59,914 4,341 -- 426,573
OPERATING EXPENSES:
Salaries, Wages and Benefits.... 192,142 55,271 5,673 253,086
Equipment and Occupancy
Expenses..................... 44,212 13,627 1,655 59,494
Other Operating Expenses........ 151,840 38,937 1,940 -- 192,717
---------- -------- ------- ------- ----------
Total Operating Expenses.......... 388,194 107,835 9,268 -- 505,297
Convertible Subordinated
Debentures, net of tax.......... -- 3,281 -- (3,281) --
---------- -------- ------- ------- ----------
Earnings Before Taxes............. 473,770 71,143 6,746 (1,977) 549,682
Applicable Income Taxes........... 161,767 22,609 2,243 (1,977) 184,642
---------- -------- ------- ------- ----------
Net Income........................ $ 312,003 $ 48,534 $ 4,503 $ -- $ 365,040
========== ======== ======= ======= ==========
Average Shares
Outstanding(1),(2).............. 268,264,357 302,296,655
Average Diluted Shares
Outstanding(1),(2).............. 273,822,027 312,305,630
Earnings per Share................ $1.16 $1.21
Diluted Earnings per Share........ $1.14 $1.18
</TABLE>
46
<PAGE> 52
FIFTH THIRD BANCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIFTH THIRD PEOPLES BANK
BANCORP CORPORATION ADJUSTMENTS
AND CNB OF DR. (CR.) PRO FORMA
SUBSIDIARIES BANCSHARES INDIANAPOLIS (3),(4),(5) 1998
------------ ---------- ------------ ----------- ----------
($000'S, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest Income................... $2,018,677 $496,385 $47,554 $ -- $2,562,616
Interest Expense.................. 1,015,853 260,121 22,601 5,476 1,304,051
---------- -------- ------- ------- ----------
Net Interest Income............... 1,002,824 236,264 24,953 (5,476) 1,258,565
Provision for Credit Losses....... 109,171 10,638 3,500 123,309
---------- -------- ------- ------- ----------
Net Interest Differential......... 893,653 225,626 21,453 (5,476) 1,135,256
OTHER OPERATING INCOME:
Service Charges on Deposits..... 127,095 26,672 2,893 156,660
Other Operating Income.......... 509,099 80,062 4,088 593,249
---------- -------- ------- ------- ----------
Total Other Income................ 636,194 106,734 6,981 749,909
OPERATING EXPENSES:
Salaries, Wages and Benefits.... 339,830 111,079 11,024 461,933
Equipment and Occupancy
Expenses..................... 83,344 33,745 3,348 120,437
Other Operating Expenses........ 380,403 87,652 4,656 472,711
---------- -------- ------- ------- ----------
Total Operating Expenses.......... 803,577 232,476 19,028 1,055,081
Convertible Subordinated
Debentures, net of tax.......... -- 3,257 -- (3,257) --
---------- -------- ------- ------- ----------
Earnings Before Taxes............. 726,270 96,627 9,406 (2,219) 830,084
Applicable Income Taxes........... 250,142 35,056 2,999 (2,219) 285,978
---------- -------- ------- ------- ----------
Net Income........................ $ 476,128 $ 61,571 $ 6,407 $ -- $ 544,106
========== ======== ======= ======= ==========
Average Shares Outstanding
(1),(2)......................... 265,338,026 299,370,324
Average Diluted Shares Outstanding
(1),(2)......................... 270,673,947 309,157,550
Earnings per Share................ $1.80 $1.82
Diluted Earnings per Share........ $1.76 $1.77
</TABLE>
47
<PAGE> 53
FIFTH THIRD BANCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIFTH THIRD PEOPLES BANK
BANCORP CORPORATION ADJUSTMENTS
AND CNB OF DR. (CR.) PRO FORMA
SUBSIDIARIES BANCSHARES INDIANAPOLIS (3), (4) 1997
------------ ---------- ------------ ----------- ----------
($000'S, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest Income................... $1,919,083 $499,751 $39,729 $ -- $2,458,563
Interest Expense.................. 1,006,833 267,206 18,119 -- 1,292,158
---------- -------- ------- -------- ----------
Net Interest Income............... 912,250 232,545 21,610 -- 1,166,405
Provision for Credit Losses....... 90,095 24,886 1,800 -- 116,781
---------- -------- ------- -------- ----------
Net Interest Differential......... 822,155 207,659 19,810 -- 1,049,624
OTHER OPERATING INCOME:
Service Charges on Deposits..... 109,500 19,877 2,963 132,340
Other Operating Income.......... 392,269 62,103 2,990 457,362
---------- -------- ------- -------- ----------
Total Other Income................ 501,769 81,980 5,953 -- 589,702
OPERATING EXPENSES:
Salaries, Wages and Benefits.... 292,403 103,025 8,994 404,422
Equipment and Occupancy
Expenses..................... 76,510 24,367 2,624 103,501
Other Operating Expenses........ 261,595 71,467 4,851 337,913
---------- -------- ------- -------- ----------
Total Operating Expenses.......... 630,508 198,859 16,469 -- 845,836
Convertible Subordinated
Debentures, net of tax.......... -- -- -- -- --
---------- -------- ------- -------- ----------
Earnings Before Taxes............. 693,416 90,780 9,294 -- 793,490
Applicable Income Taxes........... 232,558 30,906 3,016 266,480
---------- -------- ------- -------- ----------
Net Income........................ $ 460,858 $ 59,874 $ 6,278 $ -- $ 527,010
========== ======== ======= ======== ==========
Average Shares Outstanding
(1),(2)......................... 262,337,805 296,370,103
Average Diluted Shares Outstanding
(1),(2)......................... 266,680,650 305,164,253
Earnings per Share................ $1.76 $1.78
Diluted Earnings per Share........ $1.73 $1.73
</TABLE>
48
<PAGE> 54
FIFTH THIRD BANCORP AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIFTH THIRD PEOPLES BANK
BANCORP CORPORATION ADJUSTMENTS
AND CNB OF DR.(CR.) PRO FORMA
SUBSIDIARIES BANCSHARES INDIANAPOLIS (3),(4) 1996
------------ ---------- ------------ ----------- -----------
($000'S, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest Income.................. $1,772,410 $451,728 $32,251 $ -- $ 2,256,389
Interest Expense................. 931,377 234,496 14,044 1,179,917
---------- -------- ------- -------- -----------
Net Interest Income.............. 841,033 217,232 18,207 -- 1,076,472
Provision for Credit Losses...... 68,382 13,283 1,125 82,790
---------- -------- ------- -------- -----------
Net Interest Differential........ 772,651 203,949 17,082 -- 993,682
OTHER OPERATING INCOME:
Service Charges on Deposits.... 95,837 17,088 2,511 115,436
Other Operating Income......... 323,070 51,598 2,926 377,594
---------- -------- ------- -------- -----------
Total Other Income............... 418,907 68,686 5,437 -- 493,030
OPERATING EXPENSES:
Salaries, Wages and Benefits... 280,639 90,394 8,029 379,062
Equipment and Occupancy........ 73,051 23,130 2,612 98,793
Expenses Other Operating
Expenses.................... 267,964 78,416 4,153 350,533
---------- -------- ------- -------- -----------
Total Operating Expenses......... 621,654 191,940 14,794 -- 828,388
Convertible Subordinated
Debentures, net of tax......... -- -- -- -- --
---------- -------- ------- -------- -----------
Earnings Before Taxes............ 569,904 80,695 7,725 -- 658,324
Applicable Income Taxes.......... 187,560 27,013 2,316 216,889
---------- -------- ------- -------- -----------
Net Income....................... $ 382,344 $ 53,682 $ 5,409 $ -- $ 441,435
========== ======== ======= ======== ===========
Average Shares
Outstanding(1),(2)............. 263,523,075 297,555,373
Average Diluted Shares
Outstanding(1),(2)............. 269,443,575 307,927,178
Earnings per Share............... $1.45 $1.48
Diluted Earnings per Share....... $1.42 $1.43
</TABLE>
- ---------------
ASSUMPTIONS
(1) The 34,913,719 shares of Fifth Third common stock issued in the CNB
Bancshares transaction, accounted for as a pooling-of-interest, were issued
as of January 1, 1996.
(2) The 3,569,884 shares of Fifth Third common stock issued in the Peoples Bank
Corporation of Indianapolis transaction, accounted for as a
pooling-of-interest, were issued as of January 1, 1996.
(3) Does not give effect to non-recurring merger related charges which will be
in incurred in connection with the business combinations.
(4) Does not give effect to any cost savings which may be achieved after
consummation of the business combinations.
(5) To reclass the distributions on the trust preferred securities.
49
<PAGE> 55
SELECTED HISTORICAL FINANCIAL DATA OF FIFTH THIRD
The following table sets forth certain historical financial data concerning
Fifth Third for the five years ended December 31, 1998. This information is
based on information contained in Fifth Third's 1998 Annual Report on Form 10-K
for the fiscal year ended on December 31, 1998, as amended, as well as Fifth
Third's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, which
are incorporated by reference into this document. Financial data for all periods
has been restated to reflect the second quarter 1998 mergers with CitFed
Bancorp, Inc. and State Savings Company. Both mergers were accounted for as
poolings-of-interest.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------------
1999 1998 1998(2) 1997 1996(1) 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income........... $1,108,079 $1,020,118 $2,018,677 $1,919,083 $1,772,410 $1,518,713 $1,195,401
Interest expense.......... 467,412 527,681 1,015,853 1,006,833 931,377 825,497 558,091
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income....... 550,667 492,437 1,002,824 912,250 841,033 693,216 637,310
Provision for credit
losses.................. 51,021 67,602 109,171 90,095 68,382 45,934 41,183
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for credit
losses.................. 499,646 424,835 893,653 822,155 772,651 647,282 596,127
Other operating income.... 362,318 288,385 636,194 501,769 418,907 345,391 284,614
Operating expenses........ 388,194 434,344 803,577 630,508 621,654 499,564 465,723
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes................... 473,770 278,876 726,270 693,416 569,904 493,109 415,018
Applicable income taxes... 161,767 96,885 250,142 232,558 187,560 162,662 139,393
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................ $ 312,003 $ 181,991 $ 476,128 $ 460,858 $ 382,344 $ 330,447 $ 275,625
========== ========== ========== ========== ========== ========== ==========
COMMON SHARE DATA:
Earnings per share........ $1.16 $0.69 $1.80 $1.76 $1.45 $1.31 $1.12
Diluted earnings per
share................... 1.14 0.68 1.76 1.73 1.42 1.27 1.08
Cash dividends declared
per share............... 0.40 0.34 0.71 0.56 8/9 0.48 8/9 0.42 2/3 0.35 5/9
Book value at period
end..................... 12.29 11.49 11.91 10.52 9.56 8.23 6.97
Average shares outstanding
(000's)................. 268,264 263,836 265,338 262,338 263,523 251,863 246,722
Average diluted shares
outstanding (000's)..... 273,822 268,952 270,674 266,680 269,444 260,867 255,581
</TABLE>
- ---------------
(1) Operating expenses for 1996 include the special Savings Association
Insurance Fund assessment of $37.9 million pretax ($24.6 million after tax,
or $.09 per share). For comparability, excluding the impact of this
assessment, net income, earnings per share and diluted earnings per share
would have been $407.0 million, $1.54 and $1.51, respectively.
(2) Provision for credit losses and operating expenses for 1998 include $16.7
million and $89.7 million of merger-related charges (total $106.4 million,
or $.28 per share). For comparability, excluding the impact of these
merger-related charges, net income, earnings per share and diluted earnings
per share would have been $551.7 million, $2.08 and $2.04, respectively.
50
<PAGE> 56
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------- -------------------------------------------------------------------
1999 1998 1998(2) 1997 1996(1) 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION AT PERIOD
END:
Securities...................... $ 9,561,339 $ 7,990,802 $ 8,420,638 $ 8,224,475 $ 7,826,797 $ 5,683,298 $ 4,925,105
Loans and leases................ 19,224,729 17,975,114 17,779,023 17,312,943 16,034,523 14,813,197 12,992,774
Assets.......................... 31,628,421 28,292,682 28,921,782 27,710,673 26,076,597 22,110,700 19,399,912
Deposits........................ 20,128,840 18,792,343 18,780,355 19,019,896 18,161,327 16,090,989 13,931,299
Short-term borrowings........... 5,378,133 3,935,052 3,693,927 3,650,931 3,581,173 2,064,095 2,703,054
Long-term debt and convertible
subordinated notes............ 1,823,295 1,637,185 2,288,151 1,508,683 1,199,101 1,364,438 665,791
Shareholders' equity............ 3,333,289 3,077,446 3,178,522 2,762,836 2,561,335 2,102,738 1,727,115
RATIOS:
PROFITABILITY RATIOS:
Return on average assets........ 2.10% 1.81% 1.93% 1.74% 1.64% 1.58% 1.54%
Return on average shareholders'
equity........................ 19.5% 18.2% 18.7% 18.4% 17.4% 17.0% 16.9%
Net interest margin............. 4.19% 3.85% 3.94% 3.84% 3.78% 3.67% 3.91%
Overhead ratio(3)............... 41.2% 42.8% 42.3% 43.3% 45.0% 46.6% 49.2%
Other operating income to total
income(4)..................... 39.6% 36.6% 38.4% 35.2% 32.9% 32.9% 31.3%
Dividend payout................. 35.1% 50.0% 40.3% 32.9% 34.3% 33.6% 32.9%
CAPITAL RATIOS:
Average shareholders' equity to
average assets................ 10.78% 9.92% 10.33% 9.48% 9.46% 9.31% 9.12%
Tier 1 risk-adjusted capital.... 12.12% 11.98% 12.09% 11.19% 11.73% 11.43% 11.58%
Total risk-adjusted capital..... 14.13% 14.35% 14.22% 13.54% 14.46% 14.69% 13.70%
Tier 1 leverage................. 10.72% 9.86% 10.39% 9.50% 9.17% 9.46% 9.51%
RATIO OF EARNINGS TO FIXED
CHARGES:(5)
Including deposit interest...... 2.00x 1.52x 1.71x 1.68x 1.61x 1.59x 1.74x
Excluding deposit interest...... 3.72x 3.03x 3.17x 3.37x 3.39x 3.22x 4.04x
CREDIT QUALITY RATIOS:
Reserve for credit losses to
nonperforming assets.......... 648.89% 305.46% 517.04% 318.95% 279.94% 248.70% 345.11%
Reserve for credit losses to
loans and leases
outstanding................... 1.48% 1.50% 1.50% 1.45% 1.46% 1.51% 1.55%
Net charge-offs to average loans
and leases outstanding........ 0.44% 0.49% 0.55% 0.45% 0.41% 0.23% 0.14%
Nonperforming assets to loans,
leases and other real estate
owned......................... 0.23% 0.49% 0.29% 0.45% 0.52% 0.61% 0.45%
</TABLE>
- ---------------
(1) Operating expenses for 1996 exclude the impact of the special Savings
Association Insurance Fund assessment of $37.9 million pretax ($24.6 million
after tax, or $.09 per share). Including the impact of this assessment,
return on average assets, return on average equity and the overhead ratio
were 1.55%, 16.3% and 47.9%, respectively.
(2) Provision for credit losses and operating expenses for 1998 exclude $16.7
million and $89.7 million of merger-related charges (total $106.4 million,
or $.28 per share). For comparability, including the impact of these merger-
related charges, return on average assets, return on average equity and the
overhead ratio were 1.67%, 16.2% and 47.6%, respectively.
(3) Operating expenses divided by the sum of taxable-equivalent net interest
income and other operating income.
(4) Other operating income excluding securities gains and losses as a percent of
net interest income and other operating income excluding securities gains
and losses.
(5) Earnings represent income before income taxes plus fixed charges. Fixed
charges include interest expense and the proportion deemed representative of
the interest factor of rental expense.
51
<PAGE> 57
SELECTED HISTORICAL FINANCIAL DATA OF CNB BANCSHARES
The following table sets forth certain historical financial data concerning
CNB Bancshares. This information is based on information contained in CNB
Bancshares, Inc.'s 1998 Annual Report on Form 10-K for the fiscal year ended on
December 31, 1998, as well as CNB Bancshares' Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, which are incorporated by reference in this
document.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999(1) 1998(2) 1998(3) 1997(4) 1996(5) 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income.................... $257,791 $245,668 $496,385 $499,751 $451,728 $387,880 $314,414
Interest expense................... 130,495 130,499 260,121 267,206 234,496 198,448 146,342
-------- -------- -------- -------- -------- -------- --------
Net interest income................ 127,296 115,169 236,264 232,545 217,232 189,432 168,072
Provision for credit losses........ 4,951 5,077 10,638 24,886 13,283 8,349 7,538
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for credit losses................ 122,345 110,092 225,626 207,659 203,949 181,083 160,534
Other operating income............. 59,914 49,306 106,734 81,980 68,686 56,437 56,126
Operating expenses................. 107,835 137,142 232,476 198,859 191,940 157,108 146,942
-------- -------- -------- -------- -------- -------- --------
Income before income taxes......... 74,424 22,256 99,884 90,780 80,695 80,412 69,718
Applicable income taxes............ 22,609 9,556 35,056 30,906 27,013 27,565 23,764
Distributions(a)................... 3,281 132 3,257 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income......................... $ 48,534 $ 12,568 $ 61,571 $ 59,874 $ 53,682 $ 52,847 $ 45,954
======== ======== ======== ======== ======== ======== ========
COMMON SHARE DATA:
Earnings per share................. $ 1.38 $ 0.36 $ 1.74 $ 1.71 $ 1.54 $ 1.62 $ 1.41
Diluted earnings per share......... 1.34 0.36 1.73 1.69 1.52 1.59 1.39
Cash dividends declared per
share............................ 0.48 0.44 0.90 0.82 0.74 0.50 0.65
Book value at period end........... 13.81 14.37 14.85 14.66 14.10 13.75 12.35
Average shares outstanding
(000's).......................... 35,084 35,182 35,437 34,921 34,944 32,586 32,502
Average diluted shares outstanding
(000's).......................... 38,738 35,726 37,579 35,492 35,621 33,433 33,408
</TABLE>
- ---------------
(a) Distribution pertaining to guaranteed preferred beneficial interests in CNB
Bancshares' convertible subordinated debentures, net of tax.
(1) Operating expenses for the six months ended June 30, 1999 include
non-recurring name change expenses of $2.4 million pretax ($1.5 million
after tax, or $.04 per diluted share). For comparability, excluding the
impact of the name change expenses, net income, earnings per share and
diluted earnings per share would have been $50.1 million, $1.43 and $1.38,
respectively.
(2) Operating expenses for the six months ended June 30, 1998 include merger
related expenses of $41.3 million pretax ($30.2 million after tax, or $.84
per diluted share). For comparability, excluding the impact of the merger
related expenses, net income, earnings per share and diluted earnings per
share would have been $50.1 million, $1.22 and $1.20, respectively.
(3) Operating expenses for 1998 include merger related expenses of $41.3 million
pretax ($30.2 million after tax, or $.80 per diluted share). For
comparability, excluding the impact of the merger related expenses, net
income, earnings per share and diluted earnings per share would have been
$91.8 million, $2.59 and $2.53, respectively.
(4) Provision for loan losses and operating expenses for 1997 include $10.0
million and $11.1 million, respectively, of merger related charges pretax
($14.0 million after tax, or $.40 per diluted share). For comparability,
excluding the impact of the merger related expenses, net income, earnings
per share and diluted earnings per share would have been $73.9 million,
$2.12 and $2.09, respectively.
(5) Operating expenses for 1996 include the special Savings Association
Insurance Fund assessment of $11.0 million pretax ($6.6 million after tax,
or $.18 per diluted share). For comparability, excluding the impact of this
assessment, net income, earnings per share and diluted earnings per share
would have been $60.3 million, $1.73 and $1.70, respectively.
52
<PAGE> 58
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------------------- --------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL CONDITION AT
PERIOD END:
Securities............... $3,010,654 $2,219,309 $2,592,120 $2,084,928 $2,155,745 $1,611,512 $1,344,958
Loans and leases......... 4,009,603 3,693,886 3,891,269 3,987,447 3,690,944 3,227,232 3,081,314
Assets................... 7,695,661 6,660,420 7,141,797 6,596,136 6,351,785 5,576,314 4,806,175
Deposits................. 4,885,501 4,691,805 4,958,337 4,615,062 4,593,441 4,255,135 3,631,957
Short-term borrowings.... 1,318,365 614,712 803,791 681,075 661,872 400,514 435,961
Long-term debt and
convertible
subordinated notes..... 960,664 778,361 799,259 726,658 545,968 397,270 304,020
Shareholders' equity..... 480,036 502,940 527,046 515,463 495,673 475,789 401,630
RATIOS:
PROFITABILITY RATIOS:(1)
Return on average
assets................. 1.38% 1.31% 1.37% 1.14% 1.03% 1.05% 1.02%
Return on average
shareholders' equity... 19.64% 16.60% 17.88% 14.83% 12.54% 12.31% 11.37%
Net interest margin...... 3.94% 3.90% 4.02% 3.94% 4.04% 4.11% 4.09%
Overhead ratio(2)........ 54.0% 56.0% 54.0% 59.0% 63.0% 64.0% 66.0%
Other operating income to
total income(3)........ 31.67% 29.45% 30.69% 25.56% 23.43% 21.98% 24.75%
Dividend payout.......... 35.0% 99.0% 47.0% 48.0% 46.0% 33.0% 39.0%
CAPITAL RATIOS:
Average shareholders'
equity to average
assets................. 7.03% 7.89% 7.68% 7.71% 8.19% 8.54% 8.98%
Tier 1 risk-adjusted
capital................ 13.86% 15.15% 14.76% 11.49% 11.92% 12.70% 12.98%
Total risk-adjusted
capital................ 15.13% 16.57% 16.02% 12.73% 13.31% 14.12% 14.43%
Tier 1 leverage.......... 8.75% 9.49% 9.30% 7.14% 7.34% 8.29% 8.16%
RATIO OF EARNINGS TO
FIXED CHARGES:(4)
Including deposit
interest............... 1.57x 1.17x 1.38x 1.34x 1.34x 1.40x 1.47x
Excluding deposit
interest............... 2.81x 1.60x 2.39x 2.18x 2.49x 2.83x 3.69x
CREDIT QUALITY RATIOS:
Reserve for credit losses
to nonperforming
assets................. 161% 194% 145% 159% 114% 109% 136%
Reserve for credit losses
to loans and leases
outstanding............ 1.45% 1.45% 1.45% 1.38% 1.25% 1.34% 1.33%
Net charge-offs to
average loans and
leases outstanding..... 0.16% 0.34% 0.30% 0.42% 0.36% 0.27% 0.15%
Nonperforming assets to
loans, leases and other
real estate owned...... 1.02% 0.97% 0.99% 0.87% 1.09% 1.23% 0.97%
</TABLE>
- ---------------
(1) Profitability ratios are computed on an operating earnings basis, exclusive
of non-recurring name change expenses, merger related expenses and SAIF
assessments for the periods presented from 1996 to 1999 and identified in
notes 1 through 5 on the previous page.
(2) Operating expenses divided by the sum of taxable equivalent net interest
income and other operating income.
(3) Other operating income excluding securities gains and losses as a percent of
net interest income and other operating income excluding securities gains
and losses.
(4) Earnings represent income before income taxes plus fixed charges. Fixed
charges include interest expense and the proportion deemed representative of
the interest factor of rental expense.
53
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK AND
COMPARATIVE RIGHTS OF SHAREHOLDERS
Fifth Third is a corporation organized under the laws of the State of Ohio.
CNB Bancshares is a corporation organized under the laws of the State of
Indiana.
Fifth Third is authorized to issue 500,000,000 shares of Fifth Third common
stock, no par value, and 500,000 shares of Fifth Third preferred stock, no par
value. As of June 30, 1999, Fifth Third had outstanding 271,234,131 shares of
Fifth Third common stock and no shares of Fifth Third preferred stock. Pursuant
to article fourth of Fifth Third's articles of incorporation, the board of
directors of Fifth Third may, without further action of its shareholders: (1)
divide into one or more new series the authorized shares of Fifth Third
preferred stock which have not previously been designated, (2) fix the number of
shares constituting any new series, and (3) fix the dividend rates, payment
dates, whether dividend rights shall be cumulative or non-cumulative, conversion
rights, redemption rights (including sinking fund provisions) and liquidation
preferences. Except as otherwise provided by law, holders of any series of Fifth
Third preferred stock shall not be entitled to vote on any matter.
CNB Bancshares is authorized to issue 100,000,000 shares of CNB Bancshares
common stock, no par value per share, and 2,000,000 shares of CNB Bancshares
preferred stock, no par value per share. As of August 20, 1999, CNB Bancshares
had outstanding 34,567,431 shares of CNB Bancshares common stock and no shares
of CNB Bancshares preferred stock. Pursuant to article V, section 2 of CNB
Bancshares' articles of incorporation, the board of directors of CNB Bancshares
may, without further action of the shareholders, divide the CNB Bancshares
preferred stock into one or more series and fix the voting powers and the
designations, preferences and relative, optional and other special rights, and
the qualification, limitations and restrictions of such series.
Set forth below is a description of Fifth Third common stock and CNB
Bancshares common stock. This description and analysis are brief summaries of
relevant provisions of the articles of incorporation and code of regulations of
Fifth Third and Ohio law and of the articles of incorporation and bylaws of CNB
Bancshares and Indiana law and are qualified in their entirety by reference to
these documents.
VOTING RIGHTS
Holders of both Fifth Third common stock and CNB Bancshares common stock
are entitled to one vote per share on all matters submitted to a vote of
shareholders.
Fifth Third's code of regulations provides for the division of its board of
directors into three classes of approximately equal size. Directors of Fifth
Third's board of directors are elected for three-year terms, and the terms of
office of approximately one-third of the members of the classified board of
directors expire each year. This classification of the board of Fifth Third may
make it more difficult for a shareholder to acquire immediate control of Fifth
Third and remove management by means of a hostile takeover. Since the terms of
approximately one-third of the incumbent directors expire each year, at least
two annual elections are necessary for the shareholders to replace a majority of
directors, whereas a majority of the directors of a non-classified board of
directors may be replaced in one annual meeting.
The CNB Bancshares board is also classified. The CNB Bancshares board is
divided into three classes, each containing four directors; and the election of
each class of directors constitutes a separate election. Directors serve for
terms of three years and until their respective successors are duly elected and
qualified, or until their prior death, resignation or removal from office. As a
result of the classification of the CNB Bancshares board, a minimum of two
annual meetings of shareholders would be necessary for a majority of the members
of the CNB Bancshares board to stand for election.
As stated above, Fifth Third is authorized to issue 500,000 shares of Fifth
Third preferred stock, and its board of directors may designate various
characteristics and rights of Fifth Third preferred stock, including conversion
rights. Accordingly, Fifth Third's board of directors may authorize the
conversion of shares of Fifth Third preferred stock into any number of shares of
Fifth Third common stock and thus dilute the outstanding shares of Fifth Third
common stock. Subject to the board's fiduciary duties, Fifth Third could
54
<PAGE> 60
issue convertible preferred stock with the purpose or effect of deterring or
preventing a takeover of Fifth Third.
CNB Bancshares' articles of incorporation contain a similar provision that
could be utilized with a similar purpose or effect. As stated above, CNB
Bancshares is authorized to issue 2,000,000 shares of CNB Bancshares preferred
stock, and its board of directors may designate various characteristics and
rights of CNB Bancshares preferred stock, including conversion rights.
Accordingly, CNB Bancshares' board of directors may authorize the conversion of
shares of CNB Bancshares preferred stock into any number of shares of CNB
Bancshares common stock and thus dilute the outstanding shares of CNB Bancshares
common stock. Pursuant to the affiliation agreement, CNB Bancshares has agreed
not to issue any shares of CNB Bancshares preferred stock.
The holders of Fifth Third common stock have the right to vote cumulatively
in the election of directors. Under applicable Ohio law, unless a corporation's
articles of incorporation are amended to provide that no shareholder of the
corporation may cumulate his or her voting power, each shareholder has the right
to vote cumulatively in the election of directors of the corporation if (1)
written notice is given by any shareholder of the corporation to the president,
a vice president or the secretary of such corporation, not less than forty-eight
hours before the time fixed for holding the meeting at which directors are to be
elected, indicating that the shareholder desires that voting for the election of
directors be cumulative, and (2) announcement of the giving of this notice is
made upon the convening of the meeting by the chairman or the secretary or by or
on behalf of the shareholder giving the notice. In this event, each shareholder
will be entitled to cumulate the voting power as he or she possesses and to give
one nominee as many votes as the number of directors to be elected multiplied by
the number of his or her shares, or to distribute these votes on the same
principle among two or more candidates, as each shareholder sees fit. The
availability of cumulative voting rights enhances the ability of minority
shareholders to obtain representation on the board of directors.
CNB Bancshares shareholders do not have a right to vote cumulatively in the
election of directors. Therefore, each share of CNB Bancshares common stock is
entitled to one vote in the election of any director.
DIVIDENDS
Holders of Fifth Third common stock and CNB Bancshares common stock are
each entitled to dividends as and when declared by the respective boards of
directors of each institution out of funds legally available for the payment of
dividends. Fifth Third and CNB Bancshares have, in the past, declared and paid
dividends on a quarterly basis, and intend to continue to do so in the immediate
future in such amounts as their respective boards of directors shall determine.
Most of the revenues of Fifth Third and CNB Bancshares available for
payment of dividends derive from amounts paid to each corporation by its
respective subsidiaries. Under applicable banking law, the total dividends
declared in any calendar year by a national bank, state-chartered bank or a
savings association are restricted by applicable federal and state law.
The affiliates of Fifth Third include both state and nationally chartered
banks and savings banks. Under the applicable regulatory limitations, during the
year 1998, the affiliates of Fifth Third could declare aggregate dividends
limited to their 1998 eligible net profits, as defined, and their retained 1997
and 1996 net income, without the approval of their respective regulators. The
principal regulators of these affiliates have the statutory authority to
prohibit a depository institution under their supervision from paying dividends.
Neither CNB Bancshares nor any affiliate of Fifth Third has ever been prohibited
from declaring dividends or restricted in paying any dividends declared.
If, in the opinion of the applicable regulatory authority, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), the authority
may require, after notice and hearing, that the bank cease and desist from the
practice. The Federal Reserve Board has similar authority with respect to bank
holding companies. In addition, the Federal Reserve Board, the
55
<PAGE> 61
Comptroller of the Currency and the Federal Deposit Insurance Corporation have
issued policy statements which provide that insured banks and bank holding
companies should generally only pay dividends out of current operating earnings.
Finally, the regulatory authorities have established guidelines with respect to
the maintenance of appropriate levels of capital by a bank, bank holding company
or savings association under their jurisdiction. Compliance with the standards
set forth in these guidelines could limit the amount of dividends which Fifth
Third and CNB Bancshares, and their respective affiliates, may pay in the
future.
PREEMPTIVE RIGHTS
Neither shareholders of Fifth Third nor shareholders of CNB Bancshares have
preemptive rights.
RIGHTS UPON LIQUIDATION
In the event of any liquidation, dissolution or winding up of Fifth Third
or CNB Bancshares, so long as neither corporation has issued preferred stock,
the holders of Fifth Third common stock and CNB Bancshares common stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of Fifth Third or CNB Bancshares (including the payment of all fees,
taxes and other expenses incidental thereto), the remaining assets of Fifth
Third or CNB Bancshares available for distribution. If Fifth Third preferred
stock or CNB Bancshares preferred stock is issued, the holders of such preferred
stock may have priority over the holders of common stock in the event of
liquidation or dissolution.
INDEMNIFICATION AND PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
Fifth Third's code of regulations provides for the indemnification of each
director and officer of the corporation, to the fullest extent permitted by Ohio
law, against all expenses and liabilities reasonably incurred by or imposed on
him or her in connection with any proceeding or threatened proceeding in which
he or she may become involved by reason of his or her being or having been a
director or officer.
The bylaws of CNB Bancshares provide that CNB Bancshares shall indemnify
any director or officer of CNB Bancshares against any and all liability and
reasonable expense that such director or officer may incur in connection with or
resulting from any claim, action, suit or proceeding, or civil, criminal,
administrative or investigative action, or threat thereof, by reason of such
director's or officer's being or having been a director or officer of CNB
Bancshares, or serving or having served at the request of CNB Bancshares as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise. Any such person is entitled to indemnification if either: (1)
the officer or director is wholly successful in any such claim, action, suit or
proceeding, or (2) the officer or director is not wholly successful but it is
nevertheless determined that such officer or director acted in good faith in
what he reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, either
said officer or director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful.
The bylaws further provide that the CNB Bancshares board of directors may:
(1) authorize like indemnification of persons who are not directors or officers
of CNB Bancshares but are employees of CNB Bancshares or are officers, directors
or employees of any subsidiary of CNB Bancshares, and (2) approve
indemnification of directors, officers persons to the full extent permitted by
the Indiana Business Corporation Law in effect at such time.
Section 23-1-37-9 of the Indiana Code provides for "mandatory
indemnification," unless limited by the articles of incorporation, by a
corporation against reasonable expenses incurred by a director who is wholly
successful in the defense of any proceeding to which the director was a party by
reason of the director being or having been a director of the corporation.
Section 23-1-37-10 of the Indiana Code states that a corporation may, in advance
of the final disposition of a proceeding, reimburse reasonable expenses incurred
by a director who is a party to a proceeding if: (1) the director furnishes the
corporation with a written affirmation of the director's good faith belief that
the director has met the standard of conduct required and that the director will
repay the advance if it is ultimately determined that he did not meet the
standard of conduct required,
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and (2) that those making the decision to reimburse the director determine that
the facts then known would not preclude indemnification under the Indiana
Business Corporation Law.
CNB Bancshares' bylaws further provide, in accordance with the Indiana
Business Corporation Law, that CNB Bancshares 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 CNB Bancshares, or is or was serving at the
request of CNB Bancshares as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not CNB Bancshares would have
power to indemnify him against such liability under the bylaws or the Indiana
Business Corporation Law.
If the merger is completed, Fifth Third will assume the obligations of CNB
Bancshares for the indemnification of its officers and directors.
Neither Fifth Third nor CNB Bancshares have any additional indemnification
agreements with their directors or executive officers.
SHAREHOLDERS' MEETINGS; QUORUM
Special meetings of Fifth Third's shareholders may be called at any time by
the board of directors or by the shareholders of Fifth Third upon the written
application of the holders of at least 25% of all Fifth Third capital stock
entitled to vote on the matters to be considered at the meeting. These
applications must set forth the purpose or purposes of the meeting. Special
meetings of CNB Bancshares' shareholders may be called at any time by the
chairman of the board, the president, a majority of the directors or by the
holders of 80% of all shares outstanding and entitled to vote at the meeting.
The presence in person or by proxy of the holders of a majority of the
shares of stock entitled to vote at a meeting on every matter that is to be
voted on constitutes a quorum under Fifth Third's code of regulations. CNB
Bancshares' bylaws provide that a majority of the outstanding shares entitled to
vote at any meeting of shareholders shall constitute a quorum for such meeting.
QUALIFICATION OF DIRECTORS
CNB Bancshares' bylaws provide that any person who has reached the age of
70 years as of the date of any annual shareholders meeting is not eligible for
election to the CNB Bancshares board of directors and that any such person who
is a director and whose term does not expire at that meeting shall resign
effective as of the meeting date. Fifth Third does not have any similar
provisions.
REMOVAL OF DIRECTORS
Ohio law provides that the directors may remove any director: (1) if by
order of court he has been found to be of unsound mind, or if he is adjudicated
a bankrupt; or (2) if within sixty days, or within such other period of time as
is prescribed in the articles or the regulations, from the date of his election
he does not qualify by accepting in writing his election to the office or by
acting at a meeting of the directors, and by acquiring the qualifications
specified in the articles or the regulations; or if, for such period as is
prescribed in the articles or the regulations, he ceases to hold the required
qualifications.
Where, as in the case of Fifth Third, the shareholders have a right to vote
cumulatively in the election of directors, then, unless the articles or the
regulations expressly provide that no director may be removed from office or
that removal of directors requires a greater vote than that specified in this
division, all the directors, all the directors of a particular class, or any
individual director may be removed from office, without assigning any cause, by
the vote of the holders of a majority of the voting power entitling them to
elect directors in place of those to be removed, except that, unless all the
directors, or all the directors of a particular class, are removed, no
individual director shall be removed if the votes of a sufficient number of
shares are cast against his removal that, if cumulatively voted at an election
of all the directors, or all the directors of a particular class, as the case
may be, would be sufficient to elect at least one director.
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Fifth Third's code of regulations provide that no director shall be removed
without cause during his term of office and that any director may be removed for
cause at any time by the action of the holders of record of a majority of the
outstanding shares of Fifth Third common stock entitled to vote thereon at a
meeting of the stockholders, and the vacancy in the board of directors caused by
such removal may be filled by action of the stockholders at such meeting or any
subsequent meeting.
Indiana law provides that directors may be removed in any manner provided
in the articles of incorporation. Additionally, the shareholders or directors
may remove one or more directors unless the articles of incorporation or bylaws
provide otherwise. If a director is elected by a voting group of shareholders,
only the shareholders of that group may participate in the vote to remove that
director. Where, as in the case of CNB Bancshares, cumulative voting is not
authorized, a director may only be removed if the votes cast to remove the
director exceed the votes cast not to remove that director.
CNB Bancshares' bylaws provide that, at a special meeting of shareholders
called expressly for that purpose, any director, or the entire board of
directors, may be removed from office at any time, without cause, but only by
the affirmative vote of the holders of at least 80% of the shares of CNB
Bancshares then entitled to vote in an election of directors. Except as may
otherwise be provided by law, cause for removal shall be construed to exist only
if the director whose removal is proposed (1) has been convicted of a felony by
a court of competent jurisdiction and such conviction is no longer subject to
direct appeal or (2) has been adjudged by a court of competent jurisdiction to
be liable for negligence or misconduct in the performance of his duty to the
corporation in a matter of substantial importance to the corporation, and such
adjudication is no longer subject to direct appeal. Any vacancy occurring in the
CNB Bancshares board of directors for any reason, including removal with or
without cause, shall be filled by a majority vote of the remaining or existing
members of the CNB Bancshares board, and each such newly-appointed or
newly-elected director shall serve for the remainder of the full term of the
class of directors to which such director is then appointed or elected and until
his successor shall have been elected and shall qualify, or until his earlier
death, resignation or removal.
AMENDMENT TO ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
Ohio law provides that except in certain circumstances, amendments to a
corporation's articles of incorporation must be adopted by the affirmative vote
of the holders of shares entitling them to exercise two-thirds of the voting
power of the corporation on the proposal or, if the articles provide or permit,
by the affirmative vote of a greater or lesser proportion, but not less than a
majority, of this voting power, and by such affirmative vote of the holders of
shares of any particular class as is required by the articles.
Except for amendments by the Fifth Third board of directors concerning the
fixing of the terms of any series of Fifth Third preferred stock, Fifth Third's
articles of incorporation contain no other provisions concerning amendments.
Indiana law provides that, unless a greater vote is required under a
specific provision of the Indiana corporate law or by a corporation's articles
of incorporation or its board of directors, a corporation may amend its articles
of incorporation upon the affirmative vote of the holders of a greater number of
shares cast in favor of the amendment than the holders of shares cast against
the amendment, unless the amendment creates dissenters' rights in which case a
favorable vote of the holders of a majority of the outstanding shares is
required. A corporation's board of directors may condition its submission of a
proposed amendment to the shareholders of the corporation on any basis,
including the requirement of the affirmative vote of holders of a greater
percentage of the voting shares of the corporation than otherwise would be
required under the Indiana corporate law.
CNB Bancshares articles of incorporation provide that, notwithstanding any
other provision of its articles of incorporation or any provision of law or any
preferred stock designation, the provisions of Article VII (relating to the
classification, number, terms, removal of directors and newly created
directorships and vacancies), Article IX (relating to special meetings of
shareholders) and Article X (relating to the "fair price" provisions discussed
herein) may be altered, amended or repealed only with the affirmative vote of
the holders of at least 80% of CNB Bancshares common stock then entitled to vote
in an election of directors.
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Ohio law provides that the code of regulations of a corporation may be
amended, or new regulations may be adopted, by the shareholders at a meeting
held for that purpose, by the affirmative vote of the holders of shares
entitling them to exercise a majority of the voting power of the corporation on
the proposal, or may be amended, or new regulations may be adopted, without a
meeting by the written consent of the holders of shares entitling them to
exercise two-thirds of the voting power on the proposal, or if the articles or
regulations so provide or permit, by the affirmative vote or written consent of
the holders of shares entitling them to exercise a greater or lesser proportion
but not less than a majority of the voting power.
Fifth Third's code of regulations provide that, except for certain
provisions regarding the election and removal of directors (which may only be
amended by the vote or consent of two-thirds of the voting power of Fifth
Third), the Fifth Third code of regulations may be altered, amended or repealed
at a meeting held for this purpose by the affirmative vote of the holders of
shares of Fifth Third common stock entitling them to exercise a majority of the
voting power or may be adopted without a meeting by the written consent of the
holders of shares of Fifth Third common stock entitling them to exercise
two-thirds of the voting power.
Indiana law provides that, unless the articles of incorporation provide
otherwise, only a corporation's board of directors may amend or repeal the
corporation's bylaws. CNB Bancshares' bylaws do not change this provision.
Therefore, CNB Bancshares' bylaws may be amended or repealed by the majority
vote of the CNB Bancshares board of directors. CNB Bancshares' bylaws provide
that notice of any such action must be given to each director at least 10 days
prior to the meeting at which the action is to submitted for consideration.
VACANCIES ON THE BOARD OF DIRECTORS
Ohio law provides that, unless the articles or the regulations otherwise
provide, the remaining directors, though less than a majority of the whole
authorized number of directors, may, by the vote of a majority of their number,
fill any vacancy in the board for the unexpired term. A vacancy exists if the
shareholders increase the authorized number of directors but fail at the meeting
at which the increase is authorized, or an adjournment of that meeting, to elect
the additional directors provided for, or if the shareholders fail at any time
to elect the whole authorized number of directors. In case of any removal of a
director pursuant to clause (3) in "-- Removal of Directors" above, a new
director may be elected at the same meeting for the unexpired term of each
director removed. Failure to elect a director to fill the unexpired term of any
director removed is deemed to create a vacancy in the board.
Fifth Third's code of regulations provide that, except for vacancies
created by the removal of a director (which is filled as stated above in "--
Removal of Directors"), in the case of any increase in the number of directors,
or any vacancy created by the death, resignation or otherwise of a director, the
additional director or directors may be elected, or, as the case may be, the
vacancy or vacancies may be filled either: (1) by the Fifth Third board of
directors at any meeting by the affirmative vote of a majority of the remaining
directors (though less than a quorum), or (2) by the holders of Fifth Third
common stock entitled to vote thereon, either at an annual meeting of
stockholders or at a special meeting called for that purpose.
CNB Bancshares' articles of incorporation provide that any newly-created
directorship resulting from an increase in the number of directors and any
vacancy occurring in the CNB Bancshares board of directors for any reason,
including resignation, death, incapacity, or removal with or without cause,
shall be filled by a majority vote of the remaining or existing members of the
CNB Bancshares board, and each such newly-appointed or newly-elected director
shall serve for the remainder of the full term of the class of directors to
which such director is then appointed or elected and until his successor shall
have been elected and shall qualify, or until his earlier death, resignation or
removal.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AT MEETINGS OF
SHAREHOLDERS
The bylaws of CNB Bancshares provide that nominations for the election of
directors, other than those made by or on behalf of existing management, shall
be made in writing and shall be delivered or mailed to the Chairman of the Board
of CNB Bancshares not less than 14 nor more than 50 days prior to any meeting of
shareholders called for the election of directors; provided, however, that if
less than 21 days notice of the
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meeting is given to shareholders, such nominations shall be mailed or delivered
not later than the close of business on the seventh day following the day on
which the notice of meeting was mailed. Fifth Third does not have any similar
provisions.
SUBSCRIPTION, CONVERSION, REDEMPTION RIGHTS; STOCK NONASSESSABLE
Neither Fifth Third common stock nor CNB Bancshares common stock has
subscription or conversion rights, and there are no mandatory redemption
provisions applicable thereto. As described below, CNB Bancshares' bylaws
authorize the redemption of certain "control shares" in some circumstances.
Shares of Fifth Third common stock issued to shareholders of CNB Bancshares
pursuant to the affiliation agreement will be validly issued, fully paid and
non-assessable, and will not, upon such issuance, be subject to preemptive
rights of any shareholder of Fifth Third.
CHANGE-OF-CONTROL PROVISIONS
The articles of incorporation and code of regulations of Fifth Third
contain various provisions which could make more difficult a change-of-control
of Fifth Third or discourage a tender offer or other plan to restructure Fifth
Third. The ability of Fifth Third to issue shares of Fifth Third preferred stock
may have the effect of delaying, deferring or preventing a change-of-control of
Fifth Third. Fifth Third's classified board of directors may also make it more
difficult for a shareholder to acquire immediate control of Fifth Third.
Additionally, Ohio law contains provisions which would also make more difficult
a change-of-control of Fifth Third or discourage a tender offer or other plan to
restructure Fifth Third. The following discussion of some of these provisions is
qualified in its entirety by reference to those particular statutory and
regulatory provisions.
OHIO CONTROL SHARE ACQUISITION ACT. Section 1701.831 of the Ohio Revised
Code, the Ohio Control Share Acquisition Act, provides that any "control share
acquisition" of an Ohio issuing public corporation shall be made only with the
prior authorization of the shareholders of the issuing public corporation in
accordance with the provisions of the Ohio Control Share Acquisition Act. A
"control share acquisition" is defined under the Ohio Control Share Acquisition
Act to mean the acquisition, directly or indirectly, by any person of shares of
an issuing public corporation that, when added to all other shares of the
issuing public corporation such person owns, would entitle such person, directly
or indirectly, to exercise voting power in the election of directors within the
following ranges: more than 20%, more than 33 1/3%, and a majority.
The Ohio Control Share Acquisition Act also requires that the acquiring
person must deliver an acquiring person statement to the Ohio issuing public
corporation. The Ohio issuing public corporation must then call a special
meeting of its shareholders to vote upon the proposed acquisition within 50 days
after receipt of such acquiring person statement, unless the acquiring person
agrees to a later date.
The Ohio Control Share Acquisition Act further specifies that the
shareholders of the Ohio issuing public corporation must approve the proposed
control share acquisition by certain percentages at a special meeting of
shareholders at which a quorum is present. In order to comply with the Ohio
Control Share Acquisition Act, the acquiring person may only acquire the shares
of the Ohio issuing public corporation upon the affirmative vote of (1) a
majority of the voting power of the shares of the Ohio issuing public
corporation common stock that is represented in person or by proxy at the
separate special meeting, and (2) a majority of the voting power of the shares
of the Ohio issuing public corporation common stock that is represented in
person or by proxy at the special meeting excluding those shares of the Ohio
issuing public corporation common stock deemed to be "interested shares" for
purposes of the Ohio Control Share Acquisition Act.
"Interested shares" are defined under the Ohio Control Share Acquisition
Act to mean shares in respect of which the voting power is controlled by any of
the following persons: (1) an acquiring person; (2) any officer of the Ohio
issuing public corporation; or (3) any employee who is also a director of the
Ohio issuing public corporation. "Interested shares" also include shares of the
Ohio issuing public corporation common stock that are acquired by any person
after the date of the first public disclosure of the proposed merger and the
date of the special meeting, if either: (a) the aggregate consideration paid by
such person, and any person acting in concert with him for such shares of the
Ohio issuing public corporation common stock exceeds
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$250,000, or (b) the number of shares acquired by such person, and any person
acting in concert with him, exceeds one-half of one percent of the outstanding
shares of the Ohio issuing public corporation common stock.
OHIO MERGER MORATORIUM STATUTE. Chapter 1704 of the Ohio Revised Code
prohibits an issuing public corporation from engaging in a certain transactions
with an interested shareholder for a period of three years following the date on
which the person become an interested shareholder unless, prior to such date,
the directors of the issuing public corporation approve either the transaction
or the acquisition of shares pursuant to which such person became an interested
shareholder. Fifth Third is an issuing public corporation for purposes of the
statute. An interested shareholder is any person who is the beneficial owner of
a sufficient number of shares to allow such person, directly or indirectly,
alone or with others, including affiliates and associates, to exercise or direct
the exercise of 10% of the voting power of the issuing public corporation in the
election of directors.
The transactions restricted by Chapter 1704 include:
- any merger, consolidation, combination, or majority share
acquisition between or involving an issuing public corporation and
an interested shareholder or an affiliate or associate of an
interested shareholder;
- certain transfers of property, dividends, and issuance or transfers
of shares, from or by an issuing public corporation or a subsidiary
of an issuing public corporation to, with, or for the benefit of an
interested shareholder or an affiliate or associate of an interested
shareholder unless such transaction is in the ordinary course of
business of the issuing public corporation on terms no more
favorable to the interested shareholder than those acceptable to
third parties as demonstrated by contemporaneous transactions; and
- certain transactions which (1) increase the proportionate share
ownership of an interested shareholder, (2) result in the adoption
of a plan or proposal for the dissolution, winding up of the
affairs, or liquidation of the issuing public corporation if such
plan is proposed by or on behalf of the interested shareholder, or
(3) pledge or extend the credit or financial resources of the
issuing public corporation to or for the benefit of the interested
shareholder.
After the initial three-year moratorium has expired, an issuing public
corporation may engage in a transaction subject to Chapter 1704 if: (1) the
acquisition of shares pursuant to which the person became an interested
shareholder received the prior approval of the board of directors of the issuing
public corporation, (2) the transaction subject to Chapter 1704 is approved by
the affirmative vote of the holders of shares representing at least two-thirds
of the voting power of the issuing public corporation and by the holders of
shares representing at least a majority of voting shares which are not
beneficially owned by an interested shareholder or an affiliate or associate of
an interested shareholder, or (3) the transaction subject to Chapter 1704 meets
certain statutory tests designed to ensure that it be economically fair to all
shareholders.
OHIO TENDER OFFER PROCEDURES. Ohio law also provides that an offeror may
not make a tender offer or request or invitation for tenders that would result
in the offeror beneficially owning more than 10% of any class of the target
company's equity securities unless such offeror files certain information with
the Ohio Division of Securities and provides such information to the target
company and the offerees within Ohio. The Ohio Division of Securities may
suspend the continuation of the control bid if it determines that the offeror's
filed information does not provide full disclosure to the offerees of all
material information concerning the control bid. The statute also provides that
an offeror may not acquire any equity security of a target company within two
years of the offeror's previous acquisition of any equity security of the same
target company pursuant to a control bid unless the Ohio offerees may sell such
security to the offeror on substantially the same terms as provided by the
previous control bid. The statute does not apply to a transaction if either the
offeror or the target company is a savings and loan or bank holding company and
the proposed transaction requires federal regulatory approval.
The articles of incorporation and bylaws of CNB Bancshares also contain
various provisions which could make more difficult a change-in-control of CNB
Bancshares or discourage a tender offer or other plan to
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restructure CNB Bancshares. The ability of CNB Bancshares to issue shares of CNB
Bancshares preferred stock may have the effect of delaying, deferring or
preventing a change-in-control of CNB Bancshares. CNB Bancshares' classified
board of directors may also make it more difficult for a shareholder to acquire
immediate control of CNB Bancshares. Additionally, Indiana law contains
provisions which would also make more difficult a change-of-control of CNB
Bancshares or discourage a tender offer or other plan to restructure CNB
Bancshares. The following discussion of some of these provisions is qualified in
its entirety by reference to those particular statutory and regulatory
provisions.
INDIANA CONTROL SHARE ACQUISITION ACT. Section 23-1-42-5 of the Indiana
Code provides that "control shares" of an "issuing public corporation" acquired
in a "control share acquisition" have only such voting rights as are conferred
by Section 23-1-42-9 of the Indiana Code. "Control shares" are defined as shares
that, except for the Indiana Control Share Acquisition Act, would have voting
power with respect to shares of an Indiana issuing public corporation that, when
added to all other shares of the Indiana issuing public corporation such person
owns or may vote, would entitle that person immediately after the acquisition of
the shares (either directly or indirectly, alone or part of a group), to
exercise voting power in the election of directors within any of the following
ranges: more than 20%, more than 33 1/3%, and a majority. A "control share
acquisition" is defined as the direct or indirect acquisition by any person of
ownership of, or the power to direct the exercise of voting power with respect
to, issued and outstanding control shares. Among other things, the acquisition
of shares of an Indiana issuing public corporation pursuant to a merger effected
in compliance with Section 23-1-40 of the Indiana Code is not a "control share
acquisition" if the Indiana issuing public corporation is a party to the
agreement of merger.
Any person, however, who does propose to make or has made a control share
acquisition may deliver an acquiring person statement to the issuing public
corporation disclosing the identity of such person and the number of shares such
person has acquired and may request a special meeting of the Indiana issuing
public corporation's shareholder to determine the voting rights to be accorded
to the shares acquired in the control share acquisition. Within 10 days after
receiving the acquiring person statement, the directors of the Indiana issuing
public corporation must call a special meeting of its shareholders which is to
be held within 50 days after receipt of the request. If no request is made, the
voting rights to be accorded to the shares acquired in the control share
acquisition will be presented to the next annual or special meeting of
shareholders.
To be approved, a resolution determining the voting rights of shares
acquired in a control share acquisition must be approved by: (1) each voting
group entitled to vote separately on the proposal by a majority of all the votes
entitled to be cast by that voting group, and (2) each voting group entitled to
vote separately on the proposal by a majority of all the votes entitled to be
cast by that group excluding all "interested shares." "Interested shares" are
defined as shares in respect of which any of the following persons may exercise
or direct the voting power in the election of directors: (a) an acquiring person
or member of a group with respect to a control share acquisition, (b) any
officer of the Indiana issuing public corporation, or (c) any employee of the
Indiana issuing public corporation who is also a director.
If control shares of an Indiana issuing public corporation acquired in a
control share acquisition are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of all voting power,
then all shareholders of the Indiana issuing public corporation are entitled to
dissenters' rights as provided in the Indiana Control Share Acquisition Act.
If authorized pursuant to a corporation's articles of incorporation or
bylaws, control shares acquired in a control share acquisition with respect to
which no acquiring person statement has been filed may be redeemed by the
Indiana issuing public corporation pursuant to the procedures adopted by the
corporation. If an acquiring person statement has been filed, the control shares
are not subject to redemption unless they are not accorded full voting rights by
the shareholders. CNB Bancshares' bylaws authorize the redemption of control
shares.
Because CNB Bancshares is a party to the affiliation agreement and the
merger will be effected in compliance with Section 23-1-40 of the Indiana Code,
the merger is not subject to the Indiana Control Share Acquisition Act.
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INDIANA BUSINESS COMBINATIONS. Indiana law prohibits, in general, any
business combination, such as a merger or consolidation, between an Indiana
corporation with shares of its stock registered under the federal securities
laws or that makes an election under the Indiana corporate law, and an
"interested shareholder" (defined as any owner of 10% or more of the
corporation's stock) for five years after the date on which such shareholder
became an interested shareholder, unless the stock acquisition which caused the
person to become an interested shareholder was approved in advance by the
corporation's board of directors. This so-called "five-year freeze" provision of
the Indiana corporate law is effective even if all parties should subsequently
decide that they wish to engage in the business combination.
CNB Bancshares articles of incorporation also include a "fair price"
provision. This provision generally provides that mergers, other business
combinations and similar transactions and the sale, lease, mortgage or other
disposition of more than 10% of CNB Bancshares' or its subsidiaries' total
assets to any person or entity beneficially owning directly or indirectly more
than 10% of CNB Bancshares' outstanding voting stock, or affiliates or
associates of such an entity, may not be consummated without the approval of
holders of at least 80% of CNB Bancshares' voting stock, unless either: (1) the
transaction is approved by a majority of the members of the CNB Bancshares board
of directors who are not affiliated with the 10% shareholder, or (2) the
transaction meets certain minimum (fair price) price requirements (in either of
which cases, the shareholder and director approval requirements of the "fair
price" provision would no longer apply and only the normal shareholder and
director approval requirements of the Indiana corporate law would govern the
transaction).
INDIANA TAKEOVER OFFER PROCEDURES. Indiana law also provides that a person
may not make a tender offer or request or invitation for tenders that would
result in the offeror beneficially owning more than 10% of any class of the
target company's equity securities unless, before making the takeover offer,
such offeror files certain information with the Indiana Securities Commissioner
and provides such information to the target company and the offerees. The
statute provides that no takeover offer may be made which is not made to all
offerees holding the same class of equity securities of the target company on
substantially equivalent terms. No shares may be purchased or paid for pursuant
to the takeover offer within the first 20 business days after the offer is made.
The Indiana Securities Commissioner must hold a hearing on the takeover
offer within 20 business days after the required statement is filed. Following
the hearing and within 20 business days after a statement is filed, the Indiana
Securities Commissioner may prohibit the purchase of the shares tendered in
response to the takeover offer or condition their purchase if the commissioner
finds that: (1) the takeover statement fails to provide full and fair disclosure
to the offerees of all material information concerning the takeover offer, or
(2) the takeover offer is not made to all offerees of the same class of equity
securities of the target company on substantially equivalent terms.
The statute also provides that an offeror may not acquire any equity
security of a target company within two years following the conclusion of a
takeover offer with respect to that class, unless the holder of that equity
security is also afforded, at the time of that acquisition, a reasonable
opportunity to dispose of that security to the offeror on substantially
equivalent terms.
The statute does not apply to a transaction if the target company is a bank
holding company and the proposed transaction requires federal regulatory
approval. Accordingly, this provision does not apply to the merger.
CONSIDERATION OF NON-SHAREHOLDER INTERESTS
Ohio law provides that a director, in determining what he reasonably
believes to be in the best interests of the corporation, shall consider the
interests of the corporation's shareholders and, in his discretion, may consider
any of the following: (1) the interests of the corporation's employees,
suppliers, creditors, and customers; (2) the economy of the state and nation;
(3) community and societal considerations; and (4) the
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long-term as well as short-term interests of the corporation and its
shareholders, including the possibility that these interests may be best served
by the continued independence of the corporation.
Indiana law specifically authorizes directors, in considering the best
interests of a corporation, to consider the short-term and long-term interests
of the corporation as well as the effects of any action on shareholders,
employees, suppliers and customers of the corporation and communities in which
offices or other facilities of the corporation are located, and any other
factors the directors consider pertinent. Under the Indiana corporate law,
directors are not required to approve a proposed corporate action if the
directors determine in good faith after considering and weighing as they deem
appropriate the effect of such action on the corporation's constituents that
such approval is not in the best interest of the corporation. In addition, the
Indiana corporate law states that directors are not required to redeem any
rights under or render inapplicable a shareholder rights plan or to take or
decline to take any other action solely because of the effect such action might
have on a proposed acquisition of control of a corporation or the amounts to be
paid to shareholders under such an acquisition. Indiana law explicitly provides
that the different or higher degree of scrutiny imposed under the Delaware
General Corporation Law with respect to Delaware corporations and certain other
jurisdictions upon director actions taken in response to potential changes in
control will not apply. Any determination made with respect to the foregoing by
a majority of the disinterested directors will conclusively be presumed to be
valid unless it can be demonstrated that such determination was not made in good
faith.
EFFECT OF GOVERNMENTAL POLICIES
The earnings of both CNB Bancshares and Fifth Third and their subsidiaries
are affected not only by domestic and foreign economic conditions, but also by
the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve Board, foreign governments and other official
agencies. The Federal Reserve Board can and does implement national monetary
policy, such as the curbing of inflation and combating of recession, by its open
market operations in United States Government securities, control of the
discount rate applicable to borrowings and the establishment of reserve
requirements against deposits and certain liabilities of depository
institutions. The actions of the Federal Reserve Board influence the growth of
bank loans, investments and deposits and affect interest rates charged on loans
or paid on deposits. The nature and impact of future changes in monetary and
fiscal policies are not predictable.
From time to time various proposals are made in the United States Congress
and in state legislatures and before various regulatory authorities that would
alter the powers or the existing regulatory framework for banks, bank holding
companies, savings banks and other financial institutions. It is impossible to
predict whether any of the proposals will be adopted and the impact, if any, of
their adoption on the business of CNB Bancshares or Fifth Third and their
subsidiaries.
REGULATION OF FINANCIAL INSTITUTIONS
The following is a discussion of some of the regulatory requirements
applicable to bank holding companies and banks. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to the particular statutory and regulatory provisions.
In addition to being governed by federal and state laws specifically governing
bank holding companies, banks and savings banks, Fifth Third, CNB Bancshares and
each of their respective subsidiaries are also governed by the corporate law of
their state of incorporation to the extent these laws do not conflict with the
laws specifically governing bank holding companies, banks and savings banks.
HOLDING COMPANY REGULATION
As bank holding companies, Fifth Third and CNB Bancshares are registered
with and subject to regulation by the Federal Reserve Board. A bank holding
company is required to file with the Federal Reserve Board an annual report and
such additional information as the Federal Reserve Board may require pursuant to
the Bank Holding Company Act.
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The Federal Reserve Board also may make examinations of a holding company
and each of its subsidiaries. The Bank Holding Company Act requires that the
Federal Reserve Board must first approve a bank holding company's acquisition of
substantially all of the assets of any bank, or acquisition of ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company would own or control directly or indirectly, more than 5% of the
voting shares of such bank.
The Bank Holding Company Act also restricts the types of businesses and
operations in which a bank holding company and its subsidiaries (other than bank
subsidiaries) may engage. Generally, permissible activities are limited to
banking and activities found by the Federal Reserve Board to be so closely
related to banking as to be a proper incident thereto.
CAPITAL REQUIREMENTS
The Federal Reserve Board, the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation maintain guidelines to implement
risk-based capital requirements for bank holding companies, state member banks,
national banks and state non-member banks, respectively. The guidelines provide
for a systematic analytical framework that makes regulatory capital requirements
more sensitive to differences in risk profiles among banking organizations,
takes off-balance sheet exposures into explicit account in assessing capital
adequacy and minimizes disincentives to holding liquid, low-risk assets.
Under the guidelines, banking organizations are required to have capital
equivalent to 8% of assets, weighted by risk. Banking organizations must have at
least 4% Tier 1 capital, which consists of core capital elements including
common shareholders' equity, retained earnings and perpetual preferred stock, to
risk weighted assets. The other half of required capital (Tier 2) can include,
among other supplementary capital elements, limited-life preferred stock and
subordinated debt and loan loss reserves up to certain limits. The banking
regulatory authorities also require institutions to have a minimum leverage
ratio (Tier 1 capital to average assets) of 4%.
Under Federal Reserve Board policy, a holding company is expected to act as
a source of financial strength to each subsidiary bank and to commit resources
to support each of its subsidiaries. This support may be required at times when
the holding company may not find itself able to provide it.
Fifth Third, and each of its subsidiary depository institutions, is in
compliance with both the current leverage ratios and the final risk-based
capital standards. As of June 30, 1999, Fifth Third had a leverage ratio of
10.27%, its Tier 1 risk-based capital ratio was 12.13% and its total risk-based
capital ratio was 14.13%.
CNB Bancshares and Civitas Bank are in compliance with both the current
leverage ratios and the final risk-based capital standards. As of June 30, 1999,
CNB Bancshares had a leverage ratio of 8.75%, its risk-based Tier 1 capital
ratio was 13.86% and its total risk-based capital ratio was 15.13%.
REGULATION OF BANKS
The operations of the subsidiary banks of Fifth Third and CNB Bancshares
are subject to requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types and amounts of loans that may be granted and the interest that may be
charged thereon, and limitations on the types of investments that may be made
and the types of services which may be offered. Various consumer laws and
regulations also affect the operations of these banking subsidiaries.
National banks are subject to the supervision of and are regularly examined
by the Comptroller of the Currency. In addition, national banks must be members
of the Federal Reserve System and their deposits are insured by the Federal
Deposit Insurance Corporation and, as such, are subject to regulation and
examination by each agency. Federal savings banks are subject to the supervision
and regulation of the Office of Thrift Supervision. State-chartered banking
corporations are subject to federal and state regulation of their business and
activities, including, in the case of banks chartered in Ohio, by the Ohio
Division of Financial Institutions, in the case of banks chartered in Kentucky,
by the Kentucky Department of Financial Institutions, in the case of banks
chartered in Indiana, by the Indiana Department of Financial Institutions, in
the case of
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banks chartered in Michigan, by the Michigan Department of Consumer & Industry
Services, Financial Institutions Bureau, and in the case of banks chartered in
Florida, the Florida Department of Banking and Finance.
LEGAL MATTERS
Certain federal income tax consequences of the merger will be passed upon
for CNB Bancshares by Lewis, Rice & Fingersh, L.C., St. Louis, Missouri. Counsel
employed by Fifth Third Bank has rendered his opinion that the shares of Fifth
Third common stock to be issued to the shareholders of CNB Bancshares in
connection with the merger have been duly authorized and, if issued pursuant to
the affiliation agreement, will be validly issued, fully paid and non-assessable
under the current laws of the State of Ohio. Cleary, Gottlieb, Steen & Hamilton,
New York, New York, will render its opinion to Fifth Third with respect to
certain federal income tax consequences of the merger.
EXPERTS
The consolidated financial statements of Fifth Third incorporated in this
document by reference from Fifth Third Bancorp's Annual Report on Form 10-K for
the year ended December 31, 1998, as amended, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of CNB Bancshares incorporated in
this document by reference from CNB Bancshares' Annual Report on Form 10-K for
the year ended December 31, 1998, as amended, have been audited by KPMG LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Fifth Third and CNB Bancshares file annual, quarterly and special reports,
proxy statements and other information with the SEC. Shareholders may read and
copy reports, proxy statements and other information filed by Fifth Third and
CNB Bancshares at the SEC's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New York, New York
10048; or Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. Fifth Third's and CNB Bancshares'
reports, proxy statements and other information are also available from
commercial document retrieval services and at the SEC's website located at
http://www.sec.gov.
Fifth Third has filed a registration statement to register with the SEC the
shares of Fifth Third common stock to be issued to CNB Bancshares shareholders
in the merger. This document is part of that registration statement and
constitutes a prospectus of Fifth Third as well as a proxy statement of CNB
Bancshares for the special meeting.
As allowed by SEC rules, this document does not contain all the information
that shareholders can find in the Fifth Third registration statement or the
exhibits to the Fifth Third registration statement.
The SEC allows Fifth Third and CNB Bancshares to "incorporate by reference"
information into this document, which means that they can disclose important
information to shareholders by referring them to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this document, except for any information superseded by information
contained directly in the other document.
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This document incorporates by reference the documents set forth below:
FIFTH THIRD SEC FILINGS:
- Fifth Third's Annual Report on Form 10-K for the year ended December 31,
1998, as amended;
- Fifth Third's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999 and June 30, 1999;
- Fifth Third's Current Report on Form 8-K filed with the SEC on June 17,
1999; and
- Fifth Third's Proxy Statement dated February 9, 1999.
CNB BANCSHARES SEC FILINGS:
- CNB Bancshares' Annual Report on Form 10-K for the year ended December
31, 1998, as amended;
- CNB Bancshares' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1999 and June 30, 1999;
- CNB Bancshares' Current Report on Form 8-K filed with the SEC on June 18,
1999; and
- CNB Bancshares' Proxy Statement dated March 22, 1999.
Additional documents that Fifth Third and CNB Bancshares may file with the
SEC between the date of this Document and the date of the special meeting of CNB
Bancshares' shareholders are also incorporated by reference. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, as well as proxy statements.
Copies of any of the documents incorporated by reference into this document
(excluding exhibits unless the exhibits are specifically incorporated into this
document) are available without charge upon written or oral request from Paul L.
Reynolds, Assistant Secretary, Fifth Third Bancorp, Fifth Third Center,
Cincinnati, Ohio 45263 (telephone number: (513) 579-5300), as relates to Fifth
Third, and from David L. Knapp, Secretary, CNB Bancshares, Inc., 20 N.W. Third
Street, Evansville, Indiana 47739 (telephone number: (812) 456-3400; e-mail:
[email protected]) as it relates to CNB Bancshares. In order to
ensure timely delivery of the documents, any request should be made by October
7, 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. NO ONE
HAS BEEN AUTHORIZED TO PROVIDE ANY INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED SEPTEMBER 2, 1999.
SHAREHOLDERS SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT
IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS
DOCUMENT TO SHAREHOLDERS NOR THE ISSUANCE OF FIFTH THIRD COMMON STOCK IN THE
MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
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ANNEX A
AFFILIATION AGREEMENT
BETWEEN
FIFTH THIRD BANCORP
AND
CNB BANCSHARES, INC.
A-1
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I.
MODE OF EFFECTUATING CONVERSION OF SHARES; EFFECTS OF THE
MERGER......................................................... A-5
A. THE MERGER.................................................. A-5
B. TREATMENT OF FIFTH THIRD STOCK.............................. A-5
C. TREATMENT OF CNB BANCSHARES STOCK........................... A-6
D. TREATMENT OF CNB BANCSHARES OPTIONS......................... A-6
E. EXCHANGE PROCEDURES......................................... A-7
F. ADJUSTMENTS TO EXCHANGE RATIO............................... A-8
G. CONVERTIBLE DEBENTURES...................................... A-8
H. EFFECTIVENESS OF MERGER; SURVIVING CORPORATION.............. A-9
I. ARTICLES OF THE SURVIVING CORPORATION....................... A-9
J. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION......... A-9
K. REGULATIONS OF THE SURVIVING CORPORATION.................... A-9
L. EFFECTS OF THE MERGER....................................... A-9
M. FURTHER ACTIONS............................................. A-9
N. FILING OF DOCUMENTS......................................... A-9
O. TAX AND ACCOUNTING TREATMENT................................ A-10
P. NO DISSENTERS' RIGHTS....................................... A-10
Q. CONSOLIDATION OF ENTITIES; CHANGES TO FORM OF MERGER........ A-10
R. PLAN OR ARTICLES OF MERGER.................................. A-10
S. DISCLOSURE SCHEDULE; STANDARD............................... A-10
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF CNB BANCSHARES................. A-11
A. ORGANIZATION; CAPITALIZATION; SUBSIDIARIES.................. A-11
B. BANK SUBSIDIARY............................................. A-12
C. FINANCIAL STATEMENTS; REGULATORY REPORTS.................... A-12
D. TITLE TO PROPERTIES......................................... A-13
E. NO MATERIAL ADVERSE EFFECT.................................. A-13
F. LITIGATION; REGULATORY ACTION............................... A-13
G. ORDINARY COURSE OF BUSINESS................................. A-14
H. TAXES; ACCOUNTING........................................... A-14
I. CONTRACTS................................................... A-14
J. LOAN LOSSES................................................. A-15
K. BROKER...................................................... A-15
L. BOARD APPROVAL; CORPORATE AUTHORITY; NO BREACH.............. A-15
M. ARTICLES AND BY-LAWS........................................ A-16
N. COMPLIANCE WITH LAW......................................... A-16
O. INTENTIONALLY OMITTED....................................... A-16
P. ENVIRONMENTAL MATTERS....................................... A-16
Q. EMPLOYMENT MATTERS.......................................... A-17
R. INVESTMENT PORTFOLIO........................................ A-20
S. ANTI-TAKEOVER PROVISIONS; NO IMPEDIMENTS.................... A-20
T. DERIVATIVE INSTRUMENTS...................................... A-20
U. YEAR 2000................................................... A-20
</TABLE>
A-2
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<TABLE>
<S> <C> <C>
V. FAIRNESS OPINION...................................................................................... A-20
W. TRANSACTIONS WITH AFFILIATES.......................................................................... A-21
X. EXPIRATION OF REPRESENTATIONS AND WARRANTIES.......................................................... A-21
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF FIFTH THIRD.................................................................... A-21
A. ORGANIZATION.......................................................................................... A-21
B. CAPITALIZATION........................................................................................ A-21
C. INTENTIONALLY OMITTED................................................................................. A-21
D. DUE ISSUANCE.......................................................................................... A-21
E. FINANCIAL STATEMENTS.................................................................................. A-21
F. NO MATERIAL ADVERSE EFFECT............................................................................ A-22
G. BOARD APPROVAL; CORPORATE AUTHORITY; NO BREACH........................................................ A-22
H. ARTICLES AND REGULATIONS.............................................................................. A-23
I. COMPLIANCE WITH LAW................................................................................... A-23
J. SEC FILINGS; REGULATORY REPORTS....................................................................... A-23
K. LITIGATION; REGULATORY ACTION......................................................................... A-23
L. LOAN LOSSES........................................................................................... A-24
M. TAX RETURNS........................................................................................... A-24
N. BROKER................................................................................................ A-24
O. INVESTMENT PORTFOLIO.................................................................................. A-24
P. TAXES; ACCOUNTING..................................................................................... A-24
Q. YEAR 2000............................................................................................. A-24
R. EXPIRATION OF REPRESENTATIONS AND WARRANTIES.......................................................... A-25
ARTICLE IV.
OBLIGATIONS OF CNB BANCSHARES BETWEEN THE DATE OF THIS AGREEMENT AND THE EFFECTIVE TIME..........................
A-25
A. SHAREHOLDERS' MEETING................................................................................. A-25
B. NO SOLICITATION....................................................................................... A-25
C. VALUATION ADJUSTMENT.................................................................................. A-26
D. OPERATIONS IN THE ORDINARY COURSE; FORBEARANCES....................................................... A-26
ARTICLE V.
COOPERATION AND OTHER OBLIGATIONS AND OTHER COVENANTS............................................................ A-27
A. REGISTRATION STATEMENT AND PROXY STATEMENT............................................................ A-27
B. REGULATORY APPROVALS.................................................................................. A-28
C. REASONABLE BEST EFFORTS............................................................................... A-28
D. ACCESS TO INFORMATION................................................................................. A-28
E. EMPLOYEE BENEFIT MATTERS.............................................................................. A-29
F. STATE TAKEOVER STATUTES............................................................................... A-31
G. AFFILIATES............................................................................................ A-31
H. EXEMPTION FROM LIABILITY UNDER SECTION 16(b).......................................................... A-31
I. EMPLOYMENT AGREEMENT.................................................................................. A-32
J. FORBEARANCES OF FIFTH THIRD........................................................................... A-32
K. COORDINATION OF DIVIDENDS............................................................................. A-32
ARTICLE VI.
CONDITIONS PRECEDENT TO CLOSING.................................................................................. A-32
A. CONDITIONS TO THE OBLIGATIONS OF EACH OF THE PARTIES.................................................. A-32
</TABLE>
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<TABLE>
<S> <C> <C>
B. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF FIFTH THIRD..... A-33
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF CNB
C. BANCSHARES.................................................. A-33
ARTICLE VII.
ADDITIONAL COVENANTS............................................. A-34
A. BANK MERGER................................................. A-34
B. EMPLOYMENT ARRANGEMENTS..................................... A-34
C. DIRECTOR, OFFICER AND EMPLOYEE INDEMNIFICATION.............. A-35
D. NOTICES..................................................... A-36
E. ENTIRE AGREEMENT............................................ A-36
F. ELECTRONIC FUNDS TRANSFERS.................................. A-36
G. PRESS RELEASES.............................................. A-37
H. EXPENSES.................................................... A-37
I. ADVICE OF CHANGES........................................... A-37
J. TAX AND ACCOUNTING TREATMENT................................ A-37
K. ENFORCEMENT OF THIS AGREEMENT............................... A-37
ARTICLE VIII.
TERMINATION...................................................... A-37
A. BASES FOR TERMINATION....................................... A-37
B. EFFECT OF TERMINATION....................................... A-38
ARTICLE IX.
CLOSING AND EFFECTIVE TIME....................................... A-38
ARTICLE X.
AMENDMENT........................................................ A-39
ARTICLE XI.
GENERAL.......................................................... A-39
ARTICLE XII.
COUNTERPARTS..................................................... A-39
</TABLE>
APPENDIX A OPTION AGREEMENT
APPENDIX B FORM OF CNB BANCSHARES AFFILIATE LETTER
APPENDIX C FORM OF FIFTH THIRD AFFILIATE LETTER
A-4
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AFFILIATION AGREEMENT
This Affiliation Agreement (this "Agreement") dated as of June 16, 1999 is
entered into by and between FIFTH THIRD BANCORP, a corporation organized and
existing under the corporation laws of the State of Ohio with its principal
office located in Cincinnati, Hamilton County, Ohio ("Fifth Third"), and CNB
BANCSHARES, INC., a corporation organized and existing under the corporation
laws of the State of Indiana, with its principal office located in Evansville,
Vanderburgh County, Indiana ("CNB Bancshares").
W I T N E S S E T H:
WHEREAS, Fifth Third is a registered multi-bank holding company under the
Bank Holding Company Act of 1956, as amended, and CNB Bancshares is a registered
bank holding company registered under the Bank Holding Company Act of 1956, as
amended, and Fifth Third and CNB Bancshares desire to effect a merger under the
authority and provisions of the corporation laws of the State of Ohio and the
State of Indiana pursuant to which at the Effective Time (as herein defined in
Article IX) CNB Bancshares will be merged with and into Fifth Third, with Fifth
Third as the surviving corporation (the "Merger");
WHEREAS, the Board of Directors of CNB Bancshares has determined that it is
in the best interests of CNB Bancshares and its stockholders to consummate the
Merger, subject to the terms and conditions set forth herein;
WHEREAS, the Board of Directors of Fifth Third has determined that it is in
the best interests of Fifth Third and its stockholders to consummate the Merger,
subject to the terms and conditions set forth herein;
WHEREAS, under the terms of this Agreement each share of Common Stock, no
par value per share, of CNB Bancshares (the "CNB Bancshares Common Stock"),
which is issued and outstanding (excluding any treasury shares) immediately
prior to the Effective Time will at the Effective Time be canceled and
extinguished and converted into shares of Common Stock, without par value, of
Fifth Third ("Fifth Third Common Stock"), all as more fully provided in this
Agreement;
WHEREAS, the parties to this Agreement intend that the Merger qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code") and for pooling-of-interests accounting
treatment;
WHEREAS, as an inducement and condition to, and concurrently with, the
execution of, this Agreement, Fifth Third and CNB Bancshares are entering into a
stock option agreement (the "Option Agreement") in the form attached hereto as
Appendix A;
WHEREAS, prior to the date hereof, the Board of Directors of CNB Bancshares
has approved, adopted and recommended this Agreement and the Merger, upon the
terms and subject to the conditions set forth herein, and has approved
(including for purposes of Chapter 42 and Chapter 43 of the Indiana Business
Corporation Law (the "IBCL")) the Option Agreement, upon the terms and subject
to the conditions set forth herein and therein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
Fifth Third and CNB Bancshares, agree together as follows:
ARTICLE I.
MODE OF EFFECTUATING CONVERSION OF SHARES; EFFECTS OF THE MERGER
A. The Merger. Upon the terms and conditions set forth in this Agreement,
CNB Bancshares shall be merged with and into Fifth Third.
B. Treatment of Fifth Third Stock. At the Effective Time (as defined in
Article IX) all of the shares of Fifth Third Common Stock that are issued and
outstanding or held by Fifth Third as treasury shares immediately prior to the
Effective Time will remain unchanged and will remain outstanding or as treasury
shares, as the case may be, of the Surviving Corporation. Any stock options,
subscription rights, warrants or
A-5
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other securities outstanding immediately prior to the Effective Time, entitling
the holders to subscribe for purchase of any shares of the capital stock of any
class of Fifth Third, and any securities outstanding at such time that are
convertible into shares of the capital stock of any class of Fifth Third will
remain unchanged and will remain outstanding, with the holders thereof entitled
to subscribe for, purchase or convert their securities into the number of shares
of the class of capital stock of Fifth Third to which they are entitled under
the terms of the governing documents.
C. Treatment of CNB Bancshares Stock. 1. At the Effective Time, each share
of CNB Bancshares Common Stock (excluding treasury shares) that is issued and
outstanding immediately prior to the Effective Time will be converted by virtue
of the Merger and without further action, into .8825 shares of Fifth Third
Common Stock (the "Exchange Ratio"), or cash in lieu thereof for fractional
shares, if any, as described in Section I.E. below, subject to adjustment as
provided in Section I.F. below. At the Effective Time, all shares of CNB
Bancshares Common Stock held as treasury shares and all shares of CNB Bancshares
Common Stock owned by Fifth Third or any of its wholly-owned subsidiaries (other
than in a fiduciary, custodial or similar capacity or owned as a result of a
debt previously contracted) will be canceled and terminated and no shares of
Fifth Third or other consideration will be issued in exchange therefor.
2. At the Effective Time, all of the shares of CNB Bancshares Common Stock,
whether issued or unissued (including treasury shares), will be converted as
provided in this Article I, canceled and extinguished and the holders of
certificated or uncertificated shares thereof shall cease to have any rights as
shareholders of CNB Bancshares, other than the right to receive any dividend or
other distribution with respect to such CNB Bancshares Common Stock with a
record date occurring prior to the Effective Time and the right to receive the
consideration provided in this Article I. After the Effective Time, there shall
be no transfers on the stock transfer books of CNB Bancshares of shares of CNB
Bancshares Common Stock.
D. Treatment of CNB Bancshares Options. 1. At the Effective Time, each
award, option, or other right to purchase or acquire shares of CNB Bancshares
Common Stock pursuant to stock options ("CNB Bancshares Rights") granted by CNB
Bancshares under the stock option plans identified in the Disclosure Schedule
(as defined below) ("Stock Plan"), which are outstanding at the Effective Time,
whether or not vested or exercisable, shall automatically be converted into and
become options with respect to Fifth Third Common Stock, and Fifth Third shall
assume each CNB Bancshares Right, in accordance with the same terms and
conditions of the Stock Plan and stock option agreement by which the CNB
Bancshares Right is evidenced (including the immediate vesting of such CNB
Bancshares Rights if provided by the terms thereof), except from and after the
Effective Time, (i) Fifth Third and its Compensation Committee shall be
substituted for the Committee of CNB Bancshares' Board of Directors (including,
if applicable, the entire Board of Directors of CNB Bancshares) administering
such Stock Plan, (ii) each CNB Bancshares Right assumed by Fifth Third may be
exercised solely for shares of Fifth Third Common Stock, (iii) the number of
shares of Fifth Third Common Stock subject to such CNB Bancshares Right shall be
equal to the number of shares of CNB Bancshares Common Stock subject to such CNB
Bancshares Right immediately prior to the Effective Time multiplied by the
Exchange Ratio, and (iv) the per share exercise price under each such CNB
Bancshares Right shall be adjusted by dividing the per share exercise price
under each such CNB Bancshares Right by the Exchange Ratio and rounding to the
nearest four decimal places. Notwithstanding, the provisions of clause (iii) of
the preceding sentence, Fifth Third shall not be obligated to issue any fraction
of a share of Fifth Third Common Stock upon exercise of CNB Bancshares Rights
and any fraction of a share of Fifth Third Common Stock that otherwise would be
subject to a converted CNB Bancshares Right shall represent the right to receive
a cash payment equal to the product of such fraction and the excess, if any, of
the Applicable Market Value Per Share of Fifth Third Common Stock as defined in
Section I.E. hereof over the per share exercise price of such CNB Bancshares
Right (as adjusted in accordance with subparagraph (iv) of this Section I.C.2.).
In addition, notwithstanding the foregoing, each CNB Bancshares Right which is
an "incentive stock option" shall be adjusted as required by Section 424 of the
Code so as not to constitute a modification, extension, or renewal of the
option, within the meaning of Section 424(h) of the Code. Fifth Third agrees to
take all reasonable steps which are necessary to effectuate the foregoing
provisions of this Section.
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2. At or prior to the Effective Time, Fifth Third shall take all corporate
action necessary to reserve for issuance sufficient shares of Fifth Third Common
Stock for delivery upon exercise of CNB Bancshares Rights assumed by Fifth Third
in accordance with this Section.
3. As soon as practicable after the Effective Time, Fifth Third shall
deliver to each holder of CNB Bancshares Rights appropriate notices setting
forth such holders' rights pursuant to the Stock Plan, and the agreements
evidencing the grants of such CNB Bancshares Rights shall continue in effect on
the same terms and conditions (subject to the conversion required by this
Section I.C. after giving effect to the Merger and the assumption by Fifth Third
as set forth above). To the extent necessary to effectuate the provisions of
this Section I.C., Fifth Third shall deliver new or amended agreements
reflecting the terms of each CNB Bancshares Rights assumed by Fifth Third and
amend the Stock Plan to reflect the terms hereof.
4. As soon as practicable after the Effective Time, Fifth Third shall file
with the SEC a registration statement on the appropriate form with respect to
the shares of Fifth Third Common Stock subject to such options and shall use its
best efforts to maintain the effectiveness of such registration statement or
registration statements (and to maintain the current status of the prospectus or
prospectuses with respect thereto) for so long as such options remain
outstanding.
E. Exchange Procedures. 1. After the Effective Time, each holder of a
certificate or certificates for shares of CNB Bancshares Common Stock as of the
Effective Time, upon surrender of the same duly transmitted to Fifth Third Trust
Department, as exchange agent (the "Exchange Agent") (or in lieu of surrendering
such certificates, in the case of uncertificated shares or lost, stolen,
destroyed or mislaid certificates, upon execution of such documentation as may
be reasonably required by Fifth Third), shall be entitled to receive in exchange
therefor a certificate or certificates representing the number of whole shares
of Fifth Third Common Stock into which such holder's shares of CNB Bancshares
Common Stock shall have been converted by the Merger pursuant to the Exchange
Ratio, plus a cash payment for any fraction of a share to which the holder is
entitled, in lieu of such fraction of a share, without any interest thereon,
equal in amount to the product resulting from multiplying such fraction by the
per share price of Fifth Third Common Stock as reported for the NASDAQ National
Market System as of the close of business on the date of the Effective Time (the
"Applicable Market Value Per Share of Fifth Third Common Stock") (such
certificates and cash being hereinafter collectively referred to as the
"Exchange Fund"); provided, however, that if CNB Bancshares' Dividend
Reinvestment Plan is merged with Fifth Third's Dividend Reinvestment Plan, the
shares of CNB Bancshares Common Stock held through CNB Bancshares' Dividend
Reinvestment Plan shall be converted in the Merger into whole shares and
fractional shares of Fifth Third Common Stock at the Exchange Ratio and such
shares shall be held through Fifth Third's Dividend Reinvestment Plan. Within
seven (7) business days after the Effective Time, the Exchange Agent will send a
notice and transmittal form to each CNB Bancshares shareholder of record at the
Effective Time advising such shareholder of the effectiveness of the Merger and
the procedures for surrendering to the Exchange Agent outstanding certificates
formerly evidencing CNB Bancshares Common Stock in exchange for new certificates
of Fifth Third Common Stock and cash in lieu of fractional shares, or for
receiving certificates of Fifth Third Common Stock and cash in lieu of
fractional shares with respect to uncertificated shares of CNB Bancshares Common
Stock. Until so surrendered, as applicable, each uncertificated share and
outstanding certificate that prior to the Effective Time represented shares of
CNB Bancshares Common Stock shall be deemed for all corporate purposes to
represent the right to receive the number of full shares of Fifth Third Common
Stock and cash in lieu of fractional share interests into which the same shall
have been converted; provided, however, that dividends or distributions
otherwise payable with respect to shares of Fifth Third Common Stock into which
CNB Bancshares Common Stock shall have been so converted shall be paid with
respect to such shares only when the transmittal form shall have been validly
executed and delivered (and, in the case of certificated shares, the certificate
or certificates evidencing shares of CNB Bancshares Common Stock shall have been
so surrendered, or in lieu of surrendering such certificates in the case of
lost, stolen, destroyed or mislaid certificates, upon execution of such
documentation as may be reasonably required by Fifth Third) and thereupon any
such dividends and distributions shall be paid, without interest, to the holder
entitled thereto subject however to the operation of any applicable escheat or
similar laws relating to unclaimed funds.
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2. Any portion of the Exchange Fund that remains unclaimed by the
stockholders of CNB Bancshares for twelve months after the Effective Time shall
be paid to Fifth Third. Any stockholders of CNB Bancshares who have not
theretofore complied with this Section I.E. shall thereafter only look to Fifth
Third for payment of the shares of CNB Bancshares Common Stock and cash in lieu
of any fractional shares deliverable in respect of each share of CNB Bancshares
Common Stock such stockholder holds as determined pursuant to this Agreement,
without any interest thereon. Notwithstanding the foregoing, neither the
Exchange Agent nor any party hereto shall be liable to any former holder of CNB
Bancshares Common Stock for any amount or security delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
F. Adjustments to Exchange Ratio. 1. The Exchange Ratio referred to in
Section I.C. shall be adjusted so as to give the CNB Bancshares shareholders the
economic benefit of any stock dividends, reclassifications, recapitalizations,
split-ups, exchanges of shares, or combinations or subdivisions of Fifth Third
Common Stock (each, a "Share Adjustment") effected between the date of this
Agreement and the Effective Time. In particular, without limiting the foregoing,
if, prior to the Effective Time, Fifth Third should effect a split,
reclassification or combination of the Fifth Third Common Stock, or pay or
declare a stock dividend or other stock distribution in Fifth Third Common
Stock, as of a record date prior to the Effective Time, appropriate and
proportionate adjustments (rounded to the nearest one-ten-thousandth of a share
of Fifth Third Common Stock) will be made to the Exchange Ratio and the total
number of shares of Fifth Third Common Stock to be issued in the transaction so
that each shareholder of CNB Bancshares shall be entitled to receive such number
of shares of Fifth Third Common Stock as such shareholder would have received
pursuant to such Share Adjustment had the record date and the payment date
therefor been immediately following the Effective Time of the Merger. In the
event of a Share Adjustment with a record date between the date of this
Agreement and the Effective Time but a payment date subsequent to the Effective
Time, Fifth Third shall take all actions necessary such that on such payment
date, any holder of CNB Bancshares Common Stock as of the Effective Time shall
be entitled to receive such number of shares of Fifth Third Common Stock as such
shareholder would have received as a result of such Share Adjustment if the
record date for such Share Adjustment had been immediately after the Effective
Time.
2. If, between the date hereof and the Effective Time, Fifth Third shall
consolidate with or be merged with or into any other corporation (a "Business
Combination") and the terms thereof shall provide that Fifth Third Common Stock
shall be converted into or exchanged for the shares of any other corporation or
entity, then provision shall be made as part of the terms of such Business
Combination so that each shareholder of CNB Bancshares who would be entitled to
receive shares of Fifth Third Common Stock pursuant to this Agreement shall be
entitled to receive, in lieu of each share of Fifth Third Common Stock issuable
to such shareholder as provided herein, the same kind and amount of securities
or assets as such shareholder would have received with respect to such shares if
the Merger had been consummated, and such shareholder had received shares of
Fifth Third Common Stock, immediately prior to the consummation of such Business
Combination.
3. If, prior to the Effective Time, CNB Bancshares should pay or declare a
stock dividend, an appropriate adjustment (rounded to the nearest
one-ten-thousandth of a share of Fifth Third Common Stock) will be made to the
Exchange Ratio so as to maintain (as closely as practicable) the proportional
interest in Fifth Third Common Stock which the shareholders of CNB Bancshares
would otherwise have received (it being understood that in the event that CNB
Bancshares shall pay or declare a 5% (1-for-20) stock dividend, in keeping with
CNB Bancshares' past practice, prior to the Effective Time and CNB Bancshares
does not pay or declare any other stock dividend, the Exchange Ratio would be
adjusted to equal .8405).
G. Convertible Debentures. CNB Bancshares' outstanding 6% Convertible
Subordinated Debentures due June 30, 2028 (the "Convertible Debentures"), issued
to CNB Capital Trust I (of which CNB Bancshares is the beneficial owner of all
of the beneficial ownership interests represented by common securities) shall
remain outstanding, unchanged by reason of the Merger, except that, in
accordance with the applicable provisions of the indenture under which the
Convertible Debentures were issued, without any action on the part of the holder
thereof, the Convertible Debentures shall no longer be convertible into CNB
Bancshares Common Stock but shall thereafter be convertible only into the right
to receive the number of shares of Fifth Third Common Stock the holder thereof
would have been entitled to receive had such holder converted such
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Convertible Debentures into CNB Bancshares Common Stock immediately prior to the
Effective Time. At the Effective Time, Fifth Third shall expressly assume CNB
Bancshares' obligations under the Convertible Debentures as required by such
indenture.
H. Effectiveness of Merger; Surviving Corporation. At the Effective Time,
the Merger shall become effective, the separate existence of CNB Bancshares
shall cease and CNB Bancshares shall be merged into Fifth Third (which will be
the "Surviving Corporation"), and which shall continue its corporate existence
under the laws of the State of Ohio under the name "Fifth Third Bancorp".
I. Articles of the Surviving Corporation. The Second Amended Articles of
Incorporation, as amended, of Fifth Third of record with the Secretary of State
of Ohio as of the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation, until further amended as provided by law.
J. Directors and Officers of the Surviving Corporation. 1. The Directors
of Fifth Third who are in office at the Effective Time shall be the directors of
the Surviving Corporation, each of whom shall continue to serve as a Director
for the term for which he was elected, subject to the Regulations of the
Surviving Corporation and in accordance with applicable law. At the first Board
of Directors meeting held after the Effective Time, Fifth Third shall take all
steps necessary to elect or appoint as Directors of Fifth Third three persons
who are directors of CNB Bancshares on the date hereof (mutually selected by
Fifth Third and CNB Bancshares prior to the Effective Time), with each of such
persons to serve in a different class of the Fifth Third Board of Directors.
2. The officers of Fifth Third who are in office at the time the Merger
becomes effective shall continue as officers of the Surviving Corporation,
subject to the Regulations of the Surviving Corporation and in accordance with
law.
K. Regulations of the Surviving Corporation. The Regulations of Fifth
Third at the Effective Time shall be the Regulations of the Surviving
Corporation, until amended as provided therein and in accordance with law.
L. Effects of the Merger. At the Effective Time, the effects of the Merger
shall be as provided by the applicable provisions of the laws of Ohio and, to
the extent applicable, Indiana. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time: the separate existence of
CNB Bancshares shall cease; Fifth Third as the Surviving Corporation shall
possess and have title to all assets and property (including all real estate) of
every description, and every interest therein, wherever located, without
reversion or impairment; and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as a private nature, of each of
Fifth Third and CNB Bancshares, and all obligations owing by or due each of
Fifth Third and CNB Bancshares shall be vested in, and become the obligations
of, Fifth Third, without further act or deed; and all rights of creditors of
each of Fifth Third and CNB Bancshares shall be preserved unimpaired, and all
liens upon the property of each of Fifth Third and CNB Bancshares shall be
preserved unimpaired, on only the property affected by such liens immediately
prior to the Effective Time; and any proceeding pending against CNB Bancshares
may be continued as if the Merger did not occur or the Surviving Corporation may
be substituted in the proceeding for CNB Bancshares.
M. Further Actions. From time to time as and when requested by the
Surviving Corporation, or by its successors or assigns, the officers and
Directors of CNB Bancshares in office immediately prior to the Effective Time
shall execute and deliver such instruments and shall take or cause to be taken
such further or other action as shall be necessary in order to vest or perfect
in the Surviving Corporation or to confirm of record or otherwise, title to, and
possession of, all the assets, property, interests, rights, privileges,
immunities, powers, franchises and authority of CNB Bancshares and otherwise to
carry out the purposes of this Agreement.
N. Filing of Documents. A certificate or articles of merger (and, if
required, this Agreement) shall be filed and/or recorded in accordance with the
requirements of the laws of the States of Ohio and Indiana, respectively, as
provided in Article IX. Such filing shall not be made until, but shall be filed
promptly after, all of the conditions precedent to consummating the Merger as
contained in Article VI of this Agreement shall have been fully satisfied or
effectively waived at the Closing contemplated by Article IX hereof.
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O. Tax and Accounting Treatment. 1. The parties intend that the Merger
qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
The Agreement is intended to be a "plan of reorganization" within the meaning of
the regulations promulgated under the Code and for purposes of Section 354 and
361 of the Code.
2. The Merger is intended to qualify for pooling-of-interests accounting
treatment.
P. No Dissenters' Rights. No holder of Fifth Third Common Stock or CNB
Bancshares Common Stock shall be entitled to relief as a dissenting shareholder
pursuant to the IBCL, the Ohio General Corporation Law (the "OGCL") or
otherwise.
Q. Consolidation of Entities; Changes to Form of Merger. The parties agree
to cooperate and take all reasonable requisite action prior to or following the
Effective Time to merge or otherwise consolidate legal entities (effective at or
after the Effective Time) to the extent desirable in Fifth Third's good faith
judgment for commercial, regulatory or other reasons, and further agree that
Fifth Third may, at any time, change the legal method of effecting the Merger
(including without limitation the provisions of Article I hereof) or the
contemplated merger of the Bank Subsidiary (as defined below) with and into
Fifth Third Bank, Indiana on a date at or after the Effective Time to be
determined by Fifth Third, with Fifth Third Bank, Indiana as the surviving
corporation (the "Subsidiary Merger"), if and to the extent Fifth Third
reasonably deems such change to be desirable, including, without limitation, to
provide for the merger of CNB Bancshares with a wholly-owned subsidiary of Fifth
Third or the merger of Civitas Bank, a Michigan banking corporation, formerly
known as Citizens Bank of the MidAmerica (the "Bank Subsidiary"), with another
wholly-owned subsidiary of Fifth Third; provided, however, that no such change
shall (A) alter or change the amount or kind of the consideration for the Merger
to be received by the shareholders of CNB Bancshares in the Merger, (B)
adversely affect the tax treatment to shareholders of CNB Bancshares, or (C)
materially impede or delay receipt of any approvals referred to herein or the
consummation of the transactions contemplated hereby.
R. Plan or Articles of Merger. At the request of Fifth Third, CNB
Bancshares shall enter into a separate plan of merger or articles of merger
reflecting the terms hereof (including Section I.Q. hereof) for purposes of any
filing required by the IBCL or the OGCL.
S. Disclosure Schedule; Standard. 1. CNB Bancshares has delivered to Fifth
Third a confidential schedule (the "Disclosure Schedule"), executed by both CNB
Bancshares and Fifth Third concurrently with the delivery and execution hereof,
setting forth, among other things, in each case with respect to specified
sections of this Agreement, items the disclosure of which shall be necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof or as an exception to one or more representations or
warranties contained in Article II hereof, provided, however, that
notwithstanding anything in this Agreement to the contrary (i) no such item
shall be required to be set forth in the Disclosure Schedule as an exception to
a representation or warranty if its absence would not be reasonably likely to
result in the related representation or warranty being deemed untrue or
incorrect under the standard established by Section I.S.2., and (ii) the mere
inclusion of an item in the Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by CNB Bancshares
that such item represents a material exception or fact, event or circumstance or
that such item is reasonably likely to result in a Material Adverse Effect (as
defined in Section I.S.2.).
2. No representation or warranty of CNB Bancshares contained in Article II
hereof (other than Section II.A.1., the first sentence of Section II.A.2.,
Section II.E. and Section II.L.3(i)(x).) or Fifth Third contained in Article III
hereof (other than Section III.F.) shall be deemed untrue or incorrect, and CNB
Bancshares and Fifth Third, as the case may be, shall not be deemed to have
breached a representation or warranty, as a consequence of the existence of any
fact, event or circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or circumstances
inconsistent with any representation or warrant contained in Article II hereof,
in the case of CNB Bancshares, or Article III hereof, in the case of Fifth
Third, has had or is reasonably likely to have a Material Adverse Effect on the
party making such representation or warranty. The representation and warranty
contained in Section II.A.1. shall not be deemed untrue or incorrect, and CNB
Bancshares shall not be deemed to have breached such
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representation or warranty, if such representation and warranty is untrue or
incorrect only in a de minimis respect. As used herein, the term "Material
Adverse Effect" means, with respect to CNB Bancshares or Fifth Third, any effect
that (i) is, or is reasonably expected to be, material and adverse to the
financial position, results of operations or business of CNB Bancshares and its
subsidiaries taken as a whole, or Fifth Third and its subsidiaries taken as a
whole, respectively, or (ii) would materially impair the ability of either CNB
Bancshares or Fifth Third to perform its obligations under this Agreement or
would otherwise materially threaten or materially impede the consummation of the
Merger and other transactions contemplated by this Agreement; provided, however,
that Material Adverse Effect shall not be deemed to include the impact of (a)
changes in banking and similar laws of general applicability or interpretations
thereof by courts or governmental authorities, (b) changes in GAAP or regulatory
accounting requirements applicable to banks and their holding companies
generally, and (c) any modifications or changes to valuation or reserve policies
and practices in connection with or in anticipation of the Merger. Except with
respect to the representations and warranties of CNB Bancshares set forth in
Section II.A.1., the first sentence of Section II.A.2. and Section II.L.3(i)(x),
for all purposes of determining whether any facts or events contravening a
representation or warranty contained herein constitute, individually or in the
aggregate, a Material Adverse Effect, representations and warranties contained
in Article II (other than Section II.E.) or Article III (other than Section
III.F.) shall be read without regard to any reference to materiality or Material
Adverse Effect set forth therein.
3. CNB Bancshares shall be permitted to update and supplement the
Disclosure Schedule so as to disclose exceptions to one or more representations
or warranties contained in Article II hereof which shall have arisen between the
date hereof and the Closing Date; provided, however, that, anything herein to
the contrary notwithstanding, the exceptions and other information set forth on
any such updated or supplemented Disclosure Schedule shall not be taken into
consideration in determining, for purposes of this Agreement, whether the
condition set forth in Section VI.B.1. hereof shall have been satisfied.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CNB BANCSHARES
CNB Bancshares represents and warrants to Fifth Third that as of the date
hereof or as of the indicated date, as appropriate, and subject to the standard
set forth in Section I.S. except as otherwise disclosed in the Disclosure
Schedule:
A. Organization; Capitalization; Subsidiaries. 1. CNB Bancshares (i) is
duly incorporated, validly existing and in good standing as a corporation under
the corporation laws of the State of Indiana and is a registered bank holding
company under the Bank Holding Company Act; (ii) is duly authorized, in all
material respects, to conduct the business in which it is engaged in all
material respects; (iii) has an authorized capital stock consisting entirely of
100,000,000 shares of CNB Bancshares Common Stock and 2,000,000 shares of
preferred stock, no par value per share ("CNB Bancshares Preferred Stock"); (iv)
has no outstanding securities of any kind, nor any outstanding options, warrants
or other rights, contracts, understandings or commitments entitling another
person to acquire (or to receive consideration based on the value of) any
securities of CNB Bancshares of any kind, other than (a) 34,781,304 shares of
CNB Bancshares Common Stock, which are authorized, duly issued and outstanding
as of June 11, 1999 (which amount includes shares held through CNB Bancshares'
Dividend Reinvestment Plan (the "Dividend Reinvestment Plan")), all of which
shares are fully paid and non-assessable, (b) options to purchase a total of not
more than 1,500,000 shares of CNB Bancshares Common Stock as of June 11, 1999,
which were granted to and are currently held by the present and former
employees, officers, Directors and advisory directors of CNB Bancshares and/or
the Bank Subsidiary or other subsidiaries of CNB Bancshares, (c) 3,336,150
shares of CNB Bancshares Common Stock issuable upon conversion of the
Convertible Debentures and (d) 937,005 shares issuable pursuant to certain
Benefits Plans (as defined below) as set forth in the Disclosure Schedule. Since
the date referred to in clause (iv) of the preceding sentence to the date
hereof, CNB Bancshares has not issued any shares, except in connection with the
exercise of the options referred to in clause (iv)(b), conversion of the
Convertible Debentures referred to in clause (iv)(c), or under the Benefit Plans
as set forth
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in the Disclosure Schedule, or any additional options. CNB Bancshares has made
available to Fifth Third a correct and complete list of all options referred to
in clause (iv)(b), together with the name of the holder, the exercise price, and
vesting information.
2. CNB Bancshares owns of record and beneficially free and clear of all
liens and encumbrances, all of the outstanding shares of the common stock of the
Bank Subsidiary, no par value per share. The Disclosure Schedule sets forth a
complete and correct list of all of the CNB Bancshares' subsidiaries (the "CNB
Subsidiaries"). Except for the capital stock and securities referred to in the
immediately following sentence, there are no outstanding shares of capital stock
or other equity securities of any such CNB Subsidiary, options, warrants, stock
appreciation rights, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
shares of any capital stock or other equity securities of any such CNB
Subsidiary, or contracts, commitments, understandings or arrangements by which
any such CNB Subsidiary may become bound to issue additional shares of its
capital stock or other equity securities, or options, warrants, scrip or rights
to purchase, acquire, subscribe to, calls on or commitments for any shares of
its capital stock or other equity securities. All of the outstanding shares of
capital stock or other securities evidencing ownership of the CNB Subsidiaries
are validly issued, fully paid and (except as otherwise required by law)
non-assessable and such shares or other securities are owned by CNB Bancshares
or its wholly-owned CNB Subsidiaries free and clear of any lien, claim, charge,
option, encumbrance, mortgage, pledge or security interest with respect thereto.
Other than as set forth on the Disclosure Schedule, CNB Bancshares does not own
(other than in a bona fide fiduciary capacity or in satisfaction of a debt
previously contracted) beneficially, directly or indirectly, shares or equity
securities or similar interests of any person or any interest in a partnership
or joint venture of any kind, other than shares, securities and interests as are
not material.
B. Bank Subsidiary. The Bank Subsidiary is duly incorporated, validly
existing and in good standing as a Michigan banking corporation under the laws
of the State of Michigan, and has all the requisite power and authority to
conduct the banking business as now conducted by it.
C. Financial Statements; Regulatory Reports. 1. CNB Bancshares has
previously furnished to Fifth Third its audited, consolidated balance sheets,
statements of income, changes in shareholders' equity and cash flows as of and
at December 31, 1998, and for the year then ended, together with the opinion of
its independent certified public accountants associated therewith. CNB
Bancshares has made available to Fifth Third the Call Reports as filed with the
applicable federal banking agency of the Bank Subsidiary as of and at December
31, 1996, 1997 and 1998. CNB Bancshares also has furnished to Fifth Third (i)
its unaudited, consolidated condensed financial statements as at March 31, 1999,
and for the three (3) months then ended, and (ii) the Bank Call Report as filed
with the Federal Reserve Bank of the Bank Subsidiary for the quarter ended March
31, 1999. Such audited and unaudited consolidated financial statements of CNB
Bancshares fairly present or will fairly present, as applicable, the
consolidated financial condition, results of operations and cash flows of CNB
Bancshares as of the date thereof, and for the years or periods covered thereby,
in conformity with generally accepted accounting principles ("GAAP"),
consistently applied (except as stated therein and except for the omission of
notes to unaudited statements and except for year-end adjustments (consisting of
normal recurring accruals)). There are no material liabilities, obligations or
indebtedness of CNB Bancshares or any of the CNB Subsidiaries required to be
disclosed in the financial statements (or in the footnotes to the financial
statements) so furnished other than the liabilities, obligations or indebtedness
disclosed in such financial statements (including footnotes). Since March 31,
1999, CNB Bancshares and the CNB Subsidiaries have not incurred any liabilities
outside the ordinary course of business consistent with past practice.
2. CNB Bancshares has made available to Fifth Third an accurate and
complete copy (including all exhibits and all documents incorporated by
reference) of each of the following documents as filed by CNB Bancshares with
the SEC: (a) each final registration statement, prospectus, report, schedule and
definitive proxy statement filed since January 1, 1997 by CNB Bancshares or the
Bank Subsidiary with the Securities and Exchange Commission (the "SEC"),
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the Exchange Act ("CNB Bancshares Reports"), and (b) each communication mailed
by CNB Bancshares to its stockholders since January 1, 1997. Since January 1,
1997, CNB Bancshares has timely
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filed (and will timely file after the date of this Agreement) all reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all such reports complied (and,
in the case of all reports and other documents filed after the date of this
Agreement, will comply) in all material respects with the published rules and
regulations of the SEC with respect thereto. As of the date of filing or
mailing, as the case may be, no such registration statement, prospectus, report
or proxy statement contained (and no registration statement, prospectus, report
or proxy statement filed or mailed after the date of this Agreement will
contain) any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date (but filed before the
date hereof) shall be deemed to modify information as of an earlier date. No
event has occurred subsequent to December 31, 1998 which CNB Bancshares is
required to describe in a Current Report on Form 8-K other than the Current
Reports heretofore furnished by CNB Bancshares to Fifth Third. Other than CNB
Capital Trust I, none of the CNB Subsidiaries has any class of securities
registered, or is obligated to register any class of securities, under Section
12 of the Exchange Act.
3. CNB Bancshares and the CNB Subsidiaries have filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they were required to file since January 1, 1997 with
any applicable industry self-regulatory organization or stock exchange ("SRO")
and any other federal, state, local or foreign governmental or regulatory agency
or authority (collectively with the SEC and the SROs, "Regulatory Agencies"),
and all other reports, registrations and statements required to be filed by them
since January 1, 1997, including, without limitation, any report or statement
required to be filed pursuant to the laws, rules or regulations of the United
States, any state, or any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of CNB Bancshares and the CNB Subsidiaries, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of CNB Bancshares,
investigation into the business or operations of CNB Bancshares or the CNB
Subsidiaries since January 1, 1997. To the best knowledge of CNB Bancshares,
there is no unresolved violation, or material criticism or exception, by any
bank Regulatory Agency with respect to any report, registration or statement
relating to any examinations of CNB Bancshares or the CNB Subsidiaries.
D. Title to Properties. CNB Bancshares and the CNB Subsidiaries have good
and marketable title to all of the material properties and assets reflected in
CNB Bancshares statement of financial condition as at December 31, 1998, other
than properties and assets sold in the ordinary course of business since that
date, and each has good and marketable title to all material properties and
assets acquired by it after such date (other than properties and assets
subsequently sold in the ordinary course of business), subject to (i) any liens
and encumbrances that do not materially adversely impair the use of the
property, (ii) statutory liens for taxes not yet due and payable, and (iii)
minor defects and irregularities in title that do not materially adversely
impair the use of the property.
E. No Material Adverse Effect. Since December 31, 1998, no event has
occurred and no fact or circumstance shall have come to exist or come to be
known which, directly or indirectly, individually or taken together with all
other facts, circumstances and events (described in any paragraph of this
Article II or otherwise), has had, or is reasonably likely to have, a Material
Adverse Effect with respect to CNB Bancshares.
F. Litigation; Regulatory Action. 1. There are no actions, suits,
proceedings, investigations or assessments of any kind pending, or to the best
knowledge of CNB Bancshares, threatened against CNB Bancshares or the Bank
Subsidiary which reasonably can be expected to result in any material liability
or any material adverse change in the financial condition, operations or
business of CNB Bancshares and the Bank Subsidiary on a consolidated or separate
basis, or reasonably likely to prevent or delay the consummation of the
transactions contemplated by this Agreement. The Disclosure Schedule lists all
pending or, to the knowledge of CNB Bancshares, threatened claims and
proceedings which, in each case, seek, or could result in, damages or other
amounts payable by CNB Bancshares or the CNB Subsidiaries, in excess of
$1,000,000.
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2. There are no actions, suits, claims, proceedings, investigations or
assessments of any kind pending, or to the best knowledge of CNB Bancshares,
threatened against any of the Directors or officers of CNB Bancshares or the
Bank Subsidiary in their capacities as such, and no Director or officer of CNB
Bancshares or the Bank Subsidiary currently is being indemnified or seeking to
be indemnified by either CNB Bancshares or any of the CNB Subsidiaries pursuant
to applicable law or applicable articles of incorporation, bylaws or other
constituent documents or any indemnity agreements.
3. Neither CNB Bancshares nor any of the CNB Subsidiaries is subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any supervisory letter from or has adopted
any board resolutions at the request of, any Regulatory Agency or other
governmental entity, that restricts the conduct of its business or has resulted,
or could reasonably be expected to result, in a liability or that in any manner
relates to its capital adequacy, its credit policies, its management or its
business (each a "CNB Regulatory Agreement"), nor has CNB Bancshares or the Bank
Subsidiary (a) been advised since January 1, 1996 by any Regulatory Agency or
other governmental entity that it is considering issuing or requesting any such
CNB Regulatory Agreement or (b) any actual knowledge of any pending or
threatened regulatory investigation.
G. Ordinary Course of Business. Except as disclosed in the CNB Bancshares
Reports filed prior to the date hereof, since December 31, 1998, CNB Bancshares
and the CNB Subsidiaries have each been operated in the ordinary course of
business, have not made any changes in their respective capital or corporate
structures, nor any material changes in their methods of business operations and
have not provided any increases in employee salaries or benefits other than
increases in the ordinary course of business, and have not instituted or made
any announcements to institute or amend any existing employee benefit plan,
policy or arrangement or any employment contract or policy. Except as disclosed
in the CNB Bancshares Reports filed prior to the date hereof, since December 31,
1998 to the date hereof, CNB Bancshares has not declared or paid any dividends
nor made any distributions of any other kind to its shareholders except for
regular quarterly dividends not in excess of $0.24 per share.
H. Taxes; Accounting. 1. CNB Bancshares and the Bank Subsidiary have
timely filed all federal, state and local tax returns required to be filed
(after giving effect to all extensions) by them, respectively, and have paid or
provided for all tax liabilities shown to be due thereon or which have been
assessed against them, respectively. All tax returns filed by CNB Bancshares or
the Bank Subsidiary through the date hereof are complete and accurate in all
material respects.
2. CNB Bancshares has no reason to believe that any conditions exist that
might prevent or impede the Merger from qualifying as a "reorganization" within
the meaning of Section 368(a) of the Code or for pooling-of-interests accounting
treatment.
3. Since December 31, 1998, except insofar as required by a change in GAAP,
there has been no material change in any material accounting methods, principles
or practices of CNB Bancshares or the Bank Subsidiary.
I. Contracts. Neither CNB Bancshares nor any of the CNB Subsidiaries is a
party to or bound by any contract, arrangement, commitment or understanding (a)
as of the date hereof, with respect to the employment, termination or
compensation of any directors, executive officers, employees or material
consultants (other than oral contracts of employment at will or engagement of
consultants which may be terminated without material penalty), (b) which is a
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC) that has not been filed with or incorporated by reference in the
CNB Bancshares Reports, (c) which contains any material non-compete or
exclusivity provisions with respect to any business or geographic area in which
business is conducted by CNB Bancshares or any of its Significant Subsidiaries
(as defined in Regulation S-X of the SEC) or which restricts the conduct of any
business by CNB Bancshares or any of its Significant Subsidiaries or any
geographic area in which CNB Bancshares or any of its Significant Subsidiaries
may conduct business or requires exclusive referrals of any business, (d) except
as contemplated by Article I hereof or as set forth in the Disclosure Schedule
(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the
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benefits of which will be increased, or the funding, vesting or payment of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement (either alone or together with any
other event), or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement or (e) which
would prohibit or materially delay the consummation of the Merger. CNB
Bancshares has previously made available to Fifth Third true and correct copies
of all employment, termination, compensation, change of control, and similar
agreements (including deferred compensation) with executive officers, key
employees or material consultants which are in writing and to which CNB
Bancshares or any of the CNB Subsidiaries are a party. Each contract,
arrangement, commitment or understanding of the type described in this Section
II.I., and every agreement relating to the Convertible Debentures, whether or
not set forth in the Disclosure Schedule, is referred to herein as a "CNB
Contract", and neither CNB Bancshares nor any of the CNB Subsidiaries has
knowledge of, or has received notice of, any violation of any CNB Contract by it
or any of the other parties thereto.
J. Loan Losses. Since December 31, 1998, to the date hereof, except as
disclosed in CNB Bancshares Reports filed prior to the date hereof, the Bank
Subsidiary has not incurred any unusual or extraordinary loan losses which are
material to CNB Bancshares and the CNB Subsidiaries on a consolidated basis; to
the best knowledge of CNB Bancshares and in light of the Bank Subsidiary's
historical loan loss experience and its management's analysis of the quality and
performance of its loan portfolio, as of December 31, 1998, its reserve for loan
losses was, in the opinion of CNB Bancshares, adequate to absorb potential loan
losses determined on the basis of management's continuing review and evaluation
of the loan portfolio and its judgment as to the impact of economic conditions
on the portfolio.
K. Broker. Except for Donaldson, Lufkin & Jenrette Incorporated ("DLJ"),
whose fee in connection with the transactions contemplated by this Agreement is
disclosed in the Disclosure Schedule, neither CNB Bancshares nor any of the CNB
Subsidiaries has a direct or indirect commitment to any investment banker,
broker, or finder in connection with this transaction and neither has incurred
or will incur any obligation for any investment banker's, broker's or finder's
fee or commission in connection with the transactions provided for in this
Agreement.
L. Board Approval; Corporate Authority; No Breach. 1. The Directors of CNB
Bancshares, by resolution adopted by the unanimous vote of all Directors present
at a meeting duly called and held in accordance with applicable law, have duly
approved this Agreement and the Option Agreement and have adopted this Agreement
as a "plan of merger" within the meaning of Section 23-1-40-1 of the IBCL. The
Directors of CNB Bancshares have directed that the plan of merger contained in
this Agreement be submitted to a vote of CNB Bancshares' shareholders at the
annual or a special meeting of the shareholders to be called for that purpose.
2. CNB Bancshares has the corporate power and authority to enter into this
Agreement and the Option Agreement and to carry out its obligations hereunder
and thereunder subject to required regulatory approvals and, in the case of
consummation of the Merger, subject to approval by the holders of a majority of
the outstanding shares of CNB Bancshares Common Stock, which is the only
approval of shareholders required. This Agreement and the Option Agreement have
each been duly authorized. This Agreement constitutes the valid and binding
obligation of CNB Bancshares, enforceable in accordance with its terms, except
to the extent that (i) enforceability thereof may be limited by insolvency,
reorganization, liquidation, bankruptcy, readjustment of debt or other laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the availability of certain remedies may be precluded
by general principles of equity.
3. Neither the execution of the Agreement or the Option Agreement, nor the
consummation of the transactions contemplated hereby and thereby (either alone
or together with any other event), (i) conflicts with, results in a breach of,
violates or constitutes a default under, (x) CNB Bancshares' Restated Articles
of Incorporation or Amended By-laws or, to the best knowledge of CNB Bancshares,
any federal, state or local law, statute, ordinance, rule, regulation or court
or administrative order, or (y) any agreement, arrangement, or commitment, to
which CNB Bancshares or the Bank Subsidiary is subject or bound; (ii) to the
knowledge of CNB Bancshares, results in the creation of or gives any person the
right to create any material lien, charge, encumbrance, or security agreement or
any other material rights of others or other material adverse interest
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upon any material right, property or asset belonging to CNB Bancshares or the
Bank Subsidiary; (iii) terminates or gives any person the right to terminate,
amend, abandon, or refuse to perform any material agreement, arrangement or
commitment to which CNB Bancshares or the Bank Subsidiary is a party or by which
CNB Bancshares' or the Bank Subsidiary's rights, properties or assets are
subject or bound; or (iv) to the knowledge of CNB Bancshares, accelerates or
modifies, or gives any party thereto the right to accelerate or modify, the time
within which, or the terms according to which, CNB Bancshares or the Bank
Subsidiary is to perform any duties or obligations or receive any rights or
benefits under any material agreements, arrangements or commitments. For
purposes of clauses (iii) and (iv) immediately preceding, material agreements,
arrangements or commitments exclude (without limitation) agreements,
arrangements or commitments having a term expiring less than twelve (12) months
from the date of this Agreement or which do not require the expenditure of more
than $500,000 over the term of the agreement, arrangement or commitment (but
shall include all agreements, arrangements or commitments pursuant to which
credit has been extended by the Bank Subsidiary).
4. As of the date hereof, CNB Bancshares is not aware of the existence of
any factor that would materially delay or materially hinder issuance of any of
the required regulatory approvals necessary to consummate the Merger or the
other transactions contemplated hereby.
M. Articles and By-laws. Complete and accurate copies of the (i) Restated
Articles of Incorporation and Amended By-laws of CNB Bancshares and (ii) the
Articles of Incorporation and Bylaws of the Bank Subsidiary in force as of the
date hereof have been delivered to Fifth Third.
N. Compliance with Law. To the knowledge of CNB Bancshares, neither CNB
Bancshares nor any of the CNB Subsidiaries nor any employee, officer or Director
of any of them acting in such capacity has engaged in any activity or omitted to
take any action which, in any material way, has resulted or could result in the
violation of, or material failure to comply with the regulatory requirements of
(i) any local, state or federal law (including without limitation the Bank
Secrecy Act, the Community Reinvestment Act, applicable consumer protection and
disclosure laws and regulations, including without limitation, Truth in Lending,
Truth in Savings and similar disclosure laws and regulations, and equal
employment and employment discrimination laws and regulations) or (ii) any
regulation, order, injunction or decree of any court or governmental body, the
violation of either of which could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate, on the financial condition or
operations of CNB Bancshares and the CNB Subsidiaries, and neither CNB
Bancshares nor any of the CNB Subsidiaries has received notice of any violations
of any of the above. To the best knowledge of CNB Bancshares, CNB Bancshares and
the CNB Subsidiaries possess all licenses, franchises, permits and other
authorizations necessary to continue to conduct such businesses as they are
presently conducted following the Effective Time without material interference
or interruption.
O. Intentionally Omitted.
P. Environmental Matters. 1. CNB Bancshares has no knowledge of any
actions, proceedings or investigations pending before any environmental
regulatory body, with respect to, or, to the knowledge of CNB Bancshares,
threatened against or affecting CNB Bancshares or the Bank Subsidiary in respect
to any "facility" owned, leased or operated by any of them (but excluding any
"facility" as to which the sole interest of CNB Bancshares or the Bank
Subsidiary is that of a lienholder or mortgagee, but including any "facility" to
which title has been taken pursuant to mortgage foreclosure or similar
proceedings and including any "facility" in which CNB Bancshares or the Bank
Subsidiary ever participated in the financial management of such facility to a
degree sufficient to influence, or have the ability to influence, the facility's
treatment of hazardous waste) under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or under any
Federal, state, local or municipal statute, ordinance or regulation in respect
thereof, in connection with any release of any toxic or "hazardous substance",
pollutant or contaminant into the "environment", nor, to the best knowledge of
CNB Bancshares after reasonable inquiry, is there any reasonable basis for the
institution of any such actions or proceedings or investigations which is
probable of assertion, nor are there any such actions or proceedings or
investigations in which CNB Bancshares or the Bank Subsidiary is a plaintiff or
complainant. To the knowledge of CNB Bancshares,
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neither CNB Bancshares nor the Bank Subsidiary is liable in any material respect
under any applicable law for any release by either of them or for any release by
any other "person" of a hazardous substance caused by the spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping or disposing of hazardous wastes or other chemical substances,
pollutants or contaminants into the environment, nor, to the knowledge of CNB
Bancshares, is CNB Bancshares or the Bank Subsidiary liable for any material
costs (as a result of the acts or omissions of CNB Bancshares or the Bank
Subsidiary or, to the best knowledge of CNB Bancshares, as a result of the acts
or omissions of any other "person") of any remedial action including, without
limitation, costs arising out of security fencing, alternative water supplies,
temporary evacuation and housing and other emergency assistance undertaken by
any environmental regulatory body having jurisdiction over CNB Bancshares or the
Bank Subsidiary to prevent or minimize any actual or threatened release by CNB
Bancshares or the Bank Subsidiary of any hazardous wastes or other chemical
substances, pollutants and contaminants into the environment which would
endanger the public health or the environment. All terms contained in quotation
marks in this paragraph and the paragraph immediately following shall have the
meaning ascribed to such terms, and defined in, CERCLA.
2. To the best knowledge of CNB Bancshares each "facility" owned, leased or
operated by CNB Bancshares or the Bank Subsidiary (but excluding any "facility"
as to which the sole interest of CNB Bancshares or the Bank Subsidiary is that
of a lienholder or mortgagee, but including any "facility" to which title has
been taken pursuant to mortgage foreclosure or similar proceedings and including
any "facility" in which CNB Bancshares or the Bank Subsidiary ever participated
in the financial management of such facility to a degree sufficient to
influence, or have the ability to influence, the facility's treatment of
hazardous waste) is, in all material respects, in compliance with all applicable
Federal, state, local or municipal statutes, ordinances, laws and regulations
and all orders, rulings or other decisions of any court, administrative agency
or other governmental authority relating to the protection of the environment,
except to the extent a failure to comply would not have a Material Adverse
Effect on CNB Bancshares and the Bank Subsidiary taken as a whole.
Q. Employment Matters. 1. Benefit Plans. The Disclosure Schedule lists
the name of each Benefit Plan (as herein defined), together with an indication
of the type of plan (i.e., defined benefit, defined contribution, health and
welfare, etc.) and funding status (e.g., funded trust, unfunded obligation or
insurance policy). For purposes hereof, the term "Benefit Plan" shall mean any
plan, program, policy, practice, arrangement or system for the benefit of
employees, former employees, directors or former directors which is contributed
to or maintained by CNB Bancshares or any of the CNB Subsidiaries or for which
CNB Bancshares or any of the CNB Subsidiaries have any liability (contingent or
otherwise) and shall include, without limitation, (a) any retirement plan such
as a pension, profit sharing, stock bonus plan or employee stock ownership plan
("ESOP"), (b) any plan, program or arrangement providing deferred compensation,
bonus deferral change in control payments or benefits or incentive benefits,
whether funded or unfunded, and (c) any welfare plan, program or policy
providing vacation, severance, salary continuation, supplemental unemployment,
disability, life, health coverage, retiree health, Voluntary Employees'
Beneficiary Association, medical expense reimbursement or dependent care
assistance benefits, in any such foregoing case without regard to whether the
Benefit Plan constitutes an employee benefit plan under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the
number of employees covered under such Benefit Plan. Through the date of this
Agreement, neither CNB Bancshares nor any of the CNB Subsidiaries have made or
have committed to make any contributions to any Benefit Plan outside the
ordinary course of business and inconsistent with past practice with regard to
amounts. None of the Benefit Plans is a "multiemployer plan" within the meaning
of Section 3(37) of ERISA.
2. Predecessor Plan. The term "Benefit Plan" for all purposes of this
Agreement shall include each Predecessor Plan (as herein defined). For purposes
hereof, "Predecessor Plan" shall mean any plan, program, policy, practice,
arrangement or system as otherwise described in Section II.Q.1. which was
maintained, contributed to or resulted in liability to any predecessor employer
of CNB Bancshares or any of the CNB Subsidiaries since January 1, 1996. For
purposes hereof, "predecessor employer" shall mean any employer, entity or
business operation acquired by CNB Bancshares or any of the CNB Subsidiaries in
any type of acquisition (including, without limitation, mergers, stock
acquisitions and asset acquisitions).
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3. Plan Documents, Reports and Filings. CNB Bancshares or the Bank
Subsidiary has provided true, complete and correct copies of all plan documents,
or, if no plan document exists, a description of such Benefit Plan, comprising
each Benefit Plan, together with, when applicable, (a) the most recent summary
plan description and any material modifications thereto, (b) the most recent
actuarial and financial reports and the most recent annual reports filed with
any governmental agency and (c) all Internal Revenue Service ("IRS") or other
governmental agency rulings and determination letters or any open requests for
IRS rulings or letters with respect to Benefit Plans issued within five years of
the date of this Agreement.
4. Qualified Retirement Plan Compliance. With respect to each Benefit Plan
which is an employee pension benefit plan (as defined in Section 3(2) of ERISA)
which is intended to be qualified under Section 401 of the Code (a "Qualified
Benefit Plan"): (a) the IRS has issued a determination letter which determined
that such Qualified Benefit Plan (as amended by any and all amendments)
satisfies the requirements of Section 401(a) of the Code, as amended by all of
the laws referred to in Section 1 of Revenue Procedure 93-39, such determination
letter has not been revoked or threatened to be revoked by the IRS, and the
scope of such determination letter is complete and does not exclude, to the best
knowledge of CNB Bancshares, consideration of any of the requirements or matters
referred to in Sections 4.02 through 4.04 of Revenue Procedure 93-39; (b) except
as listed in the Disclosure Schedule, such Qualified Benefit Plan has been
maintained in accordance with and continues to be in material compliance with
all qualification requirements of Section 401(a) of the Code; (c) such Qualified
Benefit Plan has been maintained in accordance with and continues to be in
substantial compliance with all notice, reporting and disclosure requirements of
ERISA and the Code; (d) any Qualified Benefit Plan which is an ESOP as defined
in Section 4975(e)(7) of the Code (an "ESOP Qualified Benefit Plan") is in
material compliance with the applicable qualification requirements of Section
409 of the Code; (e) to the best knowledge of CNB Bancshares, any Qualified
Benefit Plan terminated within the last five years was terminated in material
compliance with the requirements of ERISA and the Code, has received a favorable
determination letter therefor, and the liabilities of such Qualified Benefit
Plan and the requirements of the Pension Benefit Guaranty Corporation ("PBGC")
were fully satisfied; and (f) to the best knowledge of CNB Bancshares, any and
all amendments to the Qualified Benefit Plans not covered by an IRS
determination letter should not adversely affect the qualified and tax exempt
status of such plans.
5. General Plan Compliance. With respect to each Benefit Plan, except as
noted on the Disclosure Schedule: (a) such Benefit Plan, if it is intended to
provide favorable tax benefits to plan participants, has been in material
compliance with applicable Code provisions; and (b) such Benefit Plan has been,
to the best knowledge of CNB Bancshares, operated in substantial compliance with
its terms and all applicable laws, including, without limitation, ERISA and the
Code, and to the extent such Benefit Plan is a group health plan subject to the
requirements of Section 4980B of the Code ("COBRA"), has been, to the best
knowledge of CNB Bancshares, operated in substantial compliance with such COBRA
requirements.
6. Prohibited Transactions. No prohibited transaction under Section 406 of
ERISA and not exempt under Section 408 of ERISA has occurred with respect to any
Benefit Plan which would result, with respect to any person, in (a) the
imposition, directly or indirectly, of a material excise tax under Section 4975
of the Code or (b) material fiduciary liability under Section 409 of ERISA.
7. Lawsuits or Claims. No material actions, suits or claims (other than
routine claims of benefits) are pending or, to the best knowledge of CNB
Bancshares, threatened against any Benefit Plan or against CNB Bancshares or any
of the CNB Subsidiaries with respect to any Benefit Plan.
8. Disclosure of Unfunded Liabilities. All material Unfunded Liabilities
(as defined below) with respect to each Benefit Plan have been recorded and
disclosed on the most recent financial statement of CNB Bancshares and the Bank
Subsidiary or, if not, in the Disclosure Schedule. For purposes hereof, the term
"Unfunded Liabilities" shall mean any amounts properly accrued to date under
GAAP in effect as of the date of this Agreement, or amounts not yet accrued for
GAAP purposes but for which an obligation (which has legally accrued and cannot
legally be eliminated and which is subject to reasonable estimate) exists for
payment in the future which is attributable to any Benefit Plan, including but
not limited to (a) severance pay benefits, (b) deferred compensation or unpaid
bonuses, (c) any liabilities on account of the change in control
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which will result from this Agreement, including any potential liabilities
relating to excess parachute payments under Section 280G of the Code, (d) any
unpaid pension contributions for the current plan year or any accumulated
funding deficiency under Section 412 of the Code and related penalties under
Section 4971 of the Code, including unpaid pension contributions or funding
deficiencies owed by members of a controlled group of corporations which
includes CNB Bancshares or any of the CNB Subsidiaries and for which CNB
Bancshares or any of the CNB Subsidiaries is liable under applicable law, (e)
any authorized but unpaid profit sharing contributions or contributions under
Section 401(k) and Section 401(m) of the Code, (f) retiree health benefit
coverage and (g) unpaid premiums for contributions required under any group
health plan to maintain such plan's coverage through the Effective Time.
9. Defined Benefit Pension Plan Liabilities. CNB Bancshares, the CNB
Subsidiaries and any entity treated as a single employer with CNB Bancshares and
any of the CNB Subsidiaries in accordance with Section 414(b), (c), (m) and (o)
of the Code (hereinafter a "Controlled Group Member") (or any pension plan
maintained by any of them) have not incurred any material liability to the PBGC
or the IRS with respect to any employee pension plan which is a defined benefit
pension plan, except for the payment of PBGC premiums pursuant to Section 4007
of ERISA, all of which if due prior to the date of this Agreement have been
fully paid, and no PBGC reportable event under Section 4043 of ERISA has
occurred with respect to any such pension plan. Except as otherwise disclosed in
the Disclosure Schedule, the benefit liabilities, as defined in Section
4001(a)(16) of ERISA, of each such employee pension plan subject to Title IV of
ERISA, using the actuarial assumptions that would be used by the PBGC in the
event of termination of such plan, do not exceed the fair market value of the
assets of such plan. Neither CNB Bancshares, any of the CNB Subsidiaries nor any
Controlled Group Member participates in, or has incurred any liability under
Sections 4201, 4063 or 4064 of ERISA for a complete or partial withdrawal from a
multiple employer plan or a multi-employer plan (as defined in Section 3(37) of
ERISA). Except as may be otherwise contemplated hereby, no employee, former
employee, plan participant or any other party (other than CNB Bancshares or the
CNB Subsidiaries) has any entitlement (under the terms of any plan document or
otherwise) to any surplus assets in any Qualified Benefit Plan which is a
defined benefit plan as defined in Section 414(j) of the Code.
10. Third Party Plans. CNB Bancshares and the CNB Subsidiaries (a) have
not incurred any asserted or, to the best knowledge of CNB Bancshares,
unasserted material liability for breach of duties assumed in connection with
acting as an independent trustee, custodian, agent, investment manager or
otherwise with respect to any employee benefit plan (as defined in Section 3(3)
of ERISA) which is maintained by an employer unrelated in ownership to CNB
Bancshares or any of the CNB Subsidiaries, (b) have not authorized nor knowingly
participated in a material prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code not exempt under Section 408 of ERISA and (c) have not
received notice of any material actions, suits or claims (other than routine
claims for benefits) pending or threatened against the unrelated employer or
against them.
11. Retiree Benefits. Except as listed on the Disclosure Schedule and
identified as "Retiree Liability", CNB Bancshares and the CNB Subsidiaries have
no obligation to provide health benefits, or life insurance benefits to or with
respect to retirees, former employees or any of their relatives, except for any
continuation coverage provided in accordance with COBRA.
12. Right to Amend and Terminate. CNB Bancshares or the Bank Subsidiary
has all power and authority necessary to amend or terminate each Benefit Plan
without incurring any penalty or liability provided that benefits accrued as of
the date of amendment or termination are not reduced.
13. Consummation of Transactions. Except as set forth in the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
(alone or together with any other event which, standing alone, would not by
itself trigger such entitlement or acceleration) will not (i) entitle any person
to any benefit under any Benefit Plan, (ii) accelerate the time of payment or
vesting, or increase the amount, of any compensation due to any person under any
Plan or (iii) result in the payment of any "excess parachute payment" under
Section 280G of the Code or any other payment that is not deductible for any
reason by the CNB Bancshares or any of the CNB Subsidiaries or their successors.
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R. Investment Portfolio. The investment portfolios of CNB Bancshares and
the Bank Subsidiary consist in all material respects of securities in marketable
form. Since December 31, 1998 to the date hereof neither CNB Bancshares nor the
Bank Subsidiary has incurred any material and unusual or extraordinary losses in
its investment portfolio, and, except for matters of general application to the
banking industry (including, but not limited to, changes in laws or regulations
or GAAP) or for events relating to the business environment in general,
including market fluctuations and changes in interest rates, CNB Bancshares is
not aware of any events which are reasonably certain to occur in the future and
which reasonably can be expected to result in any material adverse change in the
quality or performance of CNB Bancshares' and the Bank Subsidiary's investment
portfolio on a consolidated basis.
S. Anti-takeover Provisions; No Impediments. The Directors of CNB
Bancshares have taken all requisite action (including, in the case of the
provisions of Chapter 42 of the IBCL, through the amendment of CNB Bancshares'
Amended By-laws) such that the freezeout, special shareholder voting and other
requirements imposed by Article X of CNB Bancshares' Restated Articles of
Incorporation, Article XI of CNB Bancshares' Amended By-laws, Chapter 42 and
Chapter 43 of the IBCL, and the provisions of any other applicable "freezeout",
"fair price", "moratorium", "control share acquisition" or other similar anti-
takeover statute or regulation enacted under the laws of Indiana, are not
applicable to the Merger, this Agreement, or the Option Agreement or the
transactions contemplated by this Agreement and the Option Agreement. There is
no agreement to which CNB Bancshares is a party which (i) prohibits or restricts
CNB Bancshares' ability to perform its obligations under this Agreement or the
Option Agreement, or its ability to consummate the transactions contemplated
hereby or thereby, or (ii) would have the effect of invalidating or voiding this
Agreement or the Option Agreement, or any provisions hereof or thereof.
T. Derivative Instruments. All swaps, caps, floors, futures, forward
contracts, option agreements, and any other derivative financial instruments,
contracts or arrangements, whether entered into for CNB Bancshares' own account,
or by CNB Bancshares for the account of one or more of the CNB Subsidiaries for
their respective customers, were entered into (i) in the ordinary course of
business, (ii) to the knowledge of CNB Bancshares, in accordance with prudent
banking practices and all applicable laws, rules, regulations and regulatory
policies and (iii) with counter-parties reasonably believed by CNB Bancshares to
be financially responsible at the time; and each of them constitutes the valid
and legally binding obligation of CNB Bancshares or one of the CNB Subsidiaries,
enforceable in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and are in full
force and effect (except to the extent that they have been fully performed or
terminated) in all respects material to CNB Bancshares. CNB Bancshares and each
of the CNB Subsidiaries have duly performed in all material respects all of
their obligations thereunder to the extent that such obligations to perform have
accrued, and, to CNB Bancshares' knowledge, there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
U. Year 2000. Neither CNB Bancshares nor any of the CNB Subsidiaries has
received, nor to the knowledge of CNB Bancshares are there facts that would
reasonably be expected to form the basis for the issuance of, a "Year 2000
Deficiency Notification Letter" (as such term is employed in the Federal
Reserve's Supervision and Regulatory Letter No. SR 98-3 (SUP), dated March 4,
1998). CNB Bancshares has made available to Fifth Third a complete and accurate
copy of its plan, including its good faith estimate of the anticipated
associated costs, for addressing the issues set forth in the Year 2000 guidance
papers issued by the Federal Financial Institutions Examination Council,
including the statements dated May 5, 1997, entitled "Year 2000 Project
Management Awareness", December 17, 1997, entitled "Safety and Soundness
Guidelines Concerning the Year 2000 Business Risk", and October 15, 1998,
entitled "Interagency Guidelines Establishing Year 2000 Standards for Safety and
Soundness", as such issues affect any of CNB Bancshares or the CNB Subsidiaries.
Between the date of this Agreement and the Effective Time, CNB Bancshares shall
use its reasonable best efforts to implement such plan.
V. Fairness Opinion. On or before the date hereof, DLJ has delivered its
opinion to CNB Bancshares' Board of Directors that the consideration to be
received by the shareholders of CNB Bancshares pursuant to
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this Agreement is fair, from a financial point of view, to the holders of the
CNB Bancshares Common Stock, a true and correct form of which has been delivered
to Fifth Third.
W. Transactions with Affiliates. Except as disclosed in the CNB Bancshares
Reports filed prior to the date hereof, from January 1, 1999 through the date
hereof there have been no transactions, agreements, arrangements or
understandings between CNB Bancshares or any of the CNB Subsidiaries, on the one
hand, and the CNB Bancshares' affiliates (other than wholly-owned subsidiaries
of CNB Bancshares) or other persons, on the other hand, that would be required
to be disclosed under Item 404 of Regulation S-K under the Securities Act.
X. Expiration of Representations and Warranties. All representations and
warranties contained in this Article II shall expire at the Effective Time, and,
thereafter, CNB Bancshares and the Bank Subsidiary shall have no further
liability or obligations with respect thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIFTH THIRD
Fifth Third represents and warrants to CNB Bancshares that as of the date
hereof or as of the indicated date, as appropriate, subject to the standard set
forth in Section I.S.:
A. Organization. Fifth Third is duly incorporated, validly existing and in
good standing as a corporation under the corporation laws of the State of Ohio,
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended, and is duly authorized to conduct the business in which it is
engaged, and Fifth Third's wholly-owned subsidiary Fifth Third Bank, Indiana, an
Indiana banking corporation ("Fifth Third Bank, Indiana"), is duly incorporated,
validly existing and in good standing as a corporation under the laws of the
State of Indiana and is duly authorized to conduct the business in which it is
engaged.
B. Capitalization. Pursuant to Fifth Third's Second Amended Articles of
Incorporation, as amended, the total number of shares of capital stock Fifth
Third is authorized to have outstanding is 500,500,000 of which 500,000,000
shares are classified as Common Stock without par value and 500,000 shares are
classified as Preferred Stock without par value. As of the close of business on
May 31, 1999, 268,746,761 shares of Fifth Third Common Stock were issued and
outstanding and 318,761 shares were held in its treasury. As of the date of this
Agreement, no shares of Preferred Stock have been issued by Fifth Third. Fifth
Third does not have outstanding any stock options, subscription rights, warrants
or other securities entitling the holders to subscribe for or purchase any
shares of its capital stock other than options granted and to be granted to
employees and Directors under its stock option plans. At May 31, 1999, (a)
16,614,000 shares of Fifth Third Common Stock were reserved for issuance in
connection with outstanding options granted under its stock option plans and
7,417,291 shares were reserved for issuance under options to be granted in the
future, (b) 39,609,874 shares of Fifth Third Common Stock were reserved for
issuance to the shareholders of CNB Bancshares pursuant to the terms of this
Agreement.
C. Intentionally Omitted.
D. Due Issuance. All shares of Fifth Third Common Stock to be received by
the shareholders of CNB Bancshares as a result of the Merger pursuant to the
terms of this Agreement shall be, upon transfer or issuance, duly and validly
issued, fully paid and non-assessable, and will not, upon such transfer or
issuance, be subject to the preemptive rights of any shareholder of Fifth Third.
E. Financial Statements. Fifth Third has previously furnished to CNB
Bancshares its audited, consolidated balance sheets, statements of operations,
statements of shareholders' equity and cash flows as of and at December 31,
1998, and for the year then ended, together with the opinion of its independent
certified public accountants associated therewith. Fifth Third has made
available to CNB Bancshares the Call Reports as filed with the applicable
federal banking agency of the Fifth Third Bank, Indiana as of and at December
31, 1996, 1997 and 1998. Fifth Third also has furnished to CNB Bancshares (i)
its unaudited, consolidated financial statements as at March 31, 1999, and for
the three (3) months then ended, and (ii) the
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Call Reports as filed with the Federal Reserve Bank of the Fifth Third Bank,
Indiana for the quarter ended March 31, 1999. As soon as they are available,
Fifth Third will provide to CNB Bancshares Fifth Third's unaudited, consolidated
balance sheets, statements of operations, statements of stockholders' equity and
cash flows as of and at June 30, 1999, and for the six months then ended. Such
audited and unaudited consolidated financial statements of Fifth Third fairly
present or will fairly present, as applicable, the consolidated financial
condition, results of operations and cash flows of Fifth Third as of the date
thereof, and for the years or periods covered thereby, in conformity with GAAP,
consistently applied (except as stated therein and except for the omission of
notes to unaudited statements and except for normal (in nature and amount)
year-end adjustments to interim results). There are no material liabilities,
obligations or indebtedness of Fifth Third or any of its subsidiaries required
to be disclosed in the financial statements (or in the footnotes to the
financial statements) so furnished other than the liabilities, obligations or
indebtedness disclosed in such financial statements (including footnotes). Since
March 31, 1999, Fifth Third and its subsidiaries have not incurred any
liabilities outside the ordinary course of business consistent with past
practice.
F. No Material Adverse Effect. Since December 31, 1998, no event has
occurred and no fact or circumstance shall have come to exist or come to be
known which, directly or indirectly, individually or taken together with all
other facts, circumstances and events (described in any paragraph of this
Article III or otherwise), has had, or is reasonably likely to have, a Material
Adverse Effect with respect to Fifth Third.
G. Board Approval; Corporate Authority; No Breach. 1. The Board of
Directors of Fifth Third, by resolution adopted by the members present at a
meeting duly called and held, at which meeting a quorum was at all times present
and acting, has approved this Agreement, including reserving for issuance to CNB
Bancshares shareholders in accordance with this Agreement, a sufficient number
of shares of Fifth Third Common Stock. Approval and adoption of this Agreement
by the shareholders of Fifth Third is not required under Ohio law or under the
Second Amended Articles of Incorporation, as amended, or Code of Regulations of
Fifth Third.
2. Fifth Third has corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder subject to certain required
regulatory approvals. This Agreement, has been duly executed and delivered and
constitutes the valid and binding obligation of Fifth Third, enforceable in
accordance with its terms, except to the extent that (i) enforceability hereof
may be limited by insolvency, reorganization, liquidation, bankruptcy,
readjustment of debt or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the
availability of certain remedies may be precluded by general principles of
equity.
3. Neither the execution of this Agreement nor the Option Agreement, nor
the consummation of the transactions contemplated hereby and thereby, does or
will (i) conflict with, result in a breach of, violate or constitute a default,
under Fifth Third's Second Amended Articles of Incorporation, as amended, or
Code of Regulations or, to the best knowledge of Fifth Third, any federal,
foreign, state or local law, statute, ordinance, rule, regulation or court or
administrative order, or any agreement, arrangement, or commitment to which
Fifth Third is subject or bound; (ii) to the best knowledge of Fifth Third,
result in the creation of or give any person the right to create any material
lien, charge, encumbrance, security agreement or any other material rights of
others or other material adverse interest upon any material right, property or
asset belonging to Fifth Third or any of its subsidiaries; (iii) terminate or
give any person the right to terminate, amend, abandon, or refuse to perform any
material agreement, arrangement or commitment to which Fifth Third is a party or
by which Fifth Third's rights, properties or assets are subject or bound; or
(iv) accelerate or modify, or give any party thereto the right to accelerate or
modify, the time within which, or the terms according to which, Fifth Third is
to perform any duties or obligations or receive any rights or benefits under any
material agreement, arrangements or commitments.
4. As of the date hereof, Fifth Third is not aware of the existence of any
factor that would materially delay or materially hinder issuance of any of the
required regulatory approvals necessary to consummate the Merger or the other
transactions contemplated hereby.
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H. Articles and Regulations. Complete and accurate copies of (i) the
Second Amended Articles of Incorporation, as amended, and (ii) the Code of
Regulations of Fifth Third in force as of the date hereof have been delivered to
CNB Bancshares.
I. Compliance with Law. To the knowledge of Fifth Third, neither Fifth
Third nor any of its subsidiaries has knowingly engaged in any activity or
omitted to take any action which, in any material way, has resulted or could
result in the violation of (i) any local, state or federal law (including
without limitation the Bank Secrecy Act, the Community Reinvestment Act,
applicable consumer protection and disclosure laws and regulations, including
without limitation, Truth in Lending, Truth in Savings and similar disclosure
laws and regulations, and equal employment and employment discrimination laws
and regulations) or (ii) any regulation, order, injunction or decree of any
court or governmental body, the violation of either of which could reasonably be
expected to have a Material Adverse Effect on Fifth Third and its subsidiaries
taken as a whole. To the best knowledge of Fifth Third, Fifth Third and its
subsidiaries possess all licenses, franchise, permits and other governmental
authorizations necessary for the continued conduct of their businesses without
material interference or interruption.
J. SEC Filings; Regulatory Reports. 1. Fifth Third has made available to
CNB Bancshares an accurate and complete copy (including all exhibits and all
documents incorporated by reference) of each of the following documents as filed
by Fifth Third with the SEC: (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1997 by
Fifth Third with the SEC, pursuant to the Securities Act or the Exchange Act,
and (b) each communication mailed by Fifth Third to its stockholders since
January 1, 1997. Since January 1, 1997, Fifth Third has timely filed (and will
timely file after the date of this Agreement) all reports and other documents
required to be filed by it under the Securities Act and the Exchange Act, and,
as of their respective dates, all such reports complied (and, in the case of all
reports and other documents filed after the date of this Agreement, will comply)
in all material respects with the published rules and regulations of the SEC. As
of the date of filing or mailing, as the case may be, no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained (and no registration statement, prospectus, report, schedule, proxy
statement or communication filed or mailed after the date of this Agreement will
contain) any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date (but filed before the
date hereof) shall be deemed to modify information as of an earlier date, or
omitted any material exhibit required to be filed therewith. No event has
occurred subsequent to December 31, 1998 which Fifth Third is required to
describe in a Current Report on Form 8-K other than the Current Reports
heretofore furnished by Fifth Third to CNB Bancshares.
2. Fifth Third and its subsidiaries have filed all reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that they were required to file since January 1, 1997 with any SRO and
any other Regulatory Agencies, and all other reports, registrations and
statements required to be filed by them since January 1, 1997, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state, or any Regulatory
Agency, and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of Fifth Third and its subsidiaries, no
Regulatory Agency has initiated any proceeding or, to the best knowledge of
Fifth Third, investigation into the business or operations of Fifth Third or its
subsidiaries since January 1, 1997. To the best knowledge of Fifth Third, there
is no unresolved violation, or material criticism or exception, by any bank
Regulatory Agency with respect to any report, registration or statement relating
to any examinations of Fifth Third or its subsidiaries.
K. Litigation; Regulatory Action. 1. There are no actions, suits,
proceedings, investigations or assessments of any kind pending or, to the best
knowledge of Fifth Third, threatened against Fifth Third or any Fifth Third
subsidiary, which reasonably can be expected to result in any material adverse
change in the consolidated financial condition, operations or business of Fifth
Third, or reasonably likely to prevent or delay the consummation of the
transactions contemplated by this Agreement.
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2. Neither Fifth Third nor any of its subsidiaries is subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any supervisory letter from or has adopted
any board resolutions at the request of, any Regulatory Agency or other
governmental entity, that restricts the conduct of its business or has resulted,
or could reasonably be expected to result, in a liability or that in any manner
relates to its capital adequacy, its credit policies, its management or its
business (each a "Fifth Third Regulatory Agreement"), nor has Fifth Third or
Fifth Third Bank, Indiana (a) been advised since January 1, 1996 by any
Regulatory Agency or other governmental entity that it is considering issuing or
requesting any such Fifth Third Regulatory Agreement or (b) any actual knowledge
of any pending or threatened regulatory investigation.
L. Loan Losses. Since December 31, 1998 to the date hereof, none of Fifth
Third's banking subsidiaries and Bank subsidiaries has incurred any unusual or
extraordinary loan losses which would be material to Fifth Third on a
consolidated basis; and to the best knowledge and belief of Fifth Third, and in
the light of any banking or Bank subsidiary's historical loan loss experience
and their managements' analysis of the quality and performance of their
respective loan portfolios, as of December 31, 1998, their consolidated reserves
for loan losses are adequate to absorb potential loan losses determined on the
basis of management's continuing review and evaluation of the loan portfolio and
its judgment as to the impact of economic conditions on the portfolio.
M. Tax Returns. Fifth Third and its subsidiaries have timely filed all
federal, state and local tax returns required to be filed (after giving effect
to all extensions) by them, respectively, and have paid or provided for all tax
liabilities shown to be due thereon or which have been assessed against them,
respectively. All tax returns filed by Fifth Third and its subsidiaries are
complete and accurate in all material respects.
N. Broker. Except for Salomon Smith Barney Inc., Fifth Third has no direct
or indirect commitment to any investment banker, broker or finder in connection
with this transaction and has not incurred and will not incur any obligation for
any investment banker's, broker's or finder's fee or commission in connection
with the transactions provided for in this Agreement.
O. Investment Portfolio. The investment portfolios of Fifth Third and its
subsidiaries and affiliates consist in all material respects of securities in
marketable form. Since December 31, 1998, to the date hereof Fifth Third and its
affiliates, on a consolidated basis, have not incurred any material and unusual
or extraordinary losses in their respective investment portfolios, and, except
for matters of general application to the banking industry (including, but not
limited to, changes in laws or regulations or GAAP) or for events relating to
the business environment in general, including market fluctuations and changes
in interest rates, the management of Fifth Third is not aware of any events
which are reasonably certain to occur in the future and which reasonably can be
expected to result in any material adverse change in the quality or performance
of the investment portfolios of Fifth Third and its affiliates on a consolidated
basis.
P. Taxes; Accounting. Fifth Third has no reason to believe that any
conditions exist that might prevent or impede the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code or for
pooling-of-interests accounting treatment.
Q. Year 2000. Neither Fifth Third nor any of its subsidiaries has
received, nor to the knowledge of Fifth Third are there facts that would
reasonably be expected to form the basis for the issuance of, a "Year 2000
Deficiency Notification Letter" (as such term is employed in the Federal
Reserve's Supervision and Regulatory Letter No. SR 98-3 (SUP), dated March 4,
1998). Fifth Third has made available to CNB Bancshares a complete and accurate
copy of its plan, including its good faith estimate of the anticipated
associated costs, for addressing the issues set forth in the Year 2000 guidance
papers issued by the Federal Financial Institutions Examination Council,
including the statements dated May 5, 1997, entitled "Year 2000 Project
Management Awareness", December 17, 1997, entitled "Safety and Soundness
Guidelines Concerning the Year 2000 Business Risk", and October 15, 1998,
entitled "Interagency Guidelines Establishing Year 2000 Standards for Safety and
Soundness", as such issues affect any of Fifth Third or its subsidiaries.
Between the date of this Agreement and the Effective Time, Fifth Third shall use
its reasonable best efforts to implement such plan.
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R. Expiration of Representations and Warranties. All representations and
warranties contained in this Article III shall expire at the Effective Time, and
thereafter, Fifth Third shall have no further liability or obligation with
respect thereto.
ARTICLE IV
OBLIGATIONS OF CNB BANCSHARES
BETWEEN THE DATE OF THIS AGREEMENT AND THE EFFECTIVE TIME
A. Shareholders' Meeting. CNB Bancshares, in consultation with Fifth
Third, will take all actions necessary to call and hold an annual or a special
meeting of CNB Bancshares' shareholders as soon as practicable after the Fifth
Third registration statement relating to the shares of Fifth Third Common Stock
to be issued in the Merger has been declared effective by the SEC and under all
applicable state securities laws for the purpose of approving the Merger and the
plan of merger (within the meaning of Section 23-1-40-1 of the IBCL) contained
in this Agreement (and any other documents or actions necessary to the
consummation of the Merger) pursuant to law. The Board of Directors of CNB
Bancshares shall be permitted to withdraw or modify in a manner adverse to Fifth
Third (or not to continue to make) its recommendation to its shareholders
(including recommending that shareholders vote against the Merger) if, but only
if, (a) in the reasonable opinion of the Board of Directors of CNB Bancshares
upon the advice of its outside counsel, such action is required in order for the
Board of Directors of CNB Bancshares to comply with duties applicable to
directors under applicable law, and (b) CNB Bancshares has given Fifth Third
five business days' prior notice of its intention to withdraw or modify such
recommendation and CNB Bancshares' Board of Directors has considered any
proposed changes to this Agreement (if any) proposed by Fifth Third prior to
such five day period. Without limiting the generality of the foregoing, CNB
Bancshares agrees that its obligations pursuant to the first sentence of this
Section IV.A. shall not be altered by the commencement, public proposal, public
disclosure or communication to CNB Bancshares of any Acquisition Proposal (as
defined below), including without limitation a Superior Proposal (as defined
below), or a decision by the Board of Directors of CNB Bancshares to withdraw or
modify in a manner adverse to Fifth Third (or not to continue to make) its
recommendation to its stockholders to approve the Merger and the plan of merger
contained in this Agreement. For the purposes of this Agreement, "Superior
Proposal" shall mean any bona fide Acquisition Proposal for all of the
outstanding shares of the CNB Bancshares Common Stock on terms the Board of
Directors of CNB Bancshares determines in its good faith judgment (taking into
account the advice of a financial advisor of nationally recognized reputation,
taking into account all the terms and conditions of the Acquisition Proposal,
including any break-up fees, expense reimbursement provisions and conditions to
consummation) are more favorable and provide greater value to all of CNB
Bancshares' shareholders than this Agreement and the Merger taken as a whole.
B. No Solicitation. CNB Bancshares and its subsidiaries, and the officers,
directors, financial or legal advisors of CNB Bancshares and its subsidiaries,
will not, directly or indirectly, (a) take any action to solicit, initiate or
encourage any Acquisition Proposal or (b) engage in negotiations with, or
disclose any nonpublic information relating to CNB Bancshares or any of its
subsidiaries or afford access to the properties, books or records of CNB
Bancshares or any of its subsidiaries to, any person that may be considering
making, or has made, an Acquisition Proposal; provided that CNB Bancshares may,
in response to an unsolicited written proposal from a third party regarding an
Acquisition Proposal engage in the activities specified in clause (b) of this
Section IV.B., if (i) in the reasonable opinion of the Board of Directors of CNB
Bancshares upon the advice of its outside counsel, such action is required for
the Board of Directors of CNB Bancshares to comply with the duties applicable to
directors under applicable law and (ii) CNB Bancshares has received from such
third party an executed confidentiality agreement with terms not materially less
favorable to CNB Bancshares than those contained in the confidentiality
agreement entered into between CNB Bancshares and Fifth Third dated June 14,
1999. CNB Bancshares will immediately notify Fifth Third orally and will
promptly (and in no event later than 24 hours after the relevant event) notify
Fifth Third in writing (which oral and written notices shall identify the person
making the Acquisition Proposal or request for information and set forth the
material terms thereof) after having received any Acquisition Proposal, or
request for nonpublic information relating to CNB Bancshares or any of its
subsidiaries or for access to the properties,
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books or records of CNB Bancshares or any of its subsidiaries by any person who
is considering making or has made an Acquisition Proposal. CNB Bancshares will
keep Fifth Third fully and currently informed of the status and details of any
such Acquisition Proposal or request and any related discussions or
negotiations. CNB Bancshares shall, and shall cause the CNB Subsidiaries and its
directors, officers and financial and legal advisors to, cease immediately and
cause to be terminated all activities, discussions or negotiations, if any, with
any persons conducted heretofore with respect to any Acquisition Proposal.
Nothing in this Section IV.B. shall prohibit CNB Bancshares or its Board of
Directors from taking and disclosing to the stockholders of CNB Bancshares a
position with respect to an Acquisition Proposal by a third party to the extent
required under the Exchange Act or from making such disclosure to the
stockholders of CNB Bancshares which, in the reasonable opinion of the Board of
Directors of CNB Bancshares upon the advice of its outside counsel, is required
under applicable law; provided that nothing in this sentence shall affect the
obligations of CNB Bancshares and its Board of Directors under any other
provision of this Agreement. For purposes of this Agreement, "Acquisition
Proposal" means any offer or proposal for, or any indication of interest in (a)
a purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of beneficial ownership (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the Exchange Act, and the rules and regulations thereunder) of
securities representing 10% or more of the voting power of CNB Bancshares or
more than 25% of any Significant Subsidiary of CNB Bancshares, (b) a purchase,
lease or other acquisition or assumption of all or a substantial portion of the
assets or deposits of CNB Bancshares or all or a substantial portion of the
assets or deposits of any Significant Subsidiary of CNB Bancshares, (c) a merger
or consolidation, or any similar transaction, involving CNB Bancshares or any
Significant Subsidiary of CNB Bancshares, or (d) any substantially similar
transaction.
C. Valuation Adjustment. Consistent with GAAP, CNB Bancshares agrees that
on or before the Effective Time based on a review of the Bank Subsidiary's loan
losses, current classified assets and commercial, multi-family and residential
mortgage loans and investment portfolio, CNB Bancshares will work with Fifth
Third with the goal of establishing collection procedures, internal valuation
reviews, credit policies and practices and general valuation allowances which
are consistent with the guidelines used within the Fifth Third holding company
system, provided that no adjustment to general valuation allowances or reserves
shall be made until immediately prior to the Effective Time and all conditions
precedent to the obligations of the parties hereto have either been satisfied or
waived as confirmed by such parties in writing. Fifth Third shall provide such
assistance and direction to CNB Bancshares as is necessary in conforming to such
policies, practices, procedures and asset dispositions which are mutually
agreeable between the date of this Agreement until the Effective Time.
D. Operations in the Ordinary Course; Forbearances. From the date of this
Agreement until the Effective Time, CNB Bancshares and the CNB Subsidiaries will
be operated in the ordinary course of business, and none of them will, without
the prior written consent of Fifth Third, which consent shall not be
unreasonably withheld or unreasonably delayed: make any changes in its Restated
Articles of Incorporation, Amended By-laws, or corporate structures; issue any
additional shares of CNB Bancshares Common Stock or other equity securities
other than pursuant to the exercise of options granted prior to the date hereof,
in the form of permissible stock dividends (as described below), upon conversion
of Convertible Debentures, pursuant to the Dividend Reinvestment Plan or as set
forth in the Disclosure Schedule pursuant to Section II.A.1. with respect to
Benefit Plans; or, issue as borrower any long term debt or convertible or other
securities of any kind, or right to acquire any of its securities; repurchase
any equity securities, other than (subject to Section VII.J.) the repurchase of
shares of CNB Bancshares Common Stock in accordance with past practice (as to
timing and amount) and in compliance with applicable law and the safe harbor
requirements of Rule 10b-18 of the Exchange Act; make any material changes in
its method of business operations; make, enter into any agreement to make, or
become obligated to make, any capital expenditures in excess of $500,000 (except
as set forth in the Disclosure Schedule); make, enter into or renew any
agreement for services to be provided to CNB Bancshares or the CNB Subsidiaries
or permit the automatic renewal of any such agreement, other than the agreements
identified in the Disclosure Schedule which are specifically identified on such
Schedule as agreements which CNB Bancshares intends to renew, except any
agreement for services having a term of not more than six (6) months and
requiring the expenditure of not more than
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$500,000 (for this purpose the phrase "permit the automatic renewal" includes
the failure to send a notice of termination of such contract if such failure
would constitute a renewal); acquire, become obligated to acquire, or enter into
any agreement to acquire, any banking or non-banking company or any branch
offices of any such companies or any material assets or liabilities outside the
ordinary course of business, other than such agreements existing on the date
hereof and previously publicly announced or disclosed in the Disclosure
Schedule; make, declare, pay or set aside for payment any cash dividends on its
own stock other than normal and customary cash dividends per quarter paid in
such amounts and at such times as CNB Bancshares historically has done on its
Common Stock and which shall not exceed $0.24 per share in the case of the
dividend to be paid in July 1999 and (subject to Section VII.J.) $0.26 per share
in the case of subsequent quarters, or be paid more frequently than once per
calendar quarter, provided this covenant shall only apply to CNB Bancshares;
make any distributions on its stock, other than (i) stock dividends to be
declared in accordance with past practice (subject to Section VII.J. and
provided that Fifth Third has been given a reasonable opportunity prior to such
declaration to review and comment on any announcement with respect thereto) and
(ii) cash dividends, as described in the immediately preceding clause; change or
otherwise amend any Benefit Plans other than as required by law or as
contemplated herein; provide any increases in employee salaries or benefits
other than in the ordinary course of business; or take any intentional action
that is intended or may reasonably be expected to result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or in
any of the conditions to the Merger set forth in Article VI not being satisfied
or in a violation of any provision of this Agreement, except, in every case, as
required by applicable law, regulation or safe and sound banking practices. CNB
Bancshares agrees that it will not sell, transfer, mortgage or otherwise dispose
of or encumber any of the shares of the capital stock of the CNB Subsidiaries
which are now owned by it, and neither CNB Bancshares nor any of the CNB
Subsidiaries shall sell, transfer, mortgage or otherwise dispose of or encumber
any other assets, except in the ordinary course of business consistent with past
practice. CNB Bancshares agrees that neither it nor the CNB Subsidiaries will
agree to, or make any commitment to, take any of the actions prohibited by this
Section IV.D.
ARTICLE V
COOPERATION AND OTHER OBLIGATIONS AND OTHER COVENANTS
A. Registration Statement and Proxy Statement. 1. Each of Fifth Third and
CNB Bancshares agree to cooperate in the preparation of a registration statement
on Form S-4 (the "Registration Statement") to be filed by Fifth Third with the
SEC in connection with the issuance of Fifth Third Common Stock in the Merger
(including the proxy statement and prospectus and other proxy solicitation
materials of CNB Bancshares constituting a part thereof (the "Proxy Statement")
and all related documents). The Registration Statement and the Proxy Statement
shall comply as to form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the rules and regulations
thereunder. Fifth Third and CNB Bancshares agree to each use their best efforts
to enable CNB Bancshares to file the Proxy Statement in preliminary form with
the SEC within sixty (60) days of the date hereof and CNB Bancshares agrees to
furnish the preliminary Proxy Statement in draft form for comments to Fifth
Third at least 5 days prior to the anticipated filing. Unless Fifth Third elects
to file the Registration Statement sooner, Fifth Third agrees to file the
Registration Statement with the SEC as soon as reasonably practicable after any
SEC comments with respect to the preliminary Proxy Statement are resolved. Each
of Fifth Third and CNB Bancshares shall, as promptly as practicable after
receipt thereof, provide copies of any written comments received from the SEC
with respect to the Registration Statement and the Proxy Statement, as the case
may be, to the other party, and advise the other party of any oral comments with
respect to the Registration Statement or the Proxy Statement received from the
SEC. Each of Fifth Third and CNB Bancshares agrees to use reasonable best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as reasonably practicable after filing thereof. As
promptly as possible after the Registration Statement is declared effective, CNB
Bancshares agrees to mail the Proxy Statement to its shareholders. Fifth Third
also agrees to use reasonable best efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by the Agreement. CNB Bancshares
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agrees to furnish to Fifth Third all information concerning CNB Bancshares, its
Subsidiaries, officers, directors and stockholders as may be reasonably
requested in connection with the foregoing.
2. Each of Fifth Third and CNB Bancshares agrees, as to itself and its
subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and (ii) the
Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to shareholders and at the time of the CNB Bancshares shareholder
meeting to approve the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
3. Fifth Third agrees to advise CNB Bancshares, promptly after Fifth Third
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order or the suspension of the qualification of the Fifth Third Common
Stock for offering or sale in any jurisdiction, of the initiation or threat of
any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information. CNB Bancshares agrees to advise Fifth Third of any request by the
SEC for the amendment or supplement of the Proxy Statement or for additional
information.
B. Regulatory Approvals. 1. Fifth Third will prepare and cause to be
filed, at the expense of Fifth Third, such notices, applications and other
documents with the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Ohio Division of Financial Institutions, the
Michigan Financial Institutions Bureau, and any other Regulatory Agencies or
stock exchanges as are required to secure the requisite approvals for the
consummation of the transactions provided for in this Agreement. Fifth Third
shall use its reasonable best efforts to file all such applications within
forty-five (45) days of the date of this Agreement and to use all reasonable
efforts to secure all such approvals. CNB Bancshares agrees that it will
cooperate with Fifth Third and, as promptly as practicable after request and at
its own expense, provide Fifth Third with all information and documents
concerning CNB Bancshares and the Bank Subsidiary, as shall be required in
connection with preparing such notices, applications and other documents and in
connection with securing such approvals.
2. Fifth Third and CNB Bancshares shall promptly advise each other upon
receiving any communication from any governmental entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement.
C. Reasonable Best Efforts. Each of the parties hereto agrees to use its
reasonable best efforts and to cooperate with the other party in all reasonable
respects in order to carry out and consummate the transactions contemplated by
this Agreement at the earliest practicable time including, without limitation,
the filing of applications, notices and other documents with, and obtaining
approval from, appropriate governmental regulatory agencies; provided that
nothing in this Agreement shall obligate Fifth Third to agree to any conditions,
restraints or requirements that would materially adversely reduce the
anticipated economic or business benefits of the Merger to Fifth Third or could
reasonably be expected to have a Material Adverse Effect on CNB Bancshares and
the CNB Subsidiaries taken as a whole (a "Burdensome Condition") (it being
understood that a condition preventing the integration of the computer systems
of CNB Bancshares or any of the CNB Subsidiaries with those of Fifth Third or
its subsidiaries until after January 1, 2000 shall not be deemed a Burdensome
Condition).
D. Access to Information. 1. CNB Bancshares agrees to permit Fifth Third,
its officers, employees, accountants, agents and attorneys, and Fifth Third
agrees to permit CNB Bancshares, its officers, employees, accountants, agents
and attorneys, to have reasonable access during business hours to their
respective books, records and properties, and those of its respective
subsidiaries as well, for the purpose of making a detailed examination, or
updating and amplifying prior examinations, of the financial condition, assets,
liabilities, legal compliance, affairs and the conduct of the business of CNB
Bancshares and the CNB Subsidiaries or Fifth Third and its subsidiaries, as the
case may be, prior to the Effective Time, and also to permit the monitoring
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of the foregoing on an ongoing basis (such rights of examination and monitoring
to be subject to the confidentiality obligations set forth in Section V.D.2.
hereof); provided, however, no investigation by any of the parties or their
respective representatives shall affect the representations and warranties of
the other party set forth herein.
2. Fifth Third will not disclose to others, shall not use in respect of its
(or any of its subsidiaries) business operations, and will hold in confidence
any non-public, confidential information disclosed to it by CNB Bancshares
concerning CNB Bancshares or the Bank Subsidiary. CNB Bancshares will not
disclose to others, shall not use in respect of its (or any of its subsidiaries)
business operations, and will hold in confidence any non-public, confidential
information disclosed to it concerning Fifth Third or any of its affiliates. In
the event the Merger is not completed, all non-public financial statements,
documents and materials, and all copies thereof, shall be returned to CNB
Bancshares or Fifth Third, as the case may be, and shall not be used by Fifth
Third or CNB Bancshares, as the case may be, in any way detrimental to CNB
Bancshares or Fifth Third.
3. As soon as they are available, CNB Bancshares will provide to Fifth
Third CNB Bancshares' unaudited, consolidated balance sheets, statements of
income, changes in stockholders' equity and cash flows as of and at June 30,
1999, and for the six months then ended, and shall continue to furnish such
financial information for subsequent monthly and quarterly periods to Fifth
Third, and audited, consolidated financial statements as at December 31, 1999
and for the year then ended, as soon as practicable, in each case, until the
Closing Date. Such audited and unaudited consolidated financial statements of
CNB Bancshares will fairly present, as applicable, the consolidated financial
condition, results of operations and cash flows of CNB Bancshares as of the date
thereof, and for the years or periods covered thereby, in conformity with GAAP,
consistently applied (except as stated therein and except for the omission of
notes to unaudited statements and except for year-end adjustments (consisting of
normal recurring accruals)). CNB Bancshares timely shall furnish Fifth Third
with copies of all reports filed by CNB Bancshares with the SEC subsequent to
the date of this Agreement and until the Closing Date.
4. As soon as they are available, Fifth Third will provide to CNB
Bancshares Fifth Third's unaudited, consolidated balance sheets, statements of
operations, statements of stockholders' equity and cash flows as of and at June
30, 1999, and for the six months then ended, and shall continue to furnish such
financial information for subsequent monthly and quarterly periods to Fifth
Third, and audited, consolidated financial statements as at December 31, 1999
and for the year then ended, as soon as practicable, in each case, until the
Closing Date. Such audited and unaudited consolidated financial statements of
Fifth Third will fairly present, as applicable, the consolidated financial
condition, results of operations and cash flows of Fifth Third as of the date
thereof, and for the years or periods covered thereby, in conformity with GAAP,
consistently applied (except as stated therein and except for the omission of
notes to unaudited statements and except for normal (in nature and amount)
year-end adjustments to interim results). Fifth Third timely shall furnish CNB
Bancshares with copies of all reports filed by Fifth Third with the SEC
subsequent to the date of this Agreement and until the Closing Date.
E. Employee Benefit Matters. 1. If Fifth Third so requests, CNB Bancshares
or the CNB Subsidiaries shall develop a plan and timetable for terminating any
or all of the Qualified Benefit Plans, and, with the advance written approval of
Fifth Third, shall proceed with the implementation of said termination plan and
timetable; provided that such terminations will not adversely affect
qualification of such Qualified Benefit Plans under the Code. In the event of
the termination of defined benefit plans maintained by CNB Bancshares, such
plans may be amended with the advance written consent of Fifth Third (which
shall not be unreasonably withheld) to allow participants to elect lump sum
distributions using actuarial assumptions in the CNB Bancshares defined benefit
plan as of the date of this Agreement.
2. CNB Bancshares or the CNB Subsidiaries shall provide to Fifth Third at
least sixty (60) days prior to the Effective Time, documentation reasonably
satisfactory to Fifth Third demonstrating that the requirements of Sections 404,
412, 415, 416, 401(k) and (m) of the Code have been satisfied by all of its
Qualified Benefit Plans for the 1996, 1997 and 1998 plan years.
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3. All participants in the defined benefits plans maintained by CNB
Bancshares shall become 100% vested as of the Effective Time. With respect to
any other Benefit Plan that provides for vesting of benefits, there shall be no
discretionary acceleration of vesting without Fifth Third's consent whether or
not such discretionary acceleration of vesting is provided under the terms of
the Benefit Plan; provided that a Benefit Plan which pursuant to its terms
provides for an acceleration of vesting upon a change of control of CNB
Bancshares shall not be deemed to involve a discretionary acceleration of
vesting and vesting thereunder shall accelerate as of the Effective Time or any
other date as provided therein.
4. If Fifth Third so requests, CNB Bancshares or any of the CNB
Subsidiaries shall take all actions necessary to freeze the Qualified Benefit
Plans as of a date at least one day prior to the Effective Time such that no
further contributions (including employee 401(k) contributions) shall be made
under the Qualified Benefit Plans after the Effective Time.
5. Except as provided otherwise pursuant hereto, CNB Bancshares and any of
the CNB Subsidiaries, without the advance written consent of Fifth Third, which
shall not be unreasonably withheld or delayed, shall not (a) adopt any
amendments to the Qualified Benefit Plans after the date of this Agreement; or
(b) make any distributions from the Qualified Benefit Plans after the date of
this Agreement other than in the ordinary course of operations of such Qualified
Benefit Plans; or (c) make any contributions to the defined benefit plans
maintained by CNB Bancshares or discretionary contributions to any of the
Qualified Benefit Plans after the date of this Agreement; or (d) take any action
which would reduce or restrict the availability of surplus (excess of plan
assets over plan liabilities) under any defined benefit plan as defined in
Section 414(j) of the Code.
6. Nonqualified Deferred Compensation Plans. For all nonqualified deferred
compensation plans maintained by CNB Bancshares, Fifth Third will (a) not
terminate the plan without the written consent of a majority of the
participants, (b) maintain investment alternatives in the same categories as
those now available to participants, (c) not require participants to alter their
distribution elections, (d) provide participants or beneficiaries at least
quarterly statements on their accounts, and (e) take no action which would
otherwise jeopardize the tax deferral of benefits under the nonqualified
deferred compensation plan.
7. Retiree Health Plans. Fifth Third will continue to maintain (i) the
retiree health plan maintained by CNB Bancshares for the individuals who are
listed in the Disclosure Schedule, and (ii) the health plan for disabled
employees who are listed in the Disclosure Schedule and/or merge such plans with
the retiree medical plans provided by Fifth Third.
8. Short Term Incentive Plan and Bonus. Bonuses will be paid by CNB
Bancshares in its cash bonus plan at a rate of 8% of compensation for the
calendar year 1999. Short Term Incentive Plan ("STIP") distributions for the
calendar year 1999 will be made at the maximum level permitted under the STIP.
Employees of CNB Bancshares and the subsidiaries of CNB Bancshares who are
terminated on or after the date of this Agreement and before January 1, 2000,
will receive a pro rata portion of the bonus and/or STIP distribution they
otherwise would have received for the calendar year 1999. Bonuses and
distributions under the STIP will be paid on or before December 31, 1999.
9. With the advance written consent of Fifth Third (which shall not be
unreasonably withheld), CNB Bancshares may amend the CNB Bancshares, Inc.
Employees' Pension Plan to provide that (i) compensation through December 31,
1999 shall be taken into account notwithstanding an earlier freeze or
termination of said plan and (ii) if a participant is involuntarily terminated
on or after the date of this Agreement, his compensation for purposes of the
plan will be calculated as if such participant worked through December 31, 1999
based on his rate of pay as of his termination of employment.
10. Defined Benefit Plan Surplus. The amount of the surplus in the CNB
Bancshares defined benefit plan will be calculated on a plan termination basis,
as of the Effective Time, as mutually agreed by CNB Bancshares and Fifth Third's
actuaries. An amount equal to 50% of the surplus in excess of $6,000,000 will be
used to provide enhanced benefits for (i) employees of CNB Bancshares and the
subsidiaries of CNB Bancshares who are employed by Fifth Third on December 31,
2000 and (ii) employees of CNB Bancshares and the subsidiaries of CNB Bancshares
who are involuntarily terminated on or after the date of this
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Agreement and prior to December 31, 2000. Said 50% share of the surplus in
excess of $6,000,000 shall be reduced by (i) the potential liability determined
in good faith by Fifth Third arising from the breach of any representations and
warranties in Section II.Q., to be determined by Fifth Third as soon as
practicable after the date hereof, but in no event later than fifteen (15) days
prior to the Effective Time, and (ii) the actuarial cost (if any) determined in
good faith by Fifth Third's actuaries of the amendments referred to in Section
V.E. providing for immediate vesting, lump sum distributions and the inclusion
of compensation through December 31, 1999. The enhanced benefits will be payable
within the defined benefit plan and the nature of those benefits will be
determined by the management of CNB Bancshares subject to the approval of Fifth
Third (which approval shall not be unreasonably withheld.)
11. Employees employed by Fifth Third after the Effective Time will be
entitled to a flex dollar allocation of not less than 6% of such employees'
qualifying compensation (or an allocation comparable thereto) under the Fifth
Third Section 125 Plan allocable over the pay periods in the year 2000 (falling
after the Effective Time) in accordance with the terms of said plan.
F. State Takeover Statutes. CNB Bancshares will take all steps within its
reasonable control necessary to exempt (or continue the exemption of) the
Merger, this Agreement and the Option Agreement and the transactions
contemplated hereby and thereby (including, without limitation, exercise of the
Option (as defined therein)) from any applicable state takeover law, as now or
hereafter in effect.
G. Affiliates. 1. Not later than the 15th day prior to the mailing of CNB
Bancshares' Proxy Statement with respect to the Merger, CNB Bancshares shall
deliver to Fifth Third a list of each person that, to the best of CNB
Bancshares' knowledge, is or is reasonably likely to be, as of the date of the
annual or special meeting called to approve the Merger, deemed an "affiliate" of
it as that term is used in Rule 145 under the Securities Act, or SEC Accounting
Series Releases 130 and 135 (the "CNB Bancshares Affiliates"). CNB Bancshares
shall use its best efforts to cause each CNB Bancshares Affiliate to execute and
deliver to Fifth Third on or before the mailing of such Proxy Statement an
agreement in the form of Appendix B hereto.
2. Fifth Third shall use its best efforts to cause each person who may be
deemed to be an "affiliate" of it as that term is used in Rule 145 under the
Securities Act, or SEC Accounting Series Releases 130 and 135, as the case may
be, to execute and deliver to Fifth Third on or before the date of mailing of
the Proxy Statement an agreement in the form of Appendix C hereto.
H. Exemption from Liability Under Section 16(b). Assuming that CNB
Bancshares delivers to Fifth Third the Section 16 Information in a timely
fashion prior to the Effective Time, the Board of Directors of Fifth Third, or a
committee of Non-Employee Directors thereof (as such term is defined for
purposes of Rule 16b-3(d) under the Exchange Act), shall reasonably promptly
thereafter and in any event prior to the Effective Time adopt a resolution,
expressly relying on CNB Bancshares' representation that any such options or
other grants were upon their issuance exempt from liability pursuant to Section
16(b) under the Exchange Act, providing that the receipt by the CNB Insiders of
Fifth Third Common Stock in exchange for shares of CNB Bancshares Common Stock,
and of options to purchase shares of Fifth Third Common Stock upon conversion of
options to purchase shares of CNB Bancshares Common Stock, in each case pursuant
to the transactions contemplated hereby and to the extent such securities are
listed in the Section 16 Information, are intended to be exempt from liability
pursuant to Section 16(b) under the Exchange Act; provided, however, that the
Board of Directors of Fifth Third will be under no obligation to adopt such a
resolution unless it may expressly rely on a written representation by CNB
Bancshares that any such options or other grants were, upon their issuance,
exempt from liability pursuant to Section 16(b) under the Exchange Act. "Section
16 Information" shall mean information accurate in all respects regarding the
CNB Insiders, the number of shares of CNB Bancshares Common Stock held by each
such CNB Insider and expected to be exchanged for Fifth Third Common Stock in
the Merger, and the number and description of the options to purchase shares of
CNB Bancshares Common Stock held by each such CNB Insider and expected to be
converted into options to purchase shares of Fifth Third Common Stock in
connection with the Merger. "CNB Insiders" shall mean those officers and
directors of CNB Bancshares who are subject to the reporting requirements of
Section 16(a) of the Exchange Act and who are listed in the Section 16
Information.
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I. Employment Agreement. Concurrently with the execution of this
Agreement, Fifth Third is entering into an employment agreement with Mr. James
J. Giancola, effective as of the Effective Time.
J. Forbearances of Fifth Third. From the date of this Agreement until the
Effective Time, Fifth Third will not, without the prior written consent of CNB
Bancshares, which consent shall not be unreasonably withheld or unreasonably
delayed: make any changes in its Second Amended Articles of Incorporation or
Code of Regulations in a manner adverse to the shareholders of CNB Bancshares;
make, declare, pay or set aside for payment any extraordinary cash dividends on
its own stock; or agree to, or make any commitment to, take any of the actions
prohibited by this Section V.J.
K. Coordination of Dividends. Fifth Third and CNB Bancshares shall
coordinate (on a mutually agreeable basis that will not materially impair
Deloitte & Touche LLP's ability to deliver the letters referred to in Section
VI.B.6.) the timing of the declaration and payment of dividends payable after
the date hereof so that Fifth Third and CNB Bancshares shareholders will receive
during each quarter fair dividends and in no event shall Fifth Third or CNB
Bancshares shareholders fail to receive a fair dividend, or receive more than
one fair dividend, during any quarter up to and including the quarter
immediately following the quarter during which the Effective Time occurs.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
A. Conditions to the Obligations of Each of the Parties.
The obligation of each of the parties hereto to consummate the transactions
provided for herein is subject to the fulfillment on or prior to the Effective
Time of each of the following conditions:
1. The shareholders of CNB Bancshares shall have duly approved the
Merger and the plan of merger contained within this Agreement in accordance
with and as required by law and in accordance with CNB Bancshares' Restated
Articles of Incorporation and Amended Bylaws.
2. All necessary governmental and regulatory orders, consents,
clearances and approvals and requirements shall have been secured and
satisfied for the consummation of such transactions, including without
limitation, those of the Federal Reserve System, the Ohio Division of
Financial Institutions, the Michigan Financial Institutions Bureau, and the
Federal Deposit Insurance Corporation to the extent required and, in the
case of Fifth Third's obligation, none of such orders, consents, clearances
and approvals and requirements shall be subject to a Burdensome Condition.
3. Any waiting period mandated by law in respect of the final
requisite approval by any applicable Regulatory Agency of the transaction
contemplated herein shall have expired.
4. No order or injunction of any federal or state agency or court
shall be in effect preventing, prohibiting or enjoining the transactions
contemplated by this Agreement.
5. Fifth Third shall have registered its shares of Fifth Third Common
Stock to be issued to the CNB Bancshares shareholders hereunder with the
SEC pursuant to the Securities Act, and with all applicable state
securities authorities. The registration statement with respect thereto
shall have been declared effective by the SEC and all applicable state
securities authorities and no stop order shall have been issued. The shares
of Fifth Third Common Stock to be issued to the CNB Bancshares shareholders
hereunder shall have been authorized for trading on the National Market
System of the National Association of Securities Dealers upon official
notice of issuance.
6. Fifth Third and CNB Bancshares shall have received from Deloitte &
Touche LLP, independent auditors for Fifth Third, letters, dated the date
of or shortly prior to each of the mailing date of the Proxy Statement and
the Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
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B. Additional Conditions to the Obligations of Fifth Third.
The obligation of Fifth Third to consummate the transactions provided for
herein is subject to the fulfillment at or prior to the Effective Time of each
of the following additional conditions unless waived by Fifth Third in a writing
delivered to CNB Bancshares which specifically refers to the condition or
conditions being waived:
1. All of the representations and warranties of CNB Bancshares set
forth in Article II of this Agreement shall be true and correct (subject to
the standard set forth in Section I.S.) both as of the date of this
Agreement and at and as of the Closing Date (as hereinafter defined) as if
each such representation and warranty was given on and as of the Closing
Date, except for any such representations and warranties made as of a
specified date, which shall be true and correct (subject to the standard
set forth in Section I.S.) as of such date.
2. CNB Bancshares shall have performed all of the obligations required
of it under the terms of this Agreement in all material respects.
3. Fifth Third shall have received a certificate from CNB Bancshares,
executed by its chief executive officer and chief financial officer, dated
the Closing Date, certifying to the best knowledge and belief of such chief
executive officer and chief financial officer of each that the conditions
set forth in Section VI.B.1. and VI.B.2. have been satisfied.
4. Fifth Third shall have received an opinion of Cleary, Gottlieb,
Steen & Hamilton, special counsel to Fifth Third, dated the Closing Date,
to the effect that, on the basis of facts, representations and assumptions
set forth in such opinion (a) the Merger constitutes a "reorganization"
within the meaning of Section 368 (a) of the Code and (b) that,
accordingly, no gain or loss will be recognized by Fifth Third as a result
of the Merger. In rendering such opinion, such counsel may require and rely
upon representations contained in letters from Fifth Third and CNB
Bancshares.
5. No investigation or action by any state or federal agency shall
have been threatened in writing or instituted seeking to enjoin or prohibit
or unwind the transactions contemplated hereby and no governmental action
or proceeding shall have been threatened or instituted before any court or
governmental body or authority, seeking to enjoin or prohibit or unwind,
the transactions contemplated hereby or seeking to impose material
sanctions or penalties as a result thereof (other than investigations,
actions and proceedings which have been withdrawn prior to the Closing
without Material Adverse Effect on Fifth Third or CNB Bancshares,
individually or on a combined basis, and other than regularly scheduled
regulatory examinations).
C. Additional Conditions to the Obligations of CNB Bancshares.
The obligation of CNB Bancshares to consummate the transactions provided
for herein is subject to the fulfillment at or prior to the Effective Time of
each of the following additional conditions unless waived by CNB Bancshares in a
writing delivered to Fifth Third which specifically refers to the condition or
conditions being waived:
1. All of the representations and warranties of Fifth Third set forth
in Article II of this Agreement shall be true and correct (subject to the
standard set forth in Section I.S.) both as of the date of this Agreement
and at and as of the Closing Date (as hereinafter defined) as if each such
representation and warranty was given on and as of the Closing Date, except
for any such representations and warranties made as of a specified date,
which shall be true and correct (subject to the standard set forth in
Section I.S.) as of such date.
2. Fifth Third shall have performed all of the obligations required of
it under the terms of this Agreement in all material respects.
3. CNB Bancshares shall have received a certificate from Fifth Third,
executed by its chief executive officer and chief financial officer, dated
the Closing Date, certifying to each of such officers'
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best knowledge and belief that the conditions set forth in Section VI.C.1.
and VI.C.2. have been satisfied.
4. CNB Bancshares shall have received an opinion of Lewis, Rice &
Fingersh, L.C., counsel to CNB Bancshares, dated the Closing Date, to the
effect that, on the basis of facts, representations and assumptions set
forth in such opinion (a) the Merger constitutes a "reorganization" within
the meaning of Section 368 (a) of the Code and (b) that, (i) no gain or
loss will be recognized by CNB Bancshares as a result of the Merger and
(ii) no gain or loss will be recognized by stockholders of CNB Bancshares
who receive Fifth Third Common Stock in exchange for shares of CNB
Bancshares Common Stock, except for cash received in lieu of fractional
share interests. In rendering such opinion, such counsel may require and
rely upon reasonable assumptions and require and rely upon representations
contained in letters from Fifth Third and CNB Bancshares.
ARTICLE VII
ADDITIONAL COVENANTS
A. Bank Merger. The Bank Subsidiary shall be merged with Fifth Third Bank,
Indiana, to be effective at the Effective Time. The parties hereto agree to
cooperate with one another to effect such merger. Upon consummation of any
merger of the Bank Subsidiary, the separate corporate existence of the Bank
Subsidiary shall cease by operation of law.
B. Employment Arrangements. 1. Fifth Third shall use its best efforts to
employ at Fifth Third or other Fifth Third subsidiaries or affiliates as many of
the employees of CNB Bancshares and all of the subsidiaries of CNB Bancshares
who desire employment within the Fifth Third holding company system as possible,
to the extent of available positions and consistent with Fifth Third's standard
staffing levels and personnel policies. Immediately following the Effective
Time, Fifth Third shall provide the employees of CNB Bancshares and all
subsidiaries of CNB Bancshares ("Transferred Employees") who become employees of
Fifth Third or any of its subsidiaries or affiliates at or immediately
subsequent to the Merger as a group with employee benefit plans in the aggregate
that are comparable in all material respects with the employee benefit plans
provided to similarly situated employees of Fifth Third. Under each employee
benefit plan sponsored or maintained by Fifth Third or its subsidiaries or
affiliates in which Transferred Employees participate, prior service with CNB
Bancshares and any of the subsidiaries of CNB Bancshares (including service
prior to acquisition by CNB Bancshares to the extent CNB Bancshares takes such
service into account) shall be taken into account for purposes of eligibility,
vesting and, with the exception of any defined benefit plan, the accrual of
benefits. In addition, with respect to any payroll practice (such as accrued
vacation) where service is utilized to determine the amount of benefit under
such practice, prior service with CNB Bancshares and any subsidiaries of CNB
Bancshares (including service prior to acquisition by CNB Bancshares to the
extent CNB Bancshares takes such service into account) shall be taken into
account. With respect to any employee of CNB Bancshares subsidiaries of CNB
Bancshares who is not employed by Fifth Third or one of its subsidiaries or
affiliates as of the Effective Time, Fifth Third shall be responsible for
providing continuation coverage to such employee (and his or her dependents), as
required by COBRA. With respect to any former employee of CNB Bancshares or the
CNB Subsidiaries (or their dependents) who is receiving continuation coverage
under COBRA as of the Effective Time, Fifth Third shall be responsible to
maintain such continuation coverage in compliance with COBRA. Notwithstanding
the above, there will be no duplication of benefits for employees of CNB
Bancshares and the subsidiaries of CNB Bancshares. Transferred Employees shall
be entitled to a flex dollar allocation (or an allocation comparable thereto)
under the Fifth Third Section 125 Plan allocable over the pay periods in the
year 2000 (falling after the Effective Time) in accordance with the terms of
said plan.
2. Those employees of CNB Bancshares and the subsidiaries of CNB Bancshares
who do not have an employment, change in control or severance agreement and who
are not employed by Fifth Third or who are terminated or voluntarily resign
after being notified that, as a condition of employment, such employee must work
at a location more than thirty (30) miles from such employee's former location
of employment or that such employee's salary will be materially decreased, in
any case and in both cases, within ninety (90) days
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after the Effective Time, and who sign and deliver a termination and release
agreement in a form acceptable to Fifth Third, shall be entitled to severance
pay equal to, in the case of CNB Bancshares or subsidiaries of CNB Bancshares,
two (2) weeks of pay for each completed year of service (with a minimum of four
(4) weeks) up to a maximum of twenty-six (26) weeks of pay, plus any earned but
not paid vacation pay. Fifth Third shall provide sufficient notification to CNB
Bancshares of those employees it will not be hiring in order that such employees
terminated by CNB Bancshares can be given appropriate notice of termination in
advance of the effectiveness thereof. CNB Bancshares shall cooperate with Fifth
Third to effectuate the foregoing and to comply with, and provide notices
regarding, the Workers Adjustment and Retraining Act or any similar state or
local law, including without limitation, providing notices to employees and
government representatives. Nothing contained in this Section VII.B.2. shall be
construed or interpreted to limit or modify in any way Fifth Third's at will
employment policy.
3. Notwithstanding anything herein to the contrary, in lieu of any
severance benefits provided in Section VII.B.2. above, Fifth Third shall
acknowledge and assume, upon consummation of the Merger, the obligations of CNB
Bancshares under all existing change in control and employment agreements
specifically identified by CNB Bancshares in Section VII.B.3. of the Disclosure
Schedule.
4. Effective at the Effective Time, Fifth Third shall establish a retention
program (the "Retention Program") for key employees of CNB Bancshares or the CNB
Subsidiaries under which certain key employees will be granted options on the
Effective Date to purchase shares of Fifth Third Common Stock. The number of
shares of Fifth Third Common Stock which will be reserved for issuance under the
Retention Program shall be 250,000 shares, subject to the adjustment provided in
Section I.E. hereof. Such options will vest on the same schedule as those
options regularly granted to Fifth Third's employees. CNB Bancshares' management
team shall recommend key employees that may be eligible for grant of an award
under the Retention Program and shall cooperate with Fifth Third's management
team in identifying and determining the key employees who will participate in
the Retention Program, provided that the final determination of which employees
will participate and the amount, terms and conditions of such awards will be
determined by Fifth Third in its sole discretion.
C. Director, Officer and Employee Indemnification. 1. From and after the
Effective Time, Fifth Third shall assume the obligations of CNB Bancshares and
the Bank Subsidiary or any of their subsidiaries arising under applicable Ohio,
Michigan, Indiana and Federal law in existence as of the date hereof or as
amended prior to the Effective Time and under the CNB Bancshares' Restated
Articles of Incorporation and Amended By-laws or the Bank Subsidiary's Articles
of Incorporation and Bylaws as in effect on the date hereof, to indemnify,
defend and hold harmless each person who is now, or has been at any time prior
to the date hereof or who become, prior to the Effective Time, an officer or
director of CNB Bancshares, the Bank Subsidiary, or any of their subsidiaries or
predecessors (the "Indemnified Parties") against losses, claims, damages, costs,
expenses (including reasonable attorneys' fees), liabilities or judgments or
amounts that are paid in settlement (which settlement shall require the prior
written consent of Fifth Third) of or in connection with any claim, action,
suit, proceeding or investigation (a "Claim") in which an Indemnified Party is,
or is threatened to be made, a party or a witness based in whole or in part on
or arising in whole or in part out of the fact that such person is or was a
director or officer of CNB Bancshares, the Bank Subsidiary or any of their
subsidiaries if such Claim pertains to any matter or fact arising, existing or
occurring prior to the Effective Time (including, without limitation, the Merger
and the transactions contemplated by this Agreement), regardless of whether such
Claim is asserted or claimed prior to, at or after the Effective Time. Fifth
Third shall pay expenses in advance of the final disposition of any such action
or proceeding to each Indemnified Party to the full extent permitted by law and
under CNB Bancshares' Restated Articles of Incorporation or Amended By-laws or
the Bank Subsidiary's Articles of Incorporation or Bylaws. Fifth Third's
assumption of the indemnification obligations of CNB Bancshares, the Bank
Subsidiary or any of their subsidiaries as provided herein shall continue for
the period of the applicable statute of limitations after the Effective Time or,
in the case of claims asserted prior to the fifth anniversary of the Effective
Time until such matters are finally resolved. Any Indemnified Party wishing to
claim indemnification under this provision, upon learning of any Claim shall
notify Fifth Third (but the failure to so notify Fifth Third shall not relieve
Fifth Third from any liability which Fifth Third may have under this Section
VII.C. except to the
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extent Fifth Third is materially prejudiced thereby). Notwithstanding the
foregoing, the Indemnified Parties as a group may retain only one law firm to
represent them with respect to each matter under this Section VII.C. unless
there is, under applicable standards of professional conduct, a conflict on any
one significant issue between the positions of any two or more Indemnified
Parties.
2. From and after the Effective Time, the directors, officers and employees
of CNB Bancshares and its subsidiaries who become directors, officers or
employees of Fifth Third or any of its subsidiaries, except for the
indemnification rights set forth in Section VII.C.1., shall have indemnification
rights with prospective application only. The prospective indemnification rights
shall consist of such rights to which directors, officers or employees of Fifth
Third or the subsidiary by which such person is employed are entitled under the
provisions of the Articles of Incorporation of Fifth Third or similar governing
documents of Fifth Third or its applicable subsidiaries, as in effect from time
to time after the Effective Time, as applicable, and provisions of applicable
law as in effect from time to time after the Effective Time.
3. The obligations of Fifth Third provided under this Section VII.C. are
intended to benefit, and be enforceable against Fifth Third directly by, the
Indemnified Parties, and shall be binding on all respective successors of Fifth
Third.
4. Fifth Third shall also purchase and keep in force for a six (6) year
period, a policy of directors' and officers' liability insurance to provide
coverage for acts or omissions of the type currently covered by CNB Bancshares'
existing directors' and officers' liability insurance for acts or omissions
occurring on or prior to the Effective Time, but only to the extent such
insurance may be purchased or kept in full force on commercially reasonable
terms taking into account the cost thereof and the benefits provided thereby. It
is agreed that such costs shall be commercially reasonable so long as they do
not exceed 100% per annum of the costs currently paid per annum for such
coverage by CNB Bancshares.
5. The rights set forth in this Section VII.C. are in addition to and not
in substitution of other indemnification and related rights that such
Indemnified Parties may otherwise be entitled to receive under CNB Bancshares'
Restated Articles of Incorporation, Amended By-laws or applicable law.
D. Notices. All notices, requests, consents, and demands under this
Agreement shall be in writing and shall be sufficient in all respects if
delivered in person or mailed by certified mail, return receipt requested, with
postage prepaid, or by confirmed air courier, and addressed, if to CNB
Bancshares to Mr. James J. Giancola, President and CEO, CNB Bancshares, Inc., 20
NW Third Street, Evansville, Indiana 47739, with a copy to Thomas C. Erb, Esq.,
Lewis, Rice & Fingersh, 500 North Broadway, St. Louis, Missouri 63102; and, if
to Fifth Third, to Mr. George A. Schaefer, Jr., President and Chief Executive
Officer, Fifth Third Bancorp, 38 Fountain Square Plaza, Cincinnati, Ohio 45263,
with a copy to Paul L. Reynolds, Esq., Senior Vice President and General
Counsel, Fifth Third Bank, Legal Division, 38 Fountain Square Plaza, M.D.
10AT76, Cincinnati, Ohio 45263, with a copy to Victor I. Lewkow, Esq., Cleary,
Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York 10006. Such
notices shall be deemed to be received when delivered in person or when
deposited in the mail by certified mail, return receipt requested with postage
prepaid. If sent by confirmed air courier, such notice shall be deemed to be
given upon the earlier to occur of the date upon which it is actually received
by the addressee or the business day upon which delivery is made at such address
as confirmed by the air courier (or if the date of such confirmed delivery is
not a business day, the next succeeding business day). If mailed, such notice
shall be sent by certified mail, postage pre-paid, return receipt requested.
E. Entire Agreement. This Agreement, together with the written instruments
specifically referred to herein and such other written agreements delivered by
Fifth Third or CNB Bancshares to each other pursuant hereto, constitute the
entire agreement between the parties with regard to the transactions
contemplated herein and supersede any prior agreements, whether oral or in
writing. This Agreement may be hereafter amended only by a written instrument
executed by each of the parties pursuant to Article X hereof.
F. Electronic Funds Transfers. CNB Bancshares and the Bank Subsidiary
shall cooperate with Fifth Third in providing for the conversion of all of CNB
Bancshares' electronic funds transfer related services to MPS and the Jeanie(R)
system at, or as soon as practicable after, the Effective Time.
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G. Press Releases. Fifth Third and CNB Bancshares shall agree with each
other as to the form and substance of any press release related to this
Agreement or the transactions contemplated hereby and thereby, and shall consult
with each other as to the form and substance of other public disclosures related
thereto, provided, however, that nothing contained herein shall prohibit either
party from making any disclosure which its outside counsel deems required by
law.
H. Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing expenses for the Proxy Statement and Registration Statement and
SEC filing and registration fees shall be shared equally between Fifth Third and
CNB Bancshares.
I. Advice of Changes. 1. Between the date hereof and the Closing Date, CNB
Bancshares shall promptly advise Fifth Third in writing of any fact that, 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 that, if existing
or known at the date hereof, would have made any of the representations
contained herein untrue to any material extent; provided, that no such
disclosure shall affect or modify any representation or warranty of CNB
Bancshares contained herein or made pursuant hereto.
2. Between the date hereof and the Closing Date, Fifth Third shall promptly
advise CNB Bancshares in writing of any fact that, 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 that, if existing or known at the date
hereof, would have made any of the representations contained herein untrue to
any material extent; provided, that no such disclosure shall affect or modify
any representation or warranty of Fifth Third contained herein or made pursuant
hereto.
3. Each party hereto will promptly notify the other party in writing of the
occurrence of any event which will or may result in the failure to satisfy any
material condition precedent set forth in this Agreement. Between the date of
this Agreement and the Closing Date, each party hereto will notify the other of
the satisfaction of such material conditions precedent as they occur.
J. Tax and Accounting Treatment. Neither Fifth Third nor CNB Bancshares
will take any action while knowing that such action would, or is reasonably
likely to, prevent or impede the Merger from qualifying as a "reorganization"
within the meaning of Section 368(a) of the Code or as a "pooling of interests"
for accounting purposes.
K. Enforcement of this Agreement. The parties hereto agree that
irreparable damage would occur in the event that 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 this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to any
other remedy to which any party is entitled at law or in equity.
ARTICLE VIII
TERMINATION
A. Bases for Termination. This Agreement may be terminated at any time
prior to the Effective Time by written notice delivered by Fifth Third to CNB
Bancshares or by CNB Bancshares to Fifth Third in the following instances:
1. By Fifth Third or CNB Bancshares, if there has been to the extent
contemplated in Section VI.B.1. or VI.B.2. or Section VI.C.1. or VI.C.2.
herein, as the case may be, a breach of a representation or warranty
(subject to the standard in Section I.S.) or a material breach of any
covenant on the part of the other party with respect to the
representations, warranties, and covenants set forth herein and such breach
has not been cured within thirty (30) days after receipt of written notice
or is not capable of being cured, provided, the party in breach or default
shall have no right to terminate for its
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own breach or default. For purposes hereof, a breach of Sections IV.A. or
IV.B. will be deemed not capable of being cured.
2. By Fifth Third or CNB Bancshares, if the merger transaction
contemplated herein has not been consummated by April 1, 2000, provided the
terminating party is not in material breach or default of any
representations, warranty or covenant contained herein on the date of such
termination.
3. By the mutual written consent of Fifth Third and CNB Bancshares.
4. By Fifth Third if any event occurs which renders impossible of
satisfaction one or more of the conditions to the obligations of Fifth
Third to effect the Merger set forth in Sections VI.A. and VI.B. herein and
non-compliance is not waived by Fifth Third.
5. By CNB Bancshares if any event occurs which renders impossible of
satisfaction one or more of the conditions of the obligations of CNB
Bancshares to effect the Merger as set forth in Sections VI.A. and VI.C.
herein and non-compliance is not waived by CNB Bancshares.
6. By Fifth Third if the Board of Directors of CNB Bancshares shall
have publicly announced its withdrawal or modification in a manner adverse
to Fifth Third of its favorable recommendation of the Merger.
7. By Fifth Third or CNB Bancshares if CNB Bancshares shareholders,
acting at a meeting held for the purpose of voting upon the Merger, vote
not to approve the Merger in the manner required by law.
B. Effect of Termination. Upon termination as provided in this Article
VIII, this Agreement, except for the provisions of Sections V.D.2. and VII.H.
hereof, shall be void and of no further force or effect, and neither party
hereto (nor any of their respective officers, directors or subsidiaries) shall
have any liability of any kind to the other party including but not limited to
liability for expenses incurred by the other party in connection with this
transaction; provided that no such termination shall relieve a breaching party
from liability for any uncured willful breach of a covenant, undertaking,
representation or warranty giving rise to such termination, but in no event
shall any party be liable for punitive or exemplary damages. Termination of this
Agreement shall not affect the Option Agreement except as set forth therein.
ARTICLE IX
CLOSING AND EFFECTIVE TIME
The consummation of the transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at the offices of Fifth Third
in Cincinnati, Ohio on a Friday selected by Fifth Third which is not more than
15 days after the satisfaction or waiver of all of the conditions precedent to
consummation of the Merger set forth in Article VI hereof (other than those
conditions which by their nature cannot be satisfied until the Closing),
including the expiration of all regulatory waiting periods, have been fully met
or effectively waived (the "Closing Date"). Pursuant to the filing of a
certificate or articles of merger (which shall be prepared by Fifth Third and
reasonably satisfactory to CNB Bancshares) with the Secretary of State of the
State of Ohio and the State of Indiana, respectively, in accordance with law and
this Agreement, the Merger provided for herein shall become effective at the
close of business on said day (the "Effective Time"). By mutual agreement of the
parties, the closing may be held at any other time or place or on any other date
and the effectiveness of the Merger (and the Effective Time) may be changed by
such mutual agreement. None of the representations, warranties and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for agreements of the parties which by their
terms are intended to be performed after the Effective Time.
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ARTICLE X
AMENDMENT
This Agreement may be amended, modified or supplemented by the written
agreement of CNB Bancshares and Fifth Third upon the authorization of each
company's respective Board of Directors at any time before or after approval of
the Merger and this Agreement by the shareholders of CNB Bancshares, but after
any such approval by the shareholders of CNB Bancshares no amendment shall be
made (without further shareholder approval) which changes in any manner adverse
to such shareholders the consideration to be provided to such shareholders
pursuant to this Agreement.
ARTICLE XI
GENERAL
Except to the extent that provisions of the IBCL are applicable to the
Merger, this Agreement was made in the State of Ohio and shall be interpreted
under the laws of the United States and the State of Ohio. Each of the parties
hereto irrevocably waives any and all right to trial by jury in any legal
proceeding arising out of or related to this Agreement or the transactions
contemplated hereby. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns but, with the exception of Section I.C.,
Section I.D. and Section VII.C., none of the provisions hereof shall be binding
upon and inure to the benefit of any other person, firm or corporation
whomsoever. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned or transferred by operation of law or
otherwise by any party hereto without the prior written consent of the other
party hereto; provided, however, that the merger or consolidation of Fifth Third
shall not be deemed an assignment hereunder if Fifth Third is the Surviving
Corporation in such merger or consolidation and its Common Stock shall
thereafter continue to be publicly traded and issuable to CNB Bancshares
shareholders pursuant to the terms of this Agreement. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
ARTICLE XII
COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original for all purposes but such counterparts taken
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereinabove set forth.
FIFTH THIRD BANCORP
(SEAL) By: /s/ NEAL E. ARNOLD
------------------------------------
Attest: /s/ PAUL L. REYNOLDS
----------------------------------
CNB BANCSHARES, INC.
(SEAL) By: /s/ JAMES J. GIANCOLA
------------------------------------
Attest: /s/ H. LEE COOPER
----------------------------------
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ANNEX B
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated June 16, 1999 between CNB Bancshares, Inc.,
an Indiana corporation ("Issuer"), and Fifth Third Bancorp, an Ohio corporation
("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Affiliation Agreement of
even date herewith (the "Affiliation Agreement"), which agreement has been
executed by the parties hereto concurrently with this Stock Option Agreement
(the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Affiliation
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Affiliation Agreement, the parties
hereto agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 6,921,479 fully paid and nonassessable shares of Issuer's common stock,
without par value (the "Common Stock"), at a price of $42.96 per share (the
"Option Price"); provided, however, that in the event Issuer issues or agrees to
issue any shares of Common Stock (other than as permitted under the Affiliation
Agreement) at a price less than the Option Price (as adjusted pursuant to
Section 5), the Option Price shall be equal to such lesser price; provided,
further, that in no event shall the number of shares of Common Stock for which
this Option is exercisable exceed 19.9% of the Issuer's issued and outstanding
shares of Common Stock at the time of exercise without giving effect to any
shares subject or issued pursuant to the Option. The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option Price
is subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than an event described in Section 5
hereof), the number of shares of Common Stock subject to the Option shall be
increased so that, after such issuance, such number (including the number of
shares theretofor issued pursuant to this Option) equals 19.9% of the number of
shares of Common Stock then issued and outstanding without giving effect to any
shares subject or issued pursuant to the Option. Nothing contained in this
Section 1(b) or elsewhere in this Agreement shall be deemed to authorize Issuer
to breach any provision of the Affiliation Agreement.
2. Exercise; Closing. (a) The Holder (as defined below) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as defined below) and a Subsequent Triggering Event
(as defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have sent
written notice of such exercise (as provided in subsection (f) of this Section
2) within 180 days following such Subsequent Triggering Event (or such later
period as provided in Section 10).
(b) Each of the following shall be an "Exercise Termination Event":
(i) the Effective Time (as defined in the Affiliation Agreement) of
the Merger;
(ii) termination of the Affiliation Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event, except a termination by Grantee pursuant to
Section VIII.A.1. of the Affiliation Agreement (provided that the breach by
Issuer giving rise to the termination by Grantee under Section VIII.A.1. of
the Affiliation Agreement was willful (a "Listed Termination")); or
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(iii) the passage of 18 months after termination of the Affiliation
Agreement (or such later period as provided in Section 10) if such
termination (A) follows or is concurrent with the occurrence of an Initial
Triggering Event or (B) is a Listed Termination.
The term "Holder" shall mean Grantee and any other person that shall become
a holder of the Option in accordance with the terms of this Agreement.
Notwithstanding anything to the contrary contained herein, this Agreement shall
automatically terminate upon the proper termination of the Affiliation Agreement
by Issuer pursuant to Section VIII.A.1. thereof.
(c) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (each an "Issuer Subsidiary"), without having received Grantee's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary")
or the Board of Directors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any Acquisition Transaction (other
than the Merger referred to in the Affiliation Agreement). For purposes of
this Agreement, "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary of Issuer, (y) a purchase, lease or other
acquisition or assumption of all or a substantial portion of the assets or
deposits of Issuer or all or substantially all of the assets or deposits of
any Significant Subsidiary of Issuer, (z) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
beneficial ownership (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act, and the rules and regulations thereunder) of securities
representing 10% or more of the voting power of Issuer or more than 10% of
any Significant Subsidiary of Issuer; provided, however, that in no event
shall any merger, consolidation, purchase or similar transaction involving
only the Issuer and one or more of its wholly-owned Subsidiaries or
involving only any two or more of such wholly-owned Subsidiaries, be deemed
to be an Acquisition Transaction, if such transaction is not entered into
in violation of the terms of the Affiliation Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other than
Grantee or a Grantee Subsidiary or shall have authorized or engaged in, or
announced its intention to authorize or engage in, any negotiations
regarding an Acquisition Transaction with any person other than the Grantee
or a Grantee Subsidiary, or the Board of Directors of Issuer shall have
failed to recommend or shall have publicly withdrawn or modified, or
publicly disclosed that, in the absence of the Option it would withdraw or
modify, or publicly announced its intention to withdraw or modify, in any
manner adverse to Grantee, its recommendation that the stockholders of
Issuer approve the Merger;
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger and the plan of merger contained in the Affiliation
Agreement at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have been
held in violation of the Affiliation Agreement or shall have been canceled
prior to termination of the Affiliation Agreement if, prior to such meeting
(or if such meeting shall not have been held or shall have been canceled,
prior to such termination), any person (other than the Grantee or a Grantee
Subsidiary) shall have made a proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the subject
of public disclosure to engage in an Acquisition Transaction;
(iv) (a) Any person other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
its business, shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the then outstanding shares
of Common Stock
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or (b) any group (the term "group" having the meaning assigned in Section
13(d)(3) of the Exchange Act), other than a group of which the Grantee or
any Grantee Subsidiary is a member, shall have been formed that
beneficially owns 10% or more of the shares of Common Stock then
outstanding;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
made a bona fide proposal to Issuer or its stockholders to engage in an
Acquisition Transaction and such proposal shall have been publicly
announced;
(vi) After a proposal is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction or such third party
states its intention to make such a proposal if the Affiliation Agreement
terminates, Issuer shall have willfully breached any covenant or obligation
contained in the Affiliation Agreement and such breach would entitle
Grantee to terminate the Affiliation Agreement (without regard to the cure
period provided for therein); or
(vii) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed with any federal or state regulatory or
governmental authority an application for approval or notice of intention
to engage in an Acquisition Transaction.
(d) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person or by a group other than Grantee,
any Grantee Subsidiary or any Issuer Subsidiary acting in a fiduciary
capacity in the ordinary course of its business, of beneficial ownership of
25% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (c) of this Section 2, except that references
to 10% in clause (z) shall be 25%.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(f) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and the
aggregate purchase price as provided herein and (ii) a place and date not
earlier than three business days nor later than 60 business days from the Notice
Date for the closing of such purchase (the "Closing Date"); provided that if
prior notification to or approval of the Federal Reserve Board or any other
regulatory agency is required in connection with such purchase, the Holder shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer and present and
surrender this Agreement to Issuer at its principal executive offices; provided
that failure or refusal of Issuer to designate such a bank account shall not
preclude the Holder from exercising the Option.
(h) At such closing subject to any regulatory notification and/or approval
having been made or given and being in full force and effect, simultaneously
with the delivery of immediately available funds as provided in subsection (g)
of this Section 2, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock purchased by the
Holder and, if the Option should be exercised in part only, a new Option
evidencing the rights of the Holder thereof to purchase the balance of the
shares of Common Stock purchasable hereunder, and the Holder shall deliver to
Issuer this Agreement and a letter
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agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities Act"),
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Issuer, to the effect that such legend is
not required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares of Common Stock
delivered pursuant hereto have been sold or transferred in compliance with the
provisions of this Agreement under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of any necessary regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its permitted assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
herein, Issuer agrees: (i) that it shall at all times maintain, free from
subscriptive or preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA") or the Change in Bank Control Act of 1978, as
amended, or any state or other federal banking law, prior approval of or notice
to the Federal Reserve Board or to any state or other federal regulatory
authority is necessary before the Option may be exercised, cooperating fully
with the Holder in preparing such applications or notices and providing such
information to the Federal Reserve Board or such state or other federal
regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer to duly and effectively issue shares of Common
Stock pursuant hereto; (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution; and (v) not to enter or agree
to enter into any Acquisition Transaction unless the other party or parties
thereto agree to assume in writing all of Issuer's obligations hereunder;
provided that nothing in this Section 3 or elsewhere in this Agreement shall be
deemed to authorize Issuer to breach any provision of the Affiliation Agreement.
Notwithstanding any notice of revocation delivered pursuant to the proviso to
Section 7(c), a Holder may
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require such other party or parties to perform Issuer's obligations under
Section 7(a) unless such other party or parties are prohibited by law or
regulation from such performance.
4. Exchange; Replacement. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustments. In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding. Whenever the number of shares of Common Stock
purchasable upon exercise hereof is adjusted as provided in this Section 5, the
Option Price shall be adjusted by multiplying the Option Price by a fraction,
the numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the number of shares of Common Stock purchasable after the adjustment.
6. Registration. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within twelve (12) months (or such later period as provided in
Section 10) of such Subsequent Triggering Event (whether on its own behalf or on
behalf of any subsequent holder of this Option (or part thereof) or any of the
shares of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any shares
issued and issuable pursuant to this Option and shall use its reasonable best
efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for a period not in excess of 180
days from the day such registration statement first becomes effective or such
shorter time as may be reasonably necessary, in the judgment of the Grantee or
the Holder, to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The Issuer shall bear the costs of such
registrations (including, but not limited to, Issuer's attorneys' fees, printing
costs and filing fees, except for underwriting discounts or commissions,
brokers' fees). The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of Common
Stock, and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Holder's Option or Option Shares would interfere
with the successful marketing of the shares of Common Stock offered by Issuer,
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; provided, however, that after any
such required reduction of the number of Option Shares to be included in such
offering for the account of the Holder shall constitute at least 25% of the
total number of shares to be sold by the Holder and
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Issuer in the aggregate; and provided further, however, that if such reduction
occurs, then the Issuer shall file a registration statement for the balance of
such shares of Common Stock issuable pursuant to this Option as promptly as
practical following such reduction and no reduction in the number of shares of
Common Stock to be sold by the Holder shall thereafter occur. Each such Holder
shall provide all information reasonably requested by Issuer for inclusion in
any registration statement to be filed hereunder. If requested by any such
Holder in connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in secondary offering
underwriting agreements for the Issuer. Upon receiving any request under this
Section 6 from any Holder, Issuer agrees to send a copy thereof to any other
person known to Issuer to be entitled to registration rights under this Section
6, in each case by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies. Notwithstanding anything
to the contrary contained herein, in no event shall the number of registrations
that Issuer is obligated to effect pursuant to this Section 6 be increased by
reason of the fact that there shall be more than one Holder as a result of any
assignment or division of this Agreement.
7. Repurchase of Option and/or Option Shares. (a) At any time after the
occurrence of a Repurchase Event (as defined below), (i) at the request of the
Holder, delivered prior to an Exercise Termination Event (or such later period
as provided in Section 10), Issuer (or any successor thereto) shall repurchase
the Option from the Holder at a price (the "Option Repurchase Price") equal to
the amount by which (A) the Market/ Offer Price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered prior to an Exercise Termination Event (or
such later period as provided in Section 10), Issuer shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the Market/Offer Price
multiplied by the number of Option Shares so designated. The term "Market/Offer
Price" shall mean the highest of (i) the price per share of Common Stock at
which a tender offer or exchange offer therefor has been made after the date
hereof, (ii) the price per share of Common Stock to be paid by any third party
pursuant to an agreement with Issuer, (iii) the highest closing price per share
of Common Stock as reported in the Wall Street Journal within the six-month
period immediately preceding the date on which the Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or a substantial portion of Issuer's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to the Issuer, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm mutually selected by the Holder or
Owner, as the case may be, and reasonably acceptable to the Issuer. The costs of
any such investment banking firm shall be paid equally by Issuer and such
Holders or Owners.
(b) The Holder or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares, as the case may be, in accordance with the provisions of this
Section 7. As promptly as practicable and in any event within five business days
after the surrender of the Option and/or certificates representing Option Shares
and the receipt of such notice or notices relating thereto, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price or the portion thereof that Issuer is
not then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter shall deliver or cause to be delivered,
from time to time,
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to the Holder and/or the Owner, as appropriate, that portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that it is
no longer prohibited from delivering, in each case within five business days
after the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as the case may be, the Option Repurchase Price or the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, or (B)
to the Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred prior to the
date of the notice by Issuer described in the first sentence of this subsection
(c), or shall be scheduled to occur at any time before the expiration of a
period ending on the thirtieth day after such date, the Holder shall nonetheless
have the right to exercise the Option until the expiration of such 30-day
period.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred upon the occurrence of any of the following events or transactions
after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(c)(i) hereof, except that the percentages referred to in clause
(z) shall be 50%.
8. Substitute Option. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or one of Grantee's Subsidiaries,
or engage in a plan of exchange with any person other than Grantee or one of
Grantee's Subsidiaries, and Issuer shall not be the continuing or surviving
corporation of such consolidation or merger or the acquiror in such plan of
exchange, (ii) to permit any person, other than Grantee or one of its
Subsidiaries, to merge into Issuer or be acquired by Issuer in a plan of
exchange and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger or plan of exchange, the then outstanding shares of
Common Stock shall be changed into or exchanged for stock or other securities of
any other person or cash or any other property or the then outstanding shares of
Common Stock shall after such merger or plan of exchange represent less than 50%
of the outstanding voting shares and voting share equivalents of the merged or
acquiring company, or (iii) to sell or otherwise transfer all or substantially
all of its or any Significant Subsidiary's assets to any person, other than
Grantee or one of its Subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provision so that the Option shall,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the Holder, of either (x) the Acquiring
Corporation (as defined below) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
person of a consolidation or merger with Issuer (if other than Issuer),
(ii) the acquiring person in a plan of exchange in which Issuer is
acquired, (iii) Issuer in a merger or plan of exchange in which Issuer is
the continuing,
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surviving or acquiring person, and (iv) the transferee of all or
substantially all of Issuer's assets or deposits.
(2) "Substitute Common Stock" shall mean the common stock (or similar
equity interest) issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the year immediately preceding the
consolidation, merger or sale in question but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as the Holder
may elect.
(c) The Substitute Option shall have the same terms as the Option;
provided, that if the terms of the Substitute Option may not, for legal reasons,
be the same as the Option, such terms shall be as similar as possible to the
terms of the Option and in no event less advantageous to the Holder. The issuer
of the Substitute Option shall also enter into an agreement with the then Holder
or Holders of the Substitute Option in substantially the same form as this
Agreement (after giving effect for such purpose to the provisions of Section 9),
which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a), and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be and reasonably acceptable to the Substitute Issuer,
and all fees and expenses of such investment banking firm shall be shared
equally.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. Repurchase of Substitute Option and/or Option Shares. (a) At the
request of the holder of the Substitute Option (the "Substitute Option Holder"),
the Substitute Option Issuer shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as defined below)
exceeds (ii) the exercise price of the Substitute Option, multiplied by the
number of shares of Substitute Common Stock for which the Substitute Option may
then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute
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Option or the Substitute Share Owner gives notice of the required repurchase of
the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise their respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal executive office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares, as the case may be, in
accordance with the provisions of this Section 9. As promptly as practicable,
and in any event within five business days after the surrender of the Substitute
Option and/or certificates representing Substitute Shares and the receipt of
such notice or notices relating thereto, the Substitute Option Issuer shall
deliver or cause to be delivered to the Substitute Option Holder the Substitute
Option Repurchase Price and/or to the Substitute Share Owner the Substitute
Share Repurchase Price or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer, following a request for repurchase pursuant
to this Section 9, shall immediately so notify the Substitute Option Holder
and/or the Substitute Share Owner and shall thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, that portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, in each case, within five
business days after the date on which the Substitute Option Issuer is no longer
so prohibited; provided, however, that if the Substitute Option Issuer at any
time after delivery of a notice of repurchase pursuant to subsection (b) of this
Section 9 is prohibited under applicable law or regulation, or as a consequence
of administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to receive all required
regulatory and legal approvals as promptly as practicable in order to accomplish
such repurchase), the Substitute Option Holder and/or Substitute Share Owner may
revoke its notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Common Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the expiration
of a period ending on the thirtieth day after such date, the Substitute Option
Holder shall nevertheless have the right to exercise the Substitute Option until
the expiration of such 30-day period.
10. Extension. The period for exercise of certain rights under Sections 2,
6, 7 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights (provided and for so long
as the Grantee or the Holder is using commercially reasonable efforts to obtain
such regulatory approvals), and for the expiration of all statutory waiting
periods; and (ii) to the extent necessary to avoid liability under Section 16(b)
of the 1934 Act by reason of such exercise.
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11. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been
duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests and not subject to
any preemptive rights.
(c) The execution, delivery and performance of this Agreement does not
or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or
violation of or a default under, its articles or certificate of
incorporation or by-laws, or the comparable governing instruments of any of
its subsidiaries, or (ii) a breach or violation of or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or to the best of Issuer's knowledge
under any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it or
any of its subsidiaries is subject.
(d) To the best of Issuer's knowledge neither Section 23-1-42 or
23-1-43 of the Indiana Business Corporation Law nor any other "fair price",
"moratorium", "control share acquisition" or other similar anti-takeover
statute or regulation enacted under state or federal laws in the United
States applicable to the Issuer or any of its Subsidiaries is applicable to
this Agreement or any of the transactions contemplated hereby.
12. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Assignment. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder; provided, however,
that until the date 15 days following the date on which the Federal Reserve
Board approves an application by Grantee under the BHCA to acquire the shares of
Common Stock subject to the Option, Grantee may not assign its rights under the
Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of Issuer, (iii) an assignment to a single party (e.g., a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Grantee's behalf, or (iv) any other manner approved by
the Federal Reserve Board.
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14. Voting. Except to the extent Grantee exercises the Option, Grantee
shall have no rights to vote or receive dividends or have any other rights as a
shareholder with respect to shares of Common Stock covered hereby.
15. Best Efforts. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to list the shares of Common Stock issuable hereunder on the New York Stock
Exchange upon official notice of issuance and, in the case of the Grantee,
applying to the Federal Reserve Board under the BHCA for approval to acquire the
shares issuable hereunder, but Grantee shall not be obligated to apply to state
banking authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
16. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief. In connection
therewith both parties waive the posting of any bond or similar requirement.
17. Severability. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 7, the full number of shares of
Common Stock provided in Section 1(a) hereof (as adjusted pursuant to Section
1(b) or 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
18. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Affiliation Agreement or such other address as
shall be provided in writing.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without regard to the conflict of
law principles thereof.
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
22. Entire Agreement. Except as otherwise expressly provided herein or in
the Affiliation Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
23. Captions; Capitalized Terms. The section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Affiliation Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
Fifth Third Bancorp
By /s/ NEAL E. ARNOLD
------------------------------------
Name: Neal E. Arnold
Title: Chief Financial Officer,
Executive Vice
President and Treasurer
By /s/ PAUL L REYNOLDS
------------------------------------
Name: Paul L. Reynolds
Title: Senior Vice President and
Assistant Secretary
CNB Bancshares, Inc.
By: /s/ JAMES J. GIANCOLA
------------------------------------
Name: James J. Giancola
Title: President and Chief
Executive Officer
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ANNEX C
DONALDSON, LUFKIN & JENRETTE LETTERHEAD
As of September 2, 1999
Board of Directors
CNB Bancshares, Inc.
20 N.W. 3rd Street
Evansville, IN 47739-0001
Members of the Board:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of CNB Bancshares, Inc. (the "Company") of the
consideration to be received by such shareholders pursuant to the terms of the
Affiliation Agreement dated June 16, 1999 (the "Agreement"), by and between
Fifth Third Bancorp ("Fifth Third") and the Company, pursuant to which the
Company will be merged (the "Merger") with and into Fifth Third.
Pursuant to the Agreement, each outstanding share of common stock of the
Company will be converted into the right to receive 0.8825 shares (the "Exchange
Ratio") of common stock, no par value per share (the "Fifth Third Common
Stock"), of Fifth Third. We understand that the Merger is conditioned upon,
among other things, receipt of opinions to the effect that the Merger will
qualify for treatment as a tax-free reorganization and as a pooling of interests
for accounting purposes. The terms of the Merger are more fully set forth in the
Agreement.
In arriving at our opinion, we have reviewed the Agreement and the exhibits
thereto. We also have reviewed financial and other information that was publicly
available or furnished to us by the Company including information provided
during discussions with management. During our discussion with management, we
were directed to use I/B/E/S earnings estimates and I/B/E/S long-term growth
rates for financial projections of the Company and Fifth Third for the period
beginning January 1, 1999 and ending December 31, 2003. In addition, we have
compared certain financial and securities data of the Company and Fifth Third
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of the common stock of
the Company and Fifth Third Common Stock, reviewed prices and premiums paid in
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion. We were not requested to, nor did we, solicit the interest of any other
party in acquiring the Company.
In rendering our opinion, we have relied upon and assumed without
independent verification the accuracy and completeness of all of the financial
and other information that was available to us from public sources, that was
provided to us by the Company and its representatives, or that was otherwise
reviewed by us. With respect to the financial projections used in our analysis,
we have assumed that they reflect the best currently available estimates and
judgments of the management of the Company as to the future operating and
financial performance of the Company. We have relied as to legal matters
involving the Merger on advice of counsel to the Company.
We are not experts in the evaluation of loan portfolios or allowances for
loan and real estate owned losses. We have relied upon the Company's valuation
of the loan portfolio and loan allowances. We have not independently verified
and have assumed that the aggregate allowances for loan losses set forth in the
balance sheets of each of the Company and Fifth Third at June 30, 1999 are
adequate to cover such losses and complied fully with applicable law, regulatory
policy and sound banking practice as of the date of such financial statements.
We were not retained to and we did not conduct a physical inspection of any of
the properties or facilities of the Company or Fifth Third, and we did not make
any independent evaluation or
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Board of Directors As of September 2, 1999
CNB Bancshares, Inc.
Page 2
appraisal of the assets, liabilities or prospects of the Company or Fifth Third,
were not furnished with any such evaluation or appraisal, and did not review any
individual credit files. In rendering our opinion, we have been advised by the
Company and have assumed that there are no other factors that would delay or
subject to adverse conditions any necessary regulatory or governmental approval
for the Merger, and we have assumed that all conditions to the Merger will be
satisfied and not waived.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Fifth Third Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger, as contrasted with
other business strategies which could be considered by the Company's Board of
Directors, nor does it address the Board's decision to proceed with the Merger.
Our opinion does not constitute a recommendation to any shareholder as to how
such shareholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of our
business we actively trade the debt and equity securities of companies,
including the Company and Fifth Third, for our own account and for the accounts
of customers and may hold a long or short position in such securities at any
time. DLJ has performed investment banking and other services for the Company
and Fifth Third in the past and has been compensated for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the shareholders of the
Company pursuant to the Agreement is fair to such shareholders from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ David D. Olson
------------------------------------
David D. Olson
Managing Director
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